Rating Rationale

Strengths:
* Synergies derived from parent SOIPL: SOIPL, part of Suminter group is the leading organic product exporter from India. The group has a strong global customer base with marquee customers such as Perdue Agribusiness LLC, Southern Appalachian Man and the Biosphere (SAMAB), High Quality Organics and Starbucks amongst others. Company's position in the industry is cemented by the availability of a large number of organic certified farms by Agricultural and Processed Food Products Export Development Authority (APEDA) across diverse geographic locations. CRISIL believes that SOFPL will continue to benefit from established market position and strong financial profile over the medium term.

* Presence in niche organic cotton and cotton seed processing segment: SOFPL operates in niche organic cotton and cotton seed processing segment while catering to established players.

Weakness:
* Exposure to volatility in agricultural commodity prices and changes in yield: The agro based nature of industry exposes SOFPL to volatility in agricultural commodity (cotton) prices and changes in yield. The availability of organic agricultural products for SOIPL and their prices are subject to vagaries in monsoon and climatic changes. In periods of low availability in the domestic market, the prices of agricultural products tend to increase, while the realization for organic certified products are governed by the prevailing prices in the global market. Sustained growth in revenue while maintaining operating profits to remain monitorable.

* Susceptibility to certification and regulatory risks: SOFPL's products need to be certified by the requisite regulatory authorities, for instance APEDA in India, before exporting to its customers. Lack of adequate certification would lead to rejection of the group's products thereby adversely impacting its revenue profile. While the group has not faced any certification issues in the past, tight monitoring of the procurement channel to ensure 100 percent organic produce would remain critical to the group's growth plans over the medium term. Further the group also remains susceptible to regulatory risks i.e. government regulations such as hike in Minimum Support Price (MSP), ban on exports of some agro-commodities, etc.

Liquidity: Strong
The rated instrument of SOFPL has strong liquidity available to it, driven by support from the parent SOIPL to provide ongoing and need based support, in case of exigencies. On a standalone basis, SOFPL has sufficient liquidity driven by expected cash accruals of more than Rs. 2 crore per annum in fiscal 2020 and fiscal 2021 and cash and cash equivalents of Rs. 4.75 crore as on March 31, 2019. SOFPL also has access to fund based limits of Rs. 7.5 crore, utilized to the tune of 29% on an average over the 12 months ended June 2019. The company has no long term repayment obligations and capex plans. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its incremental working capital requirements.

Rating sensitivity factor
Upward factor
* Sustained growth in revenue while operating profits improving to more than 9%
* Better working capital management strengthening debt protection metrics on account of lower reliance on external debt

Downward factor
* Lower-than-expected operating performance resulting in accruals of less than Rs 20 crore
* Further stretch in working capital cycle resulting in increased reliance on external debt
* Cost or time over run in on-going capex

Particulars

Unit

2019*

2018

Revenue

Rs crore

116.74

72.87

Profit after tax (PAT)

Rs crore

0.12

0.02

PAT margin

0.1

0.03

Adjusted debt/adjusted networth

Times

2.23

3.12

Interest coverage

Times

3.37

3.02