Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings on bank loan facilities of Sahyadri Farmers Producer Company Limited (SFPCL, part of Sahyadri Farmers Group).

 

The ratings continue to reflect group’s strong presence in the grape export segment, successful diversification into value added products which rendered revenue diversity and sustained scale up in operation. The rating also factors in promoters’ extensive industry experience, established relations with a large number of farmers and moderate but improving financial risk profile. These strengths are partially offset by large working capital requirement and exposure to risks related to seasonality in the fruits and vegetables processing industry and to intense competition.

 

SFPCL has transferred its almost entire business (except a small pre-harvest business) to wholly owned subsidiary, Sahyadri Farms Post Harvest Care Ltd (SFPHCL) on slump exchange basis in March 2022. All the assets and liabilities of SFPCL stands transferred to subsidiary SFPHCL. Further, SFPCL’s earlier subsidiaries - Sahyadri Agro Retails Limited (SARL), Sahyadri farms Supply Chains Limited (SFCL) have now become subsidiaries of SFPHCL and SFPCL has become the holding company. The transaction was perceived in order to raise equity funds which was not possible under farmer producer company – SFPCL.

 

CRISIL Ratings had earlier combined the business and financial risk profiles of SFPCL its subsidiaries SFPHCL, SARL and SACL. Currently also, CRISIL consolidates SFPCL along with its subsidiary, SFPHCL and step-down subsidiaries, SARL and SACL.

 

Group’s business risk profile is marked by increasing and healthy scale of operation along with moderate and steady operating profitability. The group has registered healthy revenue growth in fiscal 2022; revenue increased to over Rs. 740 crores against Rs. 520 crores in previous fiscal 2021. The growth was driven by higher sales in grapes exports, fresh Fruits & Vegetables (F&V) sales in export and domestic markets and increasing contribution from various value-added products like ketchup, jam, fruit pulp, etc. The growth was supported by both volumes as well as realizations. Operating profitability margin remains stable at around 9%. The group remains one of the largest grape exporters from India while it has also scaled up its non-grape businesses. Group’s financial leverage moderated in fiscal 2022; gearing remained at over 2 times as on March 31, 2022 against 1.59 times in previous year primarily due to higher working capital borrowings.

 

The group continues to undertake capacity expansion programs. In current fiscal it plans to undertake capex of over Rs.170 crore to expand existing infrastructure of IQF, ketch-up, to add new products division like freeze drying, fruit powder, processing of dry fruits especially cashews, vegetable drying, bio-gas plant etc. The same will aid to healthy revenue growth over coming fiscals. The group plans to raise around Rs.400 crore via Private Equity funding and has received first tranche of Rs.120 crore very recently. The funds received shall be used for planned capex and to meet incremental working capital requirements. The reliance on external debt remains limited amid the receipt of PE funds and hence leverage is expected to improve in near to medium term despite the capex and large working capital requirements.

Analytical Approach:

CRISIL Ratings has combined the business and financial risk profile of SFPCL with its subsidiaries and step-down subsidiaries.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Strong Presence in Grape Export Segment backed by extensive experience of the promoters: Benefits from the 15-year-long experience of the promoters in grape cultivation and export and healthy relations with farmers, along with advanced infrastructure, have helped the group establish a dominant market position in grapes export. The group is one of the largest grape exporters from India in the last four years. The group has also tied up with over 8,000 farmer-members in the major grape-producing region of Nashik (Maharashtra) and also provide pre-harvest support to farmers. Also, the group is bringing new varieties of grapes in India and is planning to increase its exports over the medium term.

 

Increasing diversification in product offerings, supporting earnings profile: Over the past four years, the group has been leveraging its strong market position in the grape export segment and association with farmers by venturing into other agro related business segments, such as fresh Fruits and Vegetables, FMCG products (like Ketch-up, Jam, Fruit pulp/juices) and semi processed products. Contribution from these businesses to overall revenues has grown in the last few fiscals and has led to lower dependence on the Grape export business. During fiscal 2022, non-grape segment’s contribution to topline increased to ~67% from 60% a year earlier. Revenue diversity also benefits from presence across both domestic and export market. The group has forayed into newer products like resins, producing of Ellagic Acid (from Pomegranate) and Pectic Acid (from citrus fruits). This allows company to further enhance its association with farmers and diversify the revenue base. The group currently has over 15000 farmers associated with and access to around 30000 acres of agricultural land. This gives group the certainty to an extent about its key raw material availability.

 

Improving financial risk profile: Financial risk profile moderated marginally due to recently completed debt funded capex and large working capital requirements. Gearing moderated to around 2.10 times in fiscal 2022. Debt protection metrics remained comfortable with interest coverage of 3.28 times and net cash accrual to adjusted debt of 0.12 time as on March 31, 2022. With increasing cash flow from operations and significant inflow from PE investments in current fiscal, the financial metrics are expected to improve over the medium term.

 

Weaknesses:

Large working capital requirement: Operations are working capital-intensive on account of sizeable receivables and moderate inventory. Furthermore, the seasonal nature of business results in a skewed working capital cycle. Gross current assets continue to remain high at about 222 days as on March 31, 2022. Utilisation of working capital bank lines remained high too due to large incremental working capital requirements during the year.

 

Susceptibility to volatile prices of agricultural commodities, climatic conditions, and intense competition: Operating margin is susceptible to volatility in prices of grapes, mangoes, and tomatoes. Also, production depends on climatic conditions. Moreover, the company has to compete with organised and unorganised players in the grape and mango processing segment, which limits pricing power with customers.

 

The group’s grapes business was impacted in 2021 due to heavy and extended monsoon in key production area. Further the profitability remains dependent upon domestic procurement prices and quality of grapes and overseas demand.

Liquidity: Adequate

Liquidity is adequate supported by healthy cash accrual expected at over Rs 50-75 crore per annum over the medium term which should sufficiently cover yearly maturing debt of around Rs 13-15 crore. Bank limit utilisation averaged 87% over the past 12 months through April 2022. The company also has free cash and cash equivalents of over Rs. 40 crores. However, efficient management of working capital amidst increasing scale of operations will continue to remain monitorable factor. The current ratio is adequate at over 1.2 times for fiscal 2022.

 

Receipt of fresh private equity funds of Rs.400 crore during current fiscal, shall support the capex and incremental working capital requirements and hence shall cushion the liquidity.

Outlook: Stable

CRISIL believes the group will continue to benefit from the increasing revenue and profitability, driven by its enhanced product diversity.

Rating Sensitivity Factors

Upward factors

• Strong year-on-year revenue growth of over 30% backed by ramp-up from new capacities and stable operating margin leading to cash accruals of over Rs. 75 crore
• Sustained improvement in financial risk profile and maintenance of adequate liquidity

 

Downward factors

• Substantial decline in revenue or operating profitability leading to EBIDTA of less than Rs. 45 crore
• Stretch in the working capital cycle or larger-than-anticipated, debt-funded, non-modular capex exerting pressure on the financial risk profile and liquidity

About the Company

Incorporated in 2010, SFPCL was primarily engaged in the processing and exporting of grapes. The company is promoted by Mr. Vilas V Shinde along with other farmers and exported grapes primarily to Europe Russia, Singapore, Dubai and China etc. The company's unit is located in Adgaon in Nashik district (Maharashtra). Further from fiscal 2016 the company also started fruit pulp, fruit juices and aseptic juice manufacturing process in its Nashik unit. However, now entire business has been transferred to SFPCL as on March 31, 2022. SFPCL will maintain a small pre-harvest (fertilizers/agro-chemical/seeds) business with it henceforth.

Any other information: Not applicable