Rating Rationale
October 23, 2020 | Mumbai
Terai Tea Company Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.48.46 Crore (Enhanced from Rs.38.96 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 has reaffirmed its 'CRISIL BBB-/Negative/CRISIL A3' ratings on the bank facilities of Terai Tea Company Limited (TTCL; part of Terai group).
 
CRISIL ratings on the bank facilities of 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.

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 remaining in the range of 160-175 days over last three fiscals through fiscal 2020. Working capital cycle is primarily driven by moderate debtor, inventory days and advances  to suppliers.
 
Weaknesses:
* 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.
 
* 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 1.81 times and 0.08 time, respectively, in fiscal 2020 albeit low gearing of 0.65 times.
Liquidity Adequate

Liquidity is expected to remain adequate. Net cash accrual is likely to be at Rs 7-7.5 crore per annum adequate to meet yearly repayment obligation. Unencumbered cash and cash equivalents were at around Rs 10 crore as on March 31, 2020. Financial assistance may also be expected from the promoters whenever necessary, as in the past. Bank limit utilisation averaged a moderate 58% in the 12 months through August 2020. Liquidity remains constrained by low accrual at standalone level in smaller entities.

Outlook: Negative

CRISIL believes Terai Tea group will remain constrained by modest topline, profitability, and cash accrual over the medium term.

Rating Sensitivity factors
Upward factors:
* Improvement in interest coverage ratio to above 2 times.
* Higher than expected scale of operations and sustenance of profitability at existing level.
* Efficient management of working capital cycle.
 
Downward factors:
* Interest coverage below 1.4 times.
* Lower productivity or any other operational issues affecting the business profile.
* Larger than expected debt funded capex affecting financial and liquidity profile.
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 Consolidated
Particulars Unit 2020 2019
Revenue Rs crore 209.37 237.16
Profit after tax (PAT) Rs crore 2.93 4.68
PAT margin % 1.4 1.97
Adjusted debt / adjusted networth Times 0.65 0.80
Interest coverage Times 1.81 1.87

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 25.5 NA CRISIL BBB-/Negative
NA Proposed working capital facility NA NA NA 21.76 NA CRISIL BBB-/Negative
NA Bank guarantee NA NA NA 1.20 NA 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.
Terai Dooars Tea Company Private
Limited
Full Same line of business, and significant operational, managerial, and financial linkages.
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  47.26  CRISIL BBB-/Negative      05-08-19  CRISIL BBB-/Negative/ CRISIL A3  27-09-18  CRISIL BBB-/Stable  30-06-17  CRISIL BBB-/Stable  CRISIL BBB-/Stable 
            26-07-19  CRISIL BBB-/Negative           
Non Fund-based Bank Facilities  LT/ST  1.20  CRISIL A3      05-08-19  CRISIL A3  27-09-18  CRISIL A3  30-06-17  CRISIL A3  CRISIL A3 
            26-07-19  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 25.5 CRISIL BBB-/Negative Cash Credit 25.62 CRISIL BBB-/Negative
Proposed Working Capital Facility 21.76 CRISIL BBB-/Negative Long Term Loan 1.18 CRISIL BBB-/Negative
-- 0 -- Short Term Loan 10.96 CRISIL A3
Total 48.46 -- Total 38.96 --
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
Criteria for rating entities belonging to homogenous groups

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