Rating Rationale
June 03, 2022 | Mumbai
 
Sheel Oil And Fats Private Limited
 
 
Rating Action
Total Bank Loan Facilities Rated Rs.269.2 Crore
Long Term Rating CRISIL A-/Stable
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

 

Detailed Rationale

CRISIL Ratings ratings on the bank facilities of Sheel Oil And Fats Private Limited (SOAFPL) continues to reflect SOAFPL's extensive industry experience of the promoters, strong support from parent and moderate financial profile. These strengths are partially offset by its susceptibility to intense competition in edible oil industry, susceptibility to price volatility risk, working capital intensive operations and vulnerability of operating margin to fluctuations in forex rates.

 

CRISIL Ratings had upgraded its rating on the bank facilities of SOAFPL to ‘CRISIL A-/Stable’ from ‘CRISIL BBB+/Stable’ on May 09, 2022.

Analytical Approach

CRISIL Ratings has factored in the support from the parent, Sheel Chand Agroils Pvt Ltd (SCAPL) by applying the parent notch-up criteria.

Company has issued a total of Rs 100 crores of optionally convertible debentures with a tenure of 12 years at a coupon rate of 0.5% as on 31st, March 2022 to promoters which have been treated as equity as the same are estimated to be retained in the same form in the company.

 

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:

Extensive industry experience of the promoters: The promoters have an experience of over 60 years in edible oil industry. This has given them an understanding of the dynamics of the market, and enabled them to establish relationships with suppliers and customers.

 

Strong support from parent: Benefits of synergies are expected to support SOAFPL both operationally and financially as the parent company SCAPL holds majority stake in SOAFPL and shares common management and are in same line of business. Further, despite starting operations in fiscal 2019, SOAFPL has been able to ramp up operations substantially, driven by the parents’ presence in the industry and already established marketing network.

 

Moderate financial profile SOAFPL’s debt protection measures have also been at comfortable level despite leverage due to moderately healthy profitability. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 3.84 times and 0.23 times for fiscal 2021 and is estimated to remain on similar levels in FY22. SOAFPL debt protection measures are expected to remain at similar level over medium term.

 

Efficient working capital cycle: Gross current assets were 77 days as on March 31, 2021, and are estimated to be at a similar level in fiscal 2022. This is mainly because of moderate inventory of 40-45 days as production is order-backed. Inventory is higher during year-end on account of seasonal availability of raw material; receivables have been modest at 11-20 days. Furthermore, since raw material (seeds) is procured from mandis and farmers on cash basis, payables are low.

 

Weaknesses:

Susceptibility to intense competition in edible oil industry: The edible oil industry is marked by the presence of a few big players and many small unorganized players. About 60 per cent of the edible oil industry is serviced by the unorganized sector. These players primarily cater to regional demand, in order to save on transportation cost. Intense market competition has resulted in low operating margins for all the industry players. Furthermore, prices of the edible oils are directly linked to the prices of Crude Palm Oil (CPO), which has remained highly volatile; domestic vegetable oil market depends on availability of CPO and vegetable oil substitutes in the international market.

 

Susceptibility to price volatility risk: The price volatility risk is attributed to agro-climatic risk which is dependent on adequate and timely monsoon. Thus, the company is exposed to the risk of limited availability of its key raw material during a weak monsoon. Also raw material price is linked to international prices of commodity. Competition from peers could have adverse impact on profit margin.

Liquidity: Strong

Bank limit utilization is moderate at around 78.4 percent for the past twelve months ended January 2022. Cash accruals are expected to be over Rs 39.02 crore which are sufficient against term debt obligation of Rs 20.32 crore in the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio are healthy at 1.88 times on March 31, 2021 and is estimated at around 2 times as on March 31, 2022.

Outlook: Stable

CRISIL Ratings believe SOAFPL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward factor

  • Sustained improvement in volume wise scale of operation by 20% and sustenance of operating margin, leading to higher cash accruals
  • Improvement in the liquidity profile of the company driven by reduction in the bank limit utilization

 

Downward factor

  • Large debt-funded capital expenditure weakens capital structure
  • Witnesses a substantial increase in its working capital requirements thus weakening its liquidity & financial profile.
  • Any significant change in strategy of parent which could impact the business risk profile of SOAFPL.

About the Company

SOAFPL was incorporated in 2009, however it commence its commercial operation in Feb 2019. It is engaged in the manufacturing of edible, non-edible oil & glycerin. It has manufacturing facility located in Gandhidham, Gujarat. Sheel Chand Agroils Private Limited (SCAPL) currently hold an 80 % stake in SOAFPL.

About the Parent

Sheel Chand Agroils Private Limited (SCAPL) was incorporated in 1994 by Mr. Mohan Goel and his brother Mr. Pramod Goel. SCAPL is engaged in the manufacturing of vanaspati oil, refined palm and soya oil, and de-oiled cakes, and soya solvent extraction. SCAPL also operate an oil splitting and distillation plant, in this unit it manufacture Bakery Puff, Cocoa Butter Equivalent, Chocolate Fats and Oleo chemicals such as Stearic Acid & Soap Noodles.

 

SCAPL is located in Rudrapur, Uttarakhand. SCAPL currently has solvent extraction capacity of 150 MT per day and oil expellers with the capacity of 30 MT per day for its seed processing and cake requirement. It also has a physical refinery with the capacity of 200 MT per day and, a vanaspati plant with a capacity of 100 MT per day was also added making it a composite facility.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

1,376.09

870.29

Reported profit after tax

Rs crore

28.25

3.93

PAT margins

%

2.15

0.63

Adjusted Debt/Adjusted Net worth

Times

1.65

1.27

Interest coverage

Times

3.84

2.88

Status of non cooperation with previous CRA:

SOFL has not cooperated with ICRA Limited., which led to its classification as ‘issuer not cooperative’ vide release dated September 26th, 2019. The reason provided by ICRA Limited. is non-furnishing of information for monitoring of ratings.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of
instrument
Date of
allotment
Coupon
rate (%)
Maturity
date
Issue size
(Rs crore)
Complexity 
levels
Rating assigned
with outlook
NA Cash Credit NA NA NA 175 NA CRISIL A-/Stable
NA Term Loan NA NA Mar-25 69.02 NA CRISIL A-/Stable
NA Proposed Working Capital Facility NA NA NA 25.18 NA CRISIL A-/Stable
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 269.2 CRISIL A-/Stable 09-05-22 CRISIL A-/Stable 26-03-21 CRISIL BBB+/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 60 HDFC Bank Limited CRISIL A-/Stable
Cash Credit 65 State Bank of India CRISIL A-/Stable
Cash Credit 50 YES Bank Limited CRISIL A-/Stable
Proposed Working Capital Facility 25.18 Not Applicable CRISIL A-/Stable
Term Loan 55.12 State Bank of India CRISIL A-/Stable
Term Loan 13.9 YES Bank Limited CRISIL A-/Stable

This Annexure has been updated on 13-Mar-23 in line with the lender-wise facility details as on 17-Feb-23 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings
Understanding CRISILs Ratings and Rating Scales
The Rating Process
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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