Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable’ rating on the long-term bank facilities of SAEL Agri Commodities Ltd (SACL). CRISIL Ratings has also assigned its ‘CRISIL A2+’ rating to the short-term bank facilities of the company.

 

On May 29, 2024, CRISIL Ratings had assigned its ‘CRISIL A-/Stable’ rating to the long-term bank facilities of SACL.

 

The rating reflects the established market position of the company in the rice milling industry supported by its diversified product portfolio, comprising basmati and non-basmati rice as well as other products such as solvents and allied products along with trading of pulses. The rating also factors in a healthy financial risk profile, supported by a sizeable net worth and hence a comfortable capital structure. These strengths are partially offset by large working capital requirement, resulting from large inventory holding for aged rice leading to high dependence on bank limits; low brand penetration, leading to slower churning of inventory.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position: The promoters, Mr Jasbir Singh Awla and Mr Sukhbir Singh Awla, have experience of more than three decades in the rice milling industry with SACL having one of the largest rice milling capacities in India of 1.8 MTPA. The product portfolio of the company is diverse and consists of both basmati and non-basmati rice, which ensures steady demand from varied counterparties. Volumes of basmati rice increased at compound annual growth rate (CAGR) of 27.6% over the past three fiscals ended March 31, 2024, while non-basmati rice volumes witnessed a CAGR decline of 9% amidst company’s focus on increasing its basmati rice sale. Further, to focus on promoting basmati sale, especially branded basmati, the company commenced sales of domestic branded basmati rice in the fourth quarter of fiscal 2024 under the brand name, ‘Nyce’, and sold around Rs 130 crore during the stated quarter. With focus on branded basmati rice to remain high over the medium term, revenue from this segment is expected at Rs 450-500 crore in fiscal 2025. Furthermore, cash flow from the non-basmati rice segment will continue to support the company’s business requirement. Revenue is also supported by sales of other products such as excess power from its plant and solvent sales, which contributed around Rs 315 crore in fiscal 2024 (Rs 237 crore in fiscal 2023). Resultantly, the company witnessed overall revenue growth of 9% in fiscal 2024 with revenue estimated at around Rs 3,570 crore. CRISIL Ratings believes the company can leverage its promoters’ extensive experience and its strong market reputation to promote its basmati segment over the medium term, which shall further support its business risk profile over the medium term by generating incremental cash flow.

 

• Healthy financial risk profile: Capital structure was comfortable, supported by robust networth of Rs 1,300 crore as on March 31, 2024. Debt largely consists of short-term working capital debt which has remained at similar levels despite growth in basmati rice volumes in the past 2-3 fiscals through fiscal 2024. The management intends to further reduce its dependency on working capital debt through internal accrual or need based financial support from promoters. Moreover, with no debt-funded capital expenditure (capex) plan, long-term debt contraction will remain negligible. Resultantly, total outside liabilities to tangible networth (TOLTNW) ratio, estimated at 1.47 times as on March 31, 2024, is expected to be around 1.3-1.4 times over the medium term. Debt protection metrics will remain comfortable, with interest coverage and net cash accrual to debt ratios improving to 2.8-3.0 times and 0.15-0.2 time, respectively, over the medium term from 2.5 times and 0.12 time, respectively, in fiscal 2024. Increase in working capital debt amid stretched working capital cycle might impact the financial risk profile and hence will remain a key monitorable over the medium term.

 

Weaknesses:

• Working capital-intensive operations: Operations are working capital intensive on account of large inventory, which increased from 185 days as on March 31, 2021, to 262 days as on March 31, 2024. The increase in inventory is to cater to the requirement of increased penetration towards basmati segment, aged inventory, amid the company’s focus to promote branded basmati sales. SACL commenced branded basmati sales in the fourth quarter of fiscal 2024 for which it started aging rice in fiscal 2023, leading to increase in inventory holding. Inventory holding has also increased on account of increased volumes of basmati sales (non-branded) in fiscals 2023 and 2024, and adequate stocking done by the management to cater to the business growth requirement. While the inventory will moderate amid restricted inventory holding plans of the management and improved churning of aged inventory, it is expected at 230-250 days over the medium term. As a result, bank limit, which was utilized around 90% over the past 12 months through February 2024, will only partly moderate over the medium term. That said, efficient working capital management and its impact on liquidity will remain a key rating sensitivity factor. Liquidity remains partly aided by the company’s ability to get extended support from creditors and the promoters’ ability to infuse need-based funds.

 

• Low brand penetration: Over the past 2-3 fiscals through fiscal 2024, the intent of the management to launch and promote the sale of its branded basmati has resulted in a stretch in working capital management, especially inventory holding of aged rice. However, with branded sales being in the nascent stages, its penetration remains low with the segment contributing only 6% of revenue in fiscal 2024 being the initial year of branded basmati sales. Also, brand promotion expenditure is likely to increase over the medium, further impacting yield and operating margin. With the fragmented nature of industry characterized by reputed and large players operating with their own brands, brisk churning of inventory and the company’s ability to charge premium will remain imperative. Lower-than-expected branded sales or higher-than-expected increase in branding/marketing expenditure will further impact the operating efficiency of the company, such as operating margin and return on capital employed, and hence, will remain a key monitorable over the medium term.

Liquidity: Adequate

Cash accrual is expected at Rs 140-150 crore in fiscal 2025, which will be largely utilized for meeting working capital requirement amid no sizeable capex plans. Term debt obligation of Rs 40 crore per annum will remain secured against warehouse rentals and will not impact cash accrual. Because of large working capital requirement, particularly inventory holding, the company’s fund-based working capital limit of Rs 880 crore was utilized at a high 90% on average during the 12 months through February 2024 with peak utilisation of 99% during the procurement season. Though liquidity will remain supported by need-based funds from the promoters, efficient churning of working capital leading to lower reliance on bank lines will remain a key monitorable. Liquidity will remain further aided by no dividend pay-out plans of the management and unencumbered cash & cash equivalents of around Rs 20-25 crore expected to be maintained over the medium term. The current ratio was moderate at 1.6 times as on March 31, 2024, and is expected at a similar level over the medium term.

Outlook: Stable

CRISIL Ratings believes SACL will continue to benefit from the extensive experience of its promoters and an established market position.

Rating Sensitivity factors

Upward factors

• Sustained improvement in scale of operations and increase in operating margin to 7.5-8.0% leading to higher net cash accrual.
• Efficient working capital management through brisk churning of inventory, leading to reduced reliance on external debt and hence an overall improvement in financial risk profile and liquidity.

 

Downward factors

• Decline in operating margin below 6% amid lower-than-expected branded basmati sales and/or reduced capacity utilisation leading to lower net cash accrual.
• Further stretch in the working capital cycle leading to increased dependence on external debt, weakening the financial risk profile and liquidity

About the Company

SACL (earlier part of SAEL Ltd) was incorporated in 2021 after the demerger of the agriculture business from SAEL Ltd. SAEL Ltd (erstwhile Sukhbir Agro Energy Ltd) was incorporated as a private limited company under named Sukhbir Agros Pvt Ltd on December 21, 1999. The company is engaged in the milling of rice (both basmati and non-basmati varieties), manufacturing of crude rice bran oil, solar and biomass-based power generation.

Key Financial Indicators

As on / for the period ended March 31		2024*	2023
Operating income	Rs crore	3,582.1	3,285.7
Reported profit after tax (PAT)	Rs crore	102.3	91.6
PAT margin	%	2.86%	2.80%
Adjusted debt / adjusted networth	Times	0.76	0.77
Interest coverage	Times	2.49	2.45

*provisional

Any other information: Not applicable