Rating Rationale
August 28, 2024 | Mumbai
ADF Foods Limited
Rating outlook revised to 'Positive'; Ratings Reaffirmed; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.110 Crore (Enhanced from Rs.48 Crore)
Long Term RatingCRISIL A/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of ADF Foods Ltd (ADF; part of the ADF group) to ‘Positive’ from ‘Stable’, while reaffirming the rating at ‘CRISIL A’. The rating on the short-term bank facilities have been reaffirmed at ‘CRISIL A1’.

 

The revision in outlook reflects an expected improvement in the group’s business risk profile, marked by sustained growth in revenue and steady rise in the operating margin. Revenue has grown to Rs 523 crore in fiscal 2024, from Rs 452 crore in fiscal 2023, and is projected to exceed Rs 600 crore in fiscal 2025, driven by healthy demand, regular addition of new products (sweets and ready-to-eat [RTE] segment), extensive promotional activities and expansion of network via distributors. Operating margin also improved steadily during the past two fiscals to 20.8% and is likely to sustain over the medium term, backed by continuous price hikes and energy conservative initiatives undertaken by the group. Sustained growth in revenue and operating margin will be key monitorables over the medium term. Financial profile and liquidity continues to remain strong.

 

The ratings continue to reflect the established position of the group as an exporter of Indian packaged food and its well-known brands and healthy operating efficiency. The ratings also factor in the strong financial risk profile and adequate liquidity of the group. These strengths are partially offset by susceptibility to volatility in raw material prices and intense competition in the processed food segment.

Analytical approach

CRISIL Ratings has combined the business and financial risk profiles of ADF; its subsidiaries - ADF Foods (India) Ltd and ADF Foods (UK) Ltd, and  step-down subsidiaries, ADF Holdings (USA) Ltd, ADF Foods (USA) Ltd and Telluric Foods (India) Ltd and its subsidiaries. The subsidiaries are strategically important to, and have a significant degree of operational integration with, ADF.

 

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:

  • Established brands and position in the packaged foods business: The ADF group has a diversified product profile and established brands, such as Camel (Middle East), Soul, Aeroplane, Ashoka, PJ’s and Nate’s (USA), and Truly Indian (the UK). The group has been exporting pickles and chutneys, frozen snacks, frozen vegetables and RTE meals for over three decades. With diversified presence across 55 countries, the company is focused on growing its exports to North America, Europe, the UK, the Middle East and APAC regions. Operating income has recorded a compound annual growth rate of 12% over the three fiscals through March 2024. A strong distribution network and clientele, ensuring a steady order inflow, have led to turnover of Rs 523 crore in fiscal 2024. Steady demand, continuous research and  addition of new products shall support sustenance of the healthy scale of operations.

 

  • Healthy operating margin: The group has maintained a high operating margin of over 17.5% during the seven fiscals through March 2024, and 20.78% in fiscal 2024. Operating efficiency should remain robust, driven by healthy economies of scale and in-house manufacturing capabilities, which also provide competitive advantages over peers. Return on capital employed ratio stood at 25.61% for fiscal 2024 and is projected to be in the range of 20-22% in the medium term. 

 

  • Strong financial risk profile: Adjusted Networth was healthy at Rs 398.38 crore as on March 31, 2024 and expected to improve with steady accretion to reserves. In the absence of external debt, the total outside liabilities to adjusted networth ratio was below 0.5 time as on March 31, 2024. Driven by consistent cash accrual and low reliance on working capital debt, the capital structure should remain comfortable over the medium term. Debt protection metrics were healthy, as reflected in interest coverage ratio of 49.64 times in fiscal 2024, and will continue to remain at similar levels

 

Weaknesses:

  • Exposure to intense competition: With exports contributing to 95% of revenue, the ADF group competes not only with packaged food manufacturers in other Asian countries, but also with established domestic players such as ITC, MTR, Haldiram’s and Bikaji. Sustenance of revenue growth, amid intense competition, is a key monitorable.

 

  • Vulnerability to volatility in raw material prices: Key raw materials include agricultural products, such as vegetables, mangoes, chillis, edible oil, salt and sugar. Raw material prices depend on inflation, timely and adequate monsoon, and government policies. The group makes calibrated price adjustments after factoring in the market dynamics and competitive positioning. Improvement in operating margin is a key rating sensitivity factor.

