| Zuari Foods And Farms Private Limited | ||||
| Rating upgraded to 'CRISIL BBB / Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale: CRISIL Ratings has upgraded its rating on the long-term bank loan facilities of Zuari Foods and Farms Pvt Ltd (ZFF, part of the Zuari Foods group) to 'CRISIL BBB/Stable' from 'CRISIL BBB-/Stable'.
The upgrade in ratings factors in significant and sustained improvement in business risk profile over last 3 years while group continues to maintain healthy financial risk profile.
The company has grown at a healthy CAGR of more than 25% over last 4 years through fiscal 2021. The revenue growth is supported by timely capacity enhancement and successful ramp up of operations backed by increasing demand. In current fiscal also, the company is expected to record strong revenue growth aided by new capacity addition and expansion of its operations into new geographies along with moderately increasing demand for mushrooms. The operating margins also continues to remain healthy at more than 25% over last 4 years and are expected to remain at similar levels going ahead which will support the business risk profile of the company. The working capital cycle remains efficiently managed because of controlled receivables.
The financial risk profile of the company is expected to remain healthy over medium term despite debt funded capex. Supported by healthy accretions. The gearing is expected to remain healthy at less than 0.6 times over medium term while debt protection metrics shall be supported by healthy profitability.
The rating continues to reflect the promoters’ extensive industry experience, and group’s healthy operating efficiencies and financial risk profile. These strengths are partially offset by average-but-improving scale of operations, and moderate working capital requirement. |
Analytical Approach: For arriving at the rating, CRISIL Ratings has consolidated the business and financial risk profiles of ZFF with Tropical Mushrooms (Goa) Pvt Ltd (TMG), together referred to herein as the Zuari Foods group as they are in similar business and are managed together.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Experience of promoter and established brand: Dr Sangam Kurade holds a doctorate degree in food technology and has expertise in mushroom cultivation. He has set up one of the earliest modern mushroom cultivation facilities in India, helping the group to establish a strong customer base and established brand, Dr Kurade’s in Goa, Karnataka, Tamil Nadu and Kerala. Under his guidance, the group has recorded continuous revenue growth backed by steady capacity additions.
Healthy operating efficiencies: Operating margin has remained healthy at about 28-30% in the past four fiscals ending 2021, supported by optimum capacity utilisation, growing demand for mushroom, strong brand, and improving economies of scale. The trend should continue over the medium term too. Further the return on capital employed (RoCE) has been healthy at over 22% in last four fiscals through 2021.
Comfortable financial risk profile: Adequate networth (estimated around Rs 40 crore as on March 31, 2021), results in a comfortable capital structure, with gearing of under 0.7 time. Also, interest coverage ratio and net cash accrual to adjusted debt ratios are estimated around 10 times and 0.61 time for fiscal 2021 due to healthy profitability. The group is undertaking a capex of around Rs.19 crore, debt funded to the tune of Rs.13.15 crore to augment its capacity by about 30%. The debt funded capex is not expected to weaken the financial metrics given strong accretions.
Weakness: Average but improving scale of operations: Scale remains average despite increasing to around Rs 51 crore in fiscal 2021 from Rs 42 crore a year ago. Perishable nature of mushroom limits the supply to certain geographies. However, the group has made capacity enhancements in fiscal 2020 and the same is expected to support the scale over the medium term. Also going ahead, the group is further enhancing its capacity by about 30% and trying to expand into new geographies which will help the group to register healthy revenue growth over medium term.
Moderate working capital requirement: Gross current assets are expected to remain moderate at 100-110 days owing to inventory of 70-80 days due to nature of business. Though the working capital remains largely supported by limited credit offered to customers, continued control over receivables remain critical. With growing scale of operations, working capital management remains a key monitorable. |
Liquidity should remain adequate over the medium term. Cash accrual is likely to be at Rs 16-20 crore per fiscal, against scheduled debt obligation of Rs 2.7-3.5 crore; excess cash accrual could be used to support working capital, requirements and planned capex. Utilisation of Rs 5 crore cash credit limit (Rs 2.5 crores of ZFF and Rs 2.5 crores of TMG) averaged 16% in the 12 months through May 2021. The current ratio is adequate at 1.30 times as on March 31, 2021. The group does not maintain any large cash, bank balances or cash equivalents. |
Outlook: Stable CRISIL Ratings believes the group will continue to benefit over the medium term from the experience of the promoter and the established brand. |
Rating Sensitivity factors: Upward Factor:
Downward factor:
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The Zuari Foods group cultivates and sells fresh mushrooms; the products are sold under the brand, Dr Kurade's. Dr Sangam Kurade is the promoter. ZFF, incorporated in 1993, has mushroom growing capacity of about 4 tonne per day (tpd). TMG, incorporated in 2011, has mushroom growing capacity of about 8 tpd. |
Key Financial Indicators (Standalone):
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| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Cash Credit | 2.5 | CRISIL BBB/Stable |
| Term Loan | 4.86 | CRISIL BBB/Stable |
| Term Loan | 0.92 | CRISIL BBB/Stable |
Criteria Details
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