Detailed Rationale

CRISIL Ratings has revised the outlook on the long-term bank facilities of Roquette India Private Limited (RIPL; formerly, Roquette Riddhi Siddhi Pvt Ltd) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘CRISIL AA-’. The rating on the short-term facilities has been reaffirmed at ‘CRISIL A1+’.

 

The revision in outlook factors in improvement in capital structure and operating performance. In November 2020, RIPL, in consultation with parent, Roquette Freres, France (RF; rated ‘A-/Stable/A-2’ by S&P Global Ratings) decided to impair its property, plant and equipment in two plants by ~Rs 534 crore. The impairment was done on account of disruptions caused by the pandemic, volatility in agro-based commodity prices and continuation of weaker performance against budgeted numbers for the past few years. Nevertheless, in June 2021, External commercial borrowings (ECBs) of Rs 478 crores from group companies were converted into equity. Post the conversion, total equity has increased to Rs 420 crore, from Rs negative Rs 97 as on March 31, 2021. Similarly, ECBs stand at Rs 581 crore and total debt at Rs 1032 crore as on July 31, 2021 against Rs 1112 crore and Rs 1514 crore as on March 31, 2021 respectively. 

 

Operating performance of the company has also improved with operating margin for 4-month period ended July-2021 being around 15%. This was driven by improvement in market position since the company is diversifying into specialty products like maltodextrin and increasing share of exports. Operating margins were also supported by favorable macroeconomic conditions leading to lower input prices and higher prices for end products. Margins though are expected to see some correction from current levels.

 

The ratings continue to factor in strong technical, financial, and operational support received from the parent, Roquette Freres, France (RF; rated ‘A-/Stable/A-2’ by SP Global Ratings [S&P]) and the company’s established market position. These strengths are partially offset by susceptibility to fluctuations in maize prices and limited pricing flexibility.

Analytical Approach

The ratings factor in the support RIPL receives from its parent RF, which holds 100% stake in the company.

Key Rating Drivers & Detailed Description

Strengths:

• Expectation of strong integration with and support from the parent, RF

RF sees tremendous growth opportunities in Asia Pacific emerging economies, and hence, has identified India as a key market for investments. With 100% acquisition of RIPL, RF is now in an advanced stage of integrating the subsidiary with itself, both technically and operationally.

 

During the previous 4-5 fiscals the company has incurred capex for capacity expansion and entering the specialty food ingredients business in India. RF has fully funded the company’s capital expenditure requirements in the past through unsecured loans under the ECB route in rupees at an interest rate of 8.9-9.5%. Any further capex is also expected to be fully funded by RF. Support from parent is also evident from conversion of ECBs of Rs 478 crores into equity in June 2021. Additionally, the parent has since provided an additional loan of 37 million euros (~Rs 320 crores) to the Indian entity for meeting working capital requirements and for general corporate purposes, at a low interest rate of 2% per annum. The repayment for this loan commences on Sep 30, 2026. As on July 31, 2021, the company has unsecured loans outstanding at Rs 581 crore from RF, which makes up 56% of RIPL’s total debt (down from 71% given conversion of debt into equity). CRISIL believes the company will have flexibility in repaying the parent during exigency.

 

RF’s technical, financial and operational support will strengthen the company’s business risk profile, which will be further backed by an increase in scale of operations, product improvement, new product launches, and catering to new customers/geographies. The company will continue to derive benefit from its association with the parent in the medium-to-long term.

 

• Established market position

RIPL is India’s second largest producer of starch and its derivatives, and has a market share of around 15% in the country’s overall maize-crushing capacity. It offers a wide product portfolio to diversified industries. The manufacturing units are located near customers and raw material sources, resulting in lower transportation cost. The company derives strong operational and technological benefit from RF to introduce new products in the domestic and international market and consistently upgrade its product range. Market position has been improving on account of introduction of new higher-margin value-added products like maltodextrin and increasing share of exports in overall sales mix.

 

Weaknesses:

• Susceptibility to fluctuations in maize prices

Profitability is susceptible to volatility in the prices of maize, the key raw material, due to various reasons such as seasonality of the crop, demand from end-user industries, and government policies.

 

The company’s performance fell below expectations in fiscal 2020 since corn prices had been increasing since December 2018 and were at an all-time high in fiscal 2020 due to high MSP and prolonged monsoon. Operating margin declined to less than 3% in fiscal 2020 from 7% in fiscal 2019. Nevertheless, given lower and stable maize prices post FY20, operating margin increased to 6.7% in fiscal 2021. Apart from change in product and sales mix with higher share of maltodextrin and exports respectively, procurement of raw materials at lower prices has resulted in higher operating margin of around 15% in H1 fiscal 2022. While margins are expected to see some correction from current levels, they are expected to be higher than 5-8% levels observed during previous fiscals.

