| Sundrop Brands Limited | ||||||
| Ratings removed from ‘Watch Developing’; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has removed its ratings on the bank facilities of Sundrop Brands Limited (SBL, formerly known as Agro Tech Foods Limited) from 'Rating Watch with Developing Implications' and has reaffirmed the ratings at ‘Crisil A/Crisil A1’ while assigning a ‘Stable’ outlook to the long-term rating.
The ratings were placed on watch on November 25, 2024, following the announcement that the board of directors of SBL had approved the acquisition of 100% of the issued and outstanding equity shares of Del Monte Foods Pvt Ltd (DMFPL) from their existing shareholders. The transaction was completed on February 6, 2025, by SBL in an all-stock swap in which the shareholders of DMFPL (Bharati Enterprises and Del Monte Pacific Ltd [DMPL]) become shareholders in SBL. Post the transaction, Bharti Enterprises and DMPL will own 21% and 14% stakes in SBL, respectively. Also, no cash was paid to shareholders of DMFPL and, hence, no liabilities are incurred by SBL due to this acquisition. Crisil Ratings has received clarification regarding plans for integrating DMFPL's business with SBL, including synergies between the two companies and SBL's support philosophy towards DMFPL. Following this Crisil Ratings now has resolved the rating watch.
SBL’s consolidated operating income stood at Rs 899 crore in fiscal 2025, a growth of 18% over fiscal 2024. DMFPL’s share in the consolidated operating income stood at Rs 104.4 crore for fiscal 2025, as the consolidation was limited to two months (Feb-25 and Mar-25) during this period, as it was completed on February 6, 2025. SBL’s food and premium staples business registered growth of 7% and 4% in value, respectively, on a standalone basis in fiscal 2025. The scale of operations are expected to grow significantly post the acquisition of Del Monte on account of expansion of food products portfolio. The consolidated revenue stood at Rs 372 crore in Q1 FY26.
Operating margin improved to 3.7% in the first full quarter post-acquisition from 2.6% in fiscal 2025 due to improvement in gross margins and rationalization of costs. The margins had moderated from 4.6% in fiscal 2024 due to higher raw material cost, especially in the edible oils segment, acquisition induced higher one-time employee costs and other acquisition-related expenditure incurred without commensurate revenue generated by DMFPL during fiscal 2025. Going forward, it is expected that the operating margins will improve on the back of improvement in product mix and operating leverage. The extent of operating performance of SBL and its subsidiary, DMFPL, will remain a key credit monitorable going forward.
On a consolidated basis, the company reported negative profit after tax (PAT) of Rs 109.9 crore for fiscal 2025. This was primarily on account of one-time impairment expense of Rs 136 crore at SBL’s standalone level. An impairment provision of Rs 70.57 crore was recognised for SBL’s plants at Jhagadia, Chittoor and Unnao following a strategic review of its business plan and after consideration of its revised strategy of focusing on profitability. Additionally, impairment losses of Rs 65.47 crore were provided for SBL’s property plant and equipment pertaining to the chocolates, wafers and french fries businesses which the management will discontinue in the future. The company reported a consolidated net profit of Rs 4.31 crore in Q1FY26.
The financial risk profile remains healthy with nil long-term debt and tangible networth of Rs 1,396 crore as on March 31, 2025. Adjusted gearing was nil as on March 31, 2025 (0.07 time a year earlier) and adjusted interest coverage ratio was 14 times during fiscal 2025 (11.9 times during the previous fiscal). The financial risk profile is likely to remain strong, with adjusted gearing and adjusted interest coverage ratio expected to be below 0.1 time and above 50 times, respectively, over the medium term amid moderate capital expenditure (capex).
The ratings reflect the company’s established position in the packaged food and branded edible oil business along with a sustained strong financial risk profile post-acquisition of DMFPL. These strengths are partially offset by exposure to risks inherent in agriculture-based business and modest profitability, with significant sales coming from the competitive edible oil business. |
Analytical Approach Crisil Ratings has combined the business and financial risk profiles of SBL and its subsidiaries to arrive at the ratings. Post completion of its 100% acquisition of DMFPL on February 6, 2025, DMFPL has also been added to the existing list of subsidiaries consolidated with SBL.
