| Raghunath Agro Industries Private Limited | ||||||
| Ratings upgraded to 'CRISIL A / CRISIL A1 '; outlook revised to 'Stable' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of Raghunath Agro Industries Pvt Ltd (RAIPL; part of the LT group) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Positive/CRISIL A2+’.
The upgrade follows a similar revision in the rating on the bank facilities of the parent, LT Foods Limited (LTF; rated 'CRISIL A/Stable/CRISIL A1').
The ratings continue to reflect strong financial, operational, and management support from LTF and the company's strong market position in the basmati rice industry, resulting in healthy sales growth and stable profitability, and a diversified geographical presence backed by an established marketing network and strong brands (Daawat in the domestic market and Royal in the US market) and an improving financial risk profile. These strengths are partially offset by large working capital requirement, a moderate total outside liabilities to tangible net worth (TOL/TNW) ratio, and susceptibility to volatile raw material prices and any unfavourable impact of changes in government policies. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support available to RAIPL from its parent, LTF. |
Key Rating Drivers & Detailed Description Strengths: * Strong financial, operational, and management support from LTF: DFL derives significant support from the parent, LTF, in terms of operational and financial requirements, and the diversified marketing network, also backed by synergies in business.
* Established market position and a long track record in the basmati rice industry: The promoters’ experience of five decades in the rice industry and the group’s established market position as one of the top three players in the domestic basmati rice industry, have led to consolidated turnover of Rs 4,150 crore in fiscal 2020 and Rs 3,499 crore in the first nine months of fiscal 2021 (Rs 2,948 crore in the first nine months of fiscal 2020). The strong distribution and procurement networks, growing branded business and longstanding relationships with key importers and customers, also lend stability to the business risk profile.
* Geographically diversified revenue profile with strong brand portfolio: The group is a globally reputed player in the rice industry, with an established market presence across more than 50 countries. It has a strong brand portfolio, with ‘Daawat’ being the most prominent brand in the domestic market.
* Improving financial risk profile: Aided by continuous reduction in debt levels with no major capital expenditure (capex) over the medium term and improving networth, total outside liabilities to tangible networth (TOLTNW) ratio is expected to continue to improve and remain below 1.2 times over the medium term.
Debt protection metrics are also healthy with interest coverage ratio of 3.8 times in fiscal 2020, which further improved to 6.4 times in the first nine months of fiscal 2021 (3.5 times in the first nine months of fiscal 2020). With continuous reduction in bank debt and significant interest cost reduction, the interest coverage ratio is expected to continue to improve over the medium term. Net cash accrual to adjusted debt ratio was 0.18 time in fiscal 2020 and is expected to continue to improve with expected reduction in debt and continued improvement in profit, over the medium term.
* Working capital-intensive operations: Gross current assets were high at around 226 days as on March 31, 2020, mainly driven by inventory of 175 days primarily on account of higher stocking at year end.
* Susceptibility to volatile raw material prices and regulatory changes: The group usually enters into an understanding with customers for supply of rice, though this is not binding. Hence, exposure to risks related to any steep decline in paddy prices, subsequent to procurement, remains high. Additionally, exports of agricultural commodities, including rice, are highly regulated. However, having strong brands, wide geographical reach and sourcing capabilities have helped the group maintain profitability. |
Liquidity: Strong Net cash accrual in fiscal 2020 was Rs 266 crore and is expected to be over Rs 325 crore for fiscal 2021. Debt repayment remains at Rs 30 crore over the next two years. The group does not envisage any big capex, only regular capex of around Rs 100 crore on annual basis.
Cash and cash equivalent was Rs 35 crore as on March 31, 2020. The average bank line utilisation remained moderate at 65% for the 12 months through January 2021. |
Outlook: Stable CRISIL Ratings believes the LT group's credit risk profile will continue to benefit from its established market position, strong brands and diverse geographical presence in the basmati rice industry and comfortable financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors:
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About the Company RAIPL processes rice at its facility in Amritsar with a capacity of 6 tph. It primarily produces raw and par-boiled rice under brands such as Devaya, Rozana, and Chef's Secretz. It is a majority owned subsidiary of LTF, which has a shareholding of 96%; the remaining is held by DFL. |
About the parent company LTF, established in 1990 by the Amritsar-based Arora family, mills, processes, and markets rice (largely basmati). The company has established brands in the domestic and international market, such as Daawat, Royal, Devaaya, Rozana, Heritage, and Chef's Secretz, varying from basic to premium quality. It has facilities in Haryana, Punjab, and Madhya Pradesh, with combined milling capacity of 106 tonne per hour (tph) and individual capacity of 58 tph. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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