| Zeal Aqua Limited | ||||||
| Ratings reaffirmed at 'CRISIL BB+/Negative/CRISIL A4+' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Zeal Aqua Limited (ZAL) at ‘CRISIL BB+/Negative/CRISIL A4+’
The ratings continue to reflect ZAL's established position in shrimp farming, processing and trading, and company's moderate capital structure. These strengths are partially offset by large working capital requirement, susceptibility to volatility in shrimp prices and changes in government regulations, supplier and geographic concentration risks, and competition. |
Analytical Approach Unsecured loans (USL) amounting to Rs 11.69 crore as on March 31, 2020 has been treated as neither debt nor equity, as these loans are from promoters and are expected to remain in the business. |
Key Rating Drivers & Detailed Description Strengths:
ZAL's promoters have more than 25 years of experience in shrimp farming. Mr Pradeep Navik started with a small farm. In 2009, he tied up with Mr Shantilal Patel to form ZAL. The company has healthy growth because of its diversified revenue from shrimp and satellite farming. ZAL has developed a strong network of farmers for satellite farming, and a strong sourcing channel for shrimps and seeds. The company commenced its shrimp processing unit in fiscal 2018, capitalizing on its exiting captive and satellite farming facilities, strengthening its operating efficiency.
Company could grow its revenues despite decline in export sales amidst the pandemic, by increasing the domestic sales. Accordingly, company could generate sales of Rs 245 crore in 9MFY21 as compared to Rs 157 crore 9MFY20; however operating margin was impacted, which declined to 7.04% in 9MFY21 from 14.5% in 9MFY20, due to lower contribution from export sales and higher domestic and trading sales. Recovery in export sales in the near term would be a monitotable.
The company's capital structure is moderate, marked by net worth of Rs. 54.26 crore and total outside liabilities to tangible net worth of 2.17 times as on March 31, 2020. Capital structure is expected to remain moderate over the medium term in the absence any major debt funded capex.
Weakness:
With increasing shrimp processing revenues, the working capital requirements of company have increased. Operations remain working capital intensive with Gross Current Assets (GCA) of 237 days as of March 31, 2020 (increased from 192 days as on March 31,2019) caused by debtors of 96 days and inventory of 143 days (increased from 89 days a year earlier). Inventory and debtors remain elongated amidst the pandemic, resulting in extensive utilization of bank lines. Operations are expected to remain working capital intensive over the medium term. GCA is expected to remain high in the range of 210-230 days.
ZAL, a Gujarat-based player, operates on the north Gujarat sea coast near Surat. Though Gujarat is a large producer of shrimps in India, Andhra Pradesh is the leader in shrimp farming, and gives tough competition to other states. As all activities of ZAL are centered in Gujarat, it is susceptible to regional specific events impacting the business. Furthermore, the company's performance is vulnerable to volatility in the price and availability of shrimp. Any change in export or import regulations may also adversely impact the company’s performance. |
Liquidity: Stretched Fund based working capital limits are utilized at average 95% for 6 months ending Dec 2020. Working capital cycle remains stretched with elongated receivable and inventory cycle, resulting in extensive utilization of bank lines, and very low cushion for any incremental working capital requirement. However, Net Cash Accruals (NCA) remain sufficient, expected to be at Rs 7.5-8 crore in FY 21, and expected to increase to Rs 10-14 crore per annum in the medium term, against which company has repayment obligations of Rs 4-6 crore per annum. Company had unencumbered cash and bank balance of Rs 4.65 crore as on Sept 30, 2020. No major capex is planned in the medium term. Liquidity is partially supported by USL from promoters and related parties amounting to Rs 11.7 crore as on March 31, 2020. CRISIL has taken into cognizance, moratorium granted by the banker in debt servicing, up to August 31, 2020, as permitted by the Reserve Bank of India (RBI). |
Outlook: Negative CRISIL believes that business and financial risk profile of ZAL will remain under pressure with subdued export sales and stretched liquidity. |
Rating Sensitivity factors Upward factors • Growth in revenues and profitability resulting in sustained NCA of above Rs 10 crore • Significant improvement in working capital cycle and liquidity; with GCA below 200 days and higher cushion in bank lines.
Downward factors • Subdued revenues or operating margin resultant in lower than expected accruals • Further, stretch in working capital, leading to weakening financial risk profile; especially interest cover falling below 1.5 times and deterioration in liquidity profile |
About the Company Incorporated in 2009, ZAL is an aquaculture company promoted by Mr Shantilal Patel and Mr Pradeep Navik, which farms and trades in white shrimps, and deals in shrimp seeds, feed, and probiotics. In July 2017, the company started processing shrimp.
It is listed on Bombay Stock Exchange under the small and medium enterprises segment. |
Key Financial Indicators
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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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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