Rating Rationale
September 29, 2020 | Mumbai
Swarnalaxmi Mercantile Private Limited
Rating migrated to 'CRISIL BB+/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.10 Crore
Long Term Rating&CRISIL BB+/Stable (Migrated from 'CRISIL BB+/Stable ISSUER NOT COOPERATING*')
& *Issuer did not cooperate; based on best-available information
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

Due to inadequate information and in line with the Securities and Exchange Board of India guidelines, CRISIL had migrated its rating on the long-term bank facilities of Swarnalaxmi Mercantile Private Limited (SMPL; part of the Aryan Tea group) to 'CRISIL BB+/Stable Issuer Not Cooperating'. However, the company's management has started sharing the information necessary for a comprehensive review of the rating. Consequently, CRISIL is migrating the rating to 'CRISIL BB+/Stable'.
 
The rating continues to reflect the promoter's extensive experience in the tea industry, the group's diversified customer base and above-average financial risk profile because of a moderate networth, low gearing, and healthy debt protection metrics. These strengths are partially offset by exposure to intense competition in the highly fragmented tea industry, and susceptibility of the operating margin to volatility in tea prices.
 
The rating takes into consideration the impact of the Covid-19 pandemic on the tea industry in the first quarter of fiscal 2021, with the nationwide lockdown declared by the central government reducing tea production by 10-12% across the country. Nevertheless, realisations have been increasing and if prices sustain for the fiscal, tea growers may see better profitability. This remains a rating sensitivity factor.
Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of SMPL and Aryan Tea Plantation Pvt Ltd (ATPPL) as both the companies, together referred to as the Aryan Tea group, are in the same business and have the same promoters.

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 experience of the promoters and established relationships with customers and suppliers: The promoters entered the tea business in 1960 and have developed good business insight and healthy relationships with owners of tea gardens and brokers of tea leaves, enabling seamless procurement of green leaves. The promoters have established a diversified customer base with sales to auction houses, private parties, export merchants and consignment agents.
 
* Above-average financial risk profile: The financial risk profile remains comfortable with moderate networth and low gearing estimated at Rs 17.15 crore and 0.13 time, respectively, as on March 31, 2020 (Rs 16.30 crore and 0.26 time, respectively, a year earlier). Supported by low gearing and moderate profitability, the debt protection metrics have been healthy with interest coverage and net cash accrual to total debt ratios estimated at 4.56 times and 0.41 time, respectively, for fiscal 2020.
 
Weaknesses:
* Susceptibility to volatility in commodity prices: The quality and realisation of crush-tear-curl (CTC) tea depends on the yield and quality of tea leaves, which are available seasonally. Availability may be hampered significantly by adverse weather conditions such as uneven rains, humidity and temperature, which could weaken production and quality, leading to volatile realisations. The Aryan Tea group's operating profitability ranged from 6.5-7.5% over the four fiscals through 2020, and will remain vulnerable to volatility in the prices of tea and tea leaves, constraining the business risk profile.
 
* Exposure to intense competition: The tea industry in India has matured and is growing at a modest rate. The trend will continue over the medium term. Furthermore, fragmentation and the presence of large players constrain the growth prospects and bargaining power of small tea manufacturers.
Liquidity Adequate

The group will maintain adequate liquidity. In fiscal 2020, accrual is estimated at Rs 1.98 crore against debt obligation of Rs 80 lakh. Accrual is expected around Rs 2 crore annually against maturing debt of Rs 23 lakh in fiscal 2021. Post repayment of the term loan, the accrual may help reduce working capital debt. Bank limit was used 37% on average in the 12 months through August 2020 (33% in ATPPL and 46% in SMPL). Current ratio was adequate at 2.52 times as on March 31, 2019, and is estimated at 4.51 times as on March 31, 2020.
Outlook: Stable

CRISIL believes the Aryan Tea group will continue to benefit from its promoters' extensive industry experience.
Rating Sensitivity factors
Upward factors
* Improvement in revenue above Rs 50 crore with continued healthy operating profit margin
* Better capacity utilisation leading to higher accrual
 
Downward factors
* Decline in revenue and operating profitability leading to accrual below Rs 1.5 crore
* Addition of large debt and decline in profitability weakening the debt protection metrics.
About the Group

The Siliguri-based Aryan Tea group has been processing, blending and packaging tea for more than a decade. The group's operations are managed by Siliguri-based Mr Sushil Kumar Agarwal and Mr Aman Bansal who are directors in both the group companies.
Key Financial Indicators - (Consolidated)
Particulars Unit 2020* 2019
Revenue Rs cr 40 44.34
Profit after tax (PAT) Rs cr 0.84 0.84
PAT margin % 2.11 1.89
Adjusted debt/adjusted networth Times 0.13 0.26
Interest coverage Times 4.56 3.87
*SMPL: Audited; ATPPL: Estimated

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. 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 level Rating assigned
with outlook
NA Cash Credit NA NA NA 4.5 NA CRISIL BB+/Stable
NA Term Loan NA NA Mar-22 1.9 NA CRISIL BB+/Stable
NA Proposed Working Capital Facility NA NA NA 3.6 NA CRISIL BB+/Stable
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
Swarnalaxmi Mercantile Pvt Ltd Full Same business and promoters
Aryan Tea Plantation Pvt Ltd Full Same business and promoters
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  10.00  CRISIL BB+/Stable  31-01-20  CRISIL BB+/Stable (Issuer Not Cooperating)*      26-10-18  CRISIL BB+/Stable  25-07-17  CRISIL BB+/Stable  CRISIL BB+/Stable 
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Cash Credit Allahabad Bank 4.5 CRISIL BB+/Stable
Proposed Working Capital Facility Not Applicable 3.6 CRISIL BB+/Stable
Term Loan Allahabad Bank 1.9 CRISIL BB+/Stable

This Annexure has been updated on 8-Sep-2021 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Assessing Information Adequacy Risk
CRISILs Criteria for Consolidation

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