Liquidity: Strong

Bank limit utilisation was sparsely utilised over the 12 months through June 2024. Expected net cash accrual of Rs 80-100 crores per fiscal will adequately cover yearly debt obligation of around Rs 4 crore in fiscal 2026, for the debt expected to be availed for the capex. The group has cash and equivalent including mutual funds of over Rs 144.5s crore as on March 31, 2024. It has capex plans of around Rs. 60-80 crores over the medium term. The group has sufficient accrual and cash and equivalent to meet its capital expenditure (capex) and working capital requirement over the medium term.

Outlook: Positive

The business risk profile of the ADF group will improve over the medium term, with the addition of new products and capacity expansion.

Rating sensitivity factors

Upward factors:

  • Steady revenue growth along with healthy operating margin, resulting in cash accrual above Rs 85 crore
  • Efficient working capital management and sustenance of financial risk profile

 

Downward factors:

  • Decline in revenue or operating margin (below 17%), resulting in lower net cash accrual
  • Any large, debt-funded capex or acquisition, dividend payout, or stretch in the working capital cycle, weakening the financial risk profile and liquidity.

About the group

Incorporated in August 1990, ADF manufactures and exports a range of ethnic Indian food items such as pickles, chutneys, pastes, sauces, ready-to-eat food, frozen and canned food to Europe, US, Australia and the Gulf. ADF Foods UK Ltd and ADF Holdings USA Ltd are engaged in agency distribution of fast-moving consumer goods in the US and the UK. Mr Bimal Thakkar and his family members are the promoters.

 

The company has its corporate office in Mumbai (Maharashtra). The manufacturing units are located at Nadiad (Gujarat) and Nasik (Maharashtra). The company is listed on the Bombay Stock Exchange and the National Stock Exchange.

Key financial indicators- (Consolidated)

As on/for the period ended March 31

Unit

Apr- June 2024

2024

2023

Operating income

Rs crore

121.62

523.12

452.40

Reported profit after tax (PAT)

Rs crore

14.39

73.79

55.86

PAT margin

%

11.83

14.11

12.35

Adjusted debt/adjusted networth

Times

0

0

0

Interest coverage

Times

40.61

49.64

34.55

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA  Bank Guarantee  NA  NA  NA  5.27 NA  CRISIL A1 
NA  Export Packing Credit  NA  NA  NA  100 NA  CRISIL A/Positive 
NA  Letter of Credit  NA  NA  NA  4.73 NA  CRISIL A1 

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

ADF Foods (India) Ltd

Full

Same business and common promoters

ADF Foods Ltd

Full

Same business and common promoters

ADF Foods UK Ltd

Full

Same business and common promoters

ADF Holdings USA Ltd

Full

Same business and common promoters

Telluric Foods (India) Ltd and its subsidiaries

Full

Same business and common promoters
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 100.0 CRISIL A/Positive 12-04-24 CRISIL A/Stable 24-01-23 CRISIL A/Stable   -- 02-11-21 CRISIL A1 / CRISIL A/Stable CRISIL A2+ / CRISIL A-/Stable
      --   --   --   -- 27-08-21 CRISIL A1 / CRISIL A/Stable --
Non-Fund Based Facilities ST 10.0 CRISIL A1 12-04-24 CRISIL A1 24-01-23 CRISIL A1   -- 02-11-21 CRISIL A1 CRISIL A2+
      --   --   --   -- 27-08-21 CRISIL A1 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.27 State Bank of India CRISIL A1
Bank Guarantee 3.9 HDFC Bank Limited CRISIL A1
Bank Guarantee 1.1 ICICI Bank Limited CRISIL A1
Export Packing Credit 6.9 HDFC Bank Limited CRISIL A/Positive
Export Packing Credit 31.1 HDFC Bank Limited CRISIL A/Positive
Export Packing Credit 27 State Bank of India CRISIL A/Positive
Export Packing Credit 35 ICICI Bank Limited CRISIL A/Positive
Letter of Credit 0.83 State Bank of India CRISIL A1
Letter of Credit 3.9 State Bank of India CRISIL A1
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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