Rating Rationale
August 05, 2019 | Mumbai
Terai Tea Company Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.38.96 Crore (Enhanced from Rs.28 Crore)
Long Term Rating CRISIL BBB-/Negative (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank facilities of Terai Tea Company Limited (TTCL) continue to reflect the extensive experience of the Terai Tea group's promoters, and their continued funding support, and the moderate working capital requirement. These strengths are partially offset by the modest operating efficiency and financial risk profile, and exposure to volatility in tea prices and change in weather conditions.

CRISIL had on on July 26, 2019 revised its outlook on the long-term bank facilities of TTCL to 'Negative' from 'Stable', and reaffirmed the rating at 'CRISIL BBB-'. The rating on the short-term bank facility had been reaffirmed at 'CRISIL A3'.

Analytical Approach

CRISIL has combined the business and financial risk profiles of TTCL, Abhijit Tea Co Pvt Ltd (ATCPL), New Darjeeling Union Tea Co Ltd (NDUTCL), East India Produce Ltd (EIPL), Jaldacca Tea Plantations Pvt Ltd (JTPL), The Kharibari Tea Company Ltd (TKTCL), Terai Dooars Tea Company Pvt Ltd (TDTCPL), and Sayedabad Tea Company Ltd (STCL). This is because the companies, collectively referred to as the Terai group, have common management, and are in the same line of business with substantial shareholding in inter-group companies.

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 in the tea industry
The Terai group, incorporated in 1973, is a partially integrated player in the tea segment. Its promoters have been in the tea manufacturing business for over 40 years. During this period, the group acquired seven tea estates, mostly sick units, and demonstrated its ability to turn them around into profitable entities. The promoters have incurred regular capex towards acquiring new plantations, and refurbishing old machinery. This has helped the group establish a strong position in the tea industry and maintain substantial growth in revenue.
 
* Continued funding support from the promoters
The promoters have extended significant financial support to the group, via unsecured loans and convertible debentures to facilitate capex, and cover working capital and debt obligations. Their ability to provide need-based funding support enhances the group's financial flexibility.
 
* Moderate working capital management: Operations are managed prudently, with gross current assets of 162 days as on March 31, 2019 driven by low inventory and moderate debtor of 24 and 61 days respectively.
 
Weakness:
* Susceptibility to volatile tea prices and changing weather conditions: Tea is a seasonal product and its yield depends on weather conditions. Production could be hampered significantly in case of any variation in rains, humidity, and temperature. In case of poor weather conditions, deterioration in production levels and quality leads to volatile realisations. Moreover, plantation operations are fixed-cost in nature with labour accounting for 50-60% of total costs. Presence of several labour laws and unions ensure that manpower cannot be reduced easily. Such inflexibility in cost reduction means that in case of lower production or realisations, the group may witness a drop in profitability.
 
* Modest operating efficiency: The group is a partially integrated tea manufacturer, and sources around 60% of the required tea leaves from other estates. High proportion of outside purchases keeps the operating margin modest, and increases susceptibility to supply-side fluctuations. The margin of players dependent on external purchase of the raw material is range bound, providing limited headroom for improving profitability. As a result, return on capital employed remained low at 6% in fiscal 2019. Although the group has taken steps to improve productivity by replanting old tea plants and increasing the area under plantation, it will take substantial time to yield results.
 
* Average financial risk profile: Financial risk profile is constrained by weak debt protection metrics, with interest coverage and net cash accrual to total debt ratios of 1.86 times and 0.10 time, respectively, in fiscal 2019 albeit low gearing of 0.82 times.
Liquidity

Liquidity is expected to remain adequate. Net cash accrual is likely to be at Rs 7.0-9.0 crore per annum over the medium term against yearly debt obligation of Rs 4.5-7.0 crore. Unencumbered cash and cash equivalents were Rs 3-4 crore as on March 31, 2019. Liquid investments in equity and mutual funds exceeded Rs 10 crore. Financial assistance may also be expected from the promoters whenever necessary, as in the past. Bank limit utilisation averaged a moderate 79% in the 12 months through June 2019. Liquidity remains constrained by low accrual at standalone level in smaller entities.

Outlook: Negative

CRISIL believes TTCL will remain constrained by modest topline, profitability, and cash accrual over the medium term. The ratings may be downgraded if deterioration in topline and operating margin weakens liquidity and debt coverage metrics further. The outlook may be revised to 'Stable' if a considerable increase in profitability and sustained improvement in scale of operations strengthen business risk profile and debt coverage metrics.

About the Group

TTCL was incorporated in 1973 by Mr Madan Das Agarwala. It is engaged in plantations and tea manufacturing, and undertakes opportunistic trading of agricultural commodities, such as jute, sugar, and yellow peas. It has around 262 hectares of land under plantation under the Bagdogra Tea Estate. Over the years, the group has purchased seven tea estates, covering around 2,000 hectares under tea plantation, and five leaf factories.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 237 212
Profit After Tax (PAT) Rs crore 3.48 (1.71)
PAT Margin % 1.47 (0.81)
Adjusted debt/adjusted networth Times 0.93 1.04
Interest coverage Times 1.86 1.40

Status of non cooperation with previous CRA
TTCL has not cooperated with India Ratings And Research Private Limited. which has published its ratings as an issuer not co-operating vide release dated June 17, 2019. The reason provided by India Ratings And Research Private Limited was non-furnishing of information for monitoring of ratings. India Ratings on 10th July 2019 through its press release has withdrawn TTCL's rating. 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) Rating assigned with outlook
NA Cash Credit NA NA NA 25.62 CRISIL BBB-/Negative
NA Long-Term Loan NA NA Mar-2022 1.18 CRISIL BBB-/Negative
NA Bank Guarantee NA NA NA 1.2 CRISIL A3
NA Short-Term Loan NA NA NA 10.96 CRISIL A3
 
Annexure - List of Entities Consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
Terai Tea Co Ltd Full Same line of business, and significant operational, managerial, and financial linkages.
Sayedabad Tea Company Ltd Full Same line of business, and significant operational, managerial, and financial linkages.
Abhijit Tea Co Pvt Ltd Full Same line of business, and significant operational, managerial, and financial linkages.
East Indian Produce Ltd Full Same line of business, and significant operational, managerial, and financial linkages.
Jaldacca Tea Plantation Pvt Ltd Full Same line of business, and significant operational, managerial, and financial linkages.
New Darjeeling Union Tea Co Ltd Full Same line of business, and significant operational, managerial, and financial linkages.
The Kharibari Tea Company Ltd Full Same line of business, and significant operational, managerial, and financial linkages.
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  37.76  CRISIL BBB-/Negative/ CRISIL A3  26-07-19  CRISIL BBB-/Negative  27-09-18  CRISIL BBB-/Stable  30-06-17  CRISIL BBB-/Stable  16-03-16  CRISIL BBB-/Stable  CRISIL BBB-/Stable 
Non Fund-based Bank Facilities  LT/ST  1.20  CRISIL A3  26-07-19  CRISIL A3  27-09-18  CRISIL A3  30-06-17  CRISIL A3  16-03-16  CRISIL A3  CRISIL A3 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 1.2 CRISIL A3 Bank Guarantee 1.2 CRISIL A3
Cash Credit 25.62 CRISIL BBB-/Negative Cash Credit 25.62 CRISIL BBB-/Negative
Long Term Loan 1.18 CRISIL BBB-/Negative Long Term Loan 1.18 CRISIL BBB-/Negative
Short Term Loan 10.96 CRISIL A3 -- 0 --
Total 38.96 -- Total 28 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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