 

• Limited pricing flexibility

Bargaining power is limited as majority of the clients are large fast-moving consumer goods and pharmaceutical companies. Furthermore, though the industry is highly consolidated in terms of catering to such customers, significant competition exists among the top 5-6 players.

Liquidity: Strong

Liquidity is strong in the absence of any major capex plans and long-term debt obligations, other than the one availed from the group. With improvement in operating performance, net cash accruals are expected to be sufficient to cover upcoming repayments to group companies. Nevertheless, in case of distress, RIPL has flexibility in regards to repayment of the loan and the same is expected to refinanced. Utilisation of fund-based lines averaged a moderate 48% in the 12 months through July 2021. RIPL had cash and bank balances of Rs 14.0 crores as on March 31, 2021.

Outlook: Stable

CRISIL believes RIPL will continue to benefit from its established market position in the starch and starch-derivatives business, and strong support from RF

Rating Sensitivity factors

Upward factors:

• Sustained improvement in operating performance with margins of over 11% leading to steady cash accrual, and stable profitability
• Improvement in debt protection metrics with interest coverage ratio of more than 2 times
• Improvement in capital structure with gearing less than 1.5 times

 

Downward factors:

• Downgrade in the rating of RF by SP Global Ratings or any change in extent of support from RF
• Operating profitability of less than 5% leading to lower cash accrual
• Higher than expected debt funded capex or elongation of working capital cycle with GCA days beyond 150, adversely impacting credit metrics

About the Company

RIPL is India’s second largest manufacturer of starch and starch derivatives. It has plants at Viramgam in Gujarat, Gokak in Karnataka, and Pantnagar in Uttarakhand, with total maize-processing capacity of 2,720 tpd. Products include corn starch powder, liquid and powdered glucose, modified starches, glucose D, dextrose monohydrate, maltodextrine, high-maltose corn syrup, and dextrose syrup. These products are used in industries such as food processing, pharmaceuticals, paper, textiles, adhesives, inks, and paints. RF has 100% stake in RIPL. RF is the fifth-largest corn processor and largest producer of polyols (sugar-free sweeteners) globally. It is also a leading global producer of starch derivatives.

Key Financial Indicators

Particulars	Unit	2021@	2020
Revenue	Rs crore	1809	2071
Profit after tax	Rs crore	-54	-745
PAT margin	%	-3.0	-36.0
Adjusted debt/Adjusted networth*	Times	-15.09	-34.50
Interest coverage^	Times	1.08	0.53

@Provisional financials
*Adjusted networth is negative for both fiscals due to impairment of Rs 534 crores done in FY20. Adjusted debt comprises unsecured loans from RF, of around Rs 1,035 crore as on March 31, 2021.
^Interest cover includes interest cost of unsecured loan from the parent RF

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity level	Rating assigned with outlook
NA	Proposed Export Packing Credit@	NA	NA	NA	85.00	NA	CRISIL A1+
NA	Cash Credit!	NA	NA	NA	75.00	NA	CRISIL AA-/Stable
NA	Letter of Credit@@	NA	NA	NA	30.00	NA	CRISIL A1+
NA	Cash Credit!!	NA	NA	NA	100.00	NA	CRISIL AA-/Stable
NA	Export Packing Credit++	NA	NA	NA	50.00	NA	CRISIL A1+
NA	Overdraft Facility^^	NA	NA	NA	53.13	NA	CRISIL AA-/Stable
NA	Cash Credit <>	NA	NA	NA	28.12	NA	CRISIL AA-/Stable
NA	Inland/Import Letter of Credit <<>>	NA	NA	NA	3.75	NA	CRISIL A1+
NA	Proposed Short Term Bank Loan Facility	NA	NA	NA	50.00	NA	CRISIL A1+

 @ Interchangeable with overdraft facility/short-term facilities/export bills discounting facility/credit bills negotiated - discrepant facility/bond and guarantees facility/import letter of credit/import invoice financing facility

! Interchangeable with working capital demand loan/pre- and post-shipment credit (export packing credit)/foreign usance bills discounted - foreign bills purchased/purchase bills - invoice discounting/sales bills - invoice discounting

@@ Interchangeable with bank guarantees

!! Interchangeable with inland bills purchased - inland bills discounted/working capital demand loan/foreign usance bills discounted - foreign bills purchased/export packing credit/packing credit in foreign currency/post shipment credit in foreign currency

++ Interchangeable with inland bills purchased - inland bills discounted/foreign usance bills discounted - foreign bills purchased/packing credit in foreign currency/post-shipment credit in foreign currency/working capital demand loans/buyer's credit/letter of credit/bank guarantee.

^^ Interchangeable with working capital demand loan/pre-shipment export credit/post-shipment export credit/bank guarantee

<> Interchangeable with working capital demand loan/pre-shipment export credit/post-shipment export credit

<<>> Interchangeable with acceptance related to buyer’s credit/ performance bank guarantee/financial bank guarantee