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: Improved market position with expansion of product portfolio post-acquisition of DMFPL: SBL’s established market position and improving revenue diversity will continue to support the business risk profile. Its edible oil brand, Sundrop, has high recall and benefits from premium pricing. The foods portfolio of the company comprises the following fast-growing categories – ready-to-cook snacks, ready-to-eat snacks, spreads, pasta and olive oil, breakfast and cereals. Operating income from the food business grew 7% in fiscal 2025 backed by growth in ACT II products (in ready-to-eat snacks segment) and ready-to-cook segment. Continued access to Conagra’s branded foods portfolio of ACT II (popcorn) will enable SBL to steadily improve its branded foods portfolio in India. The share of the foods business will continue to increase, supported by new product launches and portfolio diversification after the acquisition of DMFPL, while the edible oil business will hold steady.
Sustained strong financial risk profile: The financial risk profile is supported by nil long-term debt and an enhanced adjusted networth of Rs 1,396 crore after the acquisition. This has resulted in nil gearing as on March 31, 2025 (0.07 time a year earlier). Adjusted interest coverage ratio was 14 times during fiscal 2025 (11.9 times during the previous fiscal). The financial risk profile will remain comfortable over the medium term, in the absence of any long-term debt or significant capex, with adjusted gearing and adjusted interest coverage ratio expected to be below 0.1 time and above 50 times, respectively.
Weaknesses: Susceptibility to risks associated with agriculture-based business: The edible oil business remains susceptible to availability of oil, regulatory changes and price fluctuations. Availability of oil, both in the domestic and international markets, is linked to oilseed production, which is vulnerable to factors such as monsoon, acreage under cultivation and yield. The edible oil and packaged food industries also face significant intervention from the government, given the sensitivity of their raw material to both consumer-linked inflation and farmer support. To ensure remunerative prices to farmers, the government fixes the minimum support price on oilseeds periodically. Moreover, geopolitical tensions, imposition of import duties can have an impact on the margins and realisations.
Modest operating profitability amid intense competition: Around 40% of the revenue came from the edible oil business in fiscal 2025. Though the company commands premium prices on edible oils by virtue of its strong brand, its profit margin is lower than that of integrated branded oil manufacturers. The operating margin moderated to 2.6% in fiscal 2025 (4.5% in fiscal 2024) due to higher raw material cost especially in the edible oil segment. The operating margin will remain sensitive to movements in commodity prices (given the company’s limited pricing flexibility amid intense competition) and sales promotion and advertising expenditure required to support the increasing scale of operations in the branded food business. The company aims to focus on the core segment which includes its offerings in the packaged food segment. The share of oil business in total sales is expected to progressively reduce over the medium term. This will help to reduce the inherent volatility of margins in the future. |
Liquidity: Strong Cash and equivalent stood at Rs 44 crore as on June 30, 2025. The fund-based limits were unutilized during the past 6 months through June 2025. The company had nil long-term debt as on March 31, 2025. Annual cash accrual, cash and cash equivalents and unutilised bank lines will adequately cover moderate capex and working capital requirement. |
Outlook: Stable Crisil Ratings believes SBL will continue to benefit from its established brand, large product profile in the food business leading to a healthy market position. The financial risk profile will remain strong supported by nil debt, limited capex plans, stable working capital cycle and strong networth. |
Rating sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1986, SBL has an established market position in the edible oil and branded food businesses in India. Its primary brands are Sundrop and ACT II. Over the past few years, the company has diversified its portfolio to focus on high-margin, value-added products. It has strengthened its position in the branded food market after the acquisition of Del Monte Foods Private Limited in February 2025 to include Italian spreads, pasta, olive oils, ketchups expanding its portfolio of ready to eat, ready to cook snacks, breakfast cereals and peanut butter spreads. |
Key Financial Indicators (consolidated)*
*Crisil Ratings-adjusted numbers |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Fully interchangeable between fund-based facility and non-fund based facility |
Annexure – List of entities consolidated
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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