Rating Rationale
August 07, 2020 | Mumbai
Vinayaka Agro Fertilizers India Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.15 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB-/Stable' rating on the long-term bank facilities of Vinayaka Agro Fertilizers India Private Limited (VAFIPL, part of 'Lakshmi Ganesh group')
 
The rating reflects the extensive experience of the promoters in the chemical fertilizer industry and the group's above-average financial risk profile. These strengths are partially offset by modest scale of operations restricted by intense competition and susceptibility to regulatory changes and to erratic rainfall.
 
The lockdown and other measures taken by various central and state governments towards containment of COVID-19 are not expected to have any significant impact on the business risk profile of the company in fiscal 2021 as the company is into essential services. The company's manufacturing operation has resumed from April 2020 and is currently operating almost near pre-COVID scale. The group has booked revenue of Rs 17-18 crores in Q1 fiscal 2021, supported by overall healthy growth in fertilizer sales in the country. CRISIL has also taken into cognizance, moratorium being granted by the bankers on interest servicing and repayment of working capital facilities and term loans, as permitted by the Reserve Bank of India (RBI) which together with steady realization from debtors and cushion in bank limits with the group, should significantly contain the risk of default.

Analytical Approach

CRISIL has combined the business and financial risk profiles of Lakshmi Ganesh Agro Fertilizers Private Limited (LGAFPL, part of 'Lakshmi Ganesh group') and VAFIPL. This is because the companies, collectively referred to as the Lakshmi Ganesh group, are in the same line of business, have common promoters and fungible cash flows.

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
Benefits from the promoters' experience of more than a decade, and their strong understanding of market dynamics and healthy relationships with suppliers and customers should continue to support business risk profile.

* Above-average financial risk profile
Financial risk profile  of the group is above average backed by comfortable capital structure and healthy debt protection metrics. Gearing is estimated at 0.53 time and total outside liabilities to adjusted networth (TOLANW) of 0.51 time as on March 31, 2020. Interest coverage and net cash accrual to total debt ratios are estimated at 3.3 times and 0.4 time, respectively, in fiscal 2020.
 
Weaknesses:
* Modest scale of operations restricted by intense competition 
Intense competition continues to constrain scalability in revenue for the group while maintaining the profit margin. Although the group has been operational for over a decade, revenue was Rs 47 crore in fiscal 2020. Ability of the group to enhance the scale of operations while maintaining the profitability and managing working capital requirements would be a key rating sensitivity.
 
* Susceptibility to regulatory changes and to erratic rainfall
The fertiliser industry, being of strategic importance, is highly regulated by the government, which controls pricing (albeit indirectly), addition of capacity, and, to an extent, distribution. Furthermore, profitability and growth of fertiliser companies depend on the agricultural output, which depends on monsoon. Although the governments thrust on improving irrigation techniques should support the industry going forward, the risk of poor monsoon persists. Furthermore, the bulk of revenue is derived from Andhra Pradesh, leading to geographic concentration risk.
Liquidity Adequate

Net cash accrual, likely to be Rs.5-8 crore per fiscal over the medium term, is adequate to meet debt obligations of Rs 0.68 crore per annum and there are no significant planned capital expenditure. Bank limit utilisation averaged 47% during 12 months through May, 2020. Surplus accruals and unutilised bank lines should adequately fund working capital requirements over the medium term. Current ratio was healthy estimated at 1.75 times as on March 31, 2020.

Outlook: Stable

CRISIL believes the Lakshmi Ganesh group will continue to benefit from the extensive experience of its promoters and their established relationships with clients.

Rating Sensitivity factors
Upward factors
* Sustained ramp-up in revenue above Rs 100 crore and maintained profitability.
* Improved working capital cycle and maintained financial risk profile, including liquidity.
 
Downward factors
* Lower than expected ramp up in revenue or a decline in operating margins below 14%, results in significantly lower than expected accruals
* Further stretch in working capital cycle on account of aggressive expansion into newer markets, or large debt-funded capital expenditure weakens capital structure.
About the Group

Incorporated in 2010, VAFIPL engaged in manufacturing of single super phosphate (SSP) fertilizer.

Incorporated in 2011, LGAFPL is engaged in the manufacture of NPK fertilisers.
 
Both LGAFPL and VAFIPL is promoted by Mr B Sinivasul Reddy and Mr P Harsha Reddy and their manufacturing facilities are in Nellore (Andhra Pradesh).

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 29.80 29.75
Reported profit after tax Rs crore 1.96 2.17
PAT margins % 6.6 7.3
Adjusted Debt/Adjusted Net worth Times 0.81 0.86
Interest coverage Times 2.63 3.05

Status of non cooperation with previous CRA:
VAFIPL has not cooperated with Acuite Ratings & Research Limited (Acuite) which has classified it as issuer not cooperative vide release dated August 19, 2019. The reason provided by ICRA is non-furnishing of information for monitoring of ratings

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		 Complexity  level Issue Size
(Rs. Cr)		 Rating Assigned with Outlook
NA Cash Credit NA NA NA NA 15 CRISIL BBB-/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Lakshmi Ganesh Agro Fertilizers Private Limited Full Consolidation Same line of business, common promoters with fungible cash flows
Vinayaka Agro Fertilizers India Private Limited Full Consolidation Same line of business, common promoters with fungible cash flows
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  15.00  CRISIL BBB-/Stable      28-05-19  CRISIL BBB-/Stable    --    --  -- 
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
Cash Credit 15 CRISIL BBB-/Stable Cash Credit 15 CRISIL BBB-/Stable
Total 15 -- Total 15 --
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Criteria for rating entities belonging to homogenous groups
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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