Rating Rationale
August 20, 2021 | Mumbai
Agro Tech Foods Limited
Ratings reaffirmed at 'CRISIL AA- / Stable / CRISIL A1+ '; CP Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.247 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.50 Crore Commercial PaperCRISIL A1+ (Withdrawn)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the bank facilities of Agro Tech Foods Ltd (Agro Tech) at 'CRISIL AA-/Stable/CRISIL A1+’ and simultaneously withdrawn its rating on commercial paper at the company's request. The withdrawal is in line with CRISIL Ratings' policy on withdrawal of credit ratings.

 

The ratings continue to reflect Agro Tech’s established position in the branded edible oils market, growing contribution from the higher-margin foods business, support from Conagra, and strong financial risk profile. These strengths are partially offset by exposure to inherent risk pertaining to agro-based nature of product offerings, and modest profitability with significant sales derived from the competitive, low-margin edible oil business.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of Agro Tech and its subsidiaries. CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support available to Agro Tech from parent, Conagra.

 

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:

  • Established position in the branded edible oils market, with continued growth in the food business: Agro Tech’s established market position and improving revenue diversity will continue to support the business risk profile. Agro Tech’s edible oil brand, Sundrop, has high recall, allowing it to enjoy a pricing premium. However, the company has been more focused on increasing the revenue share of its food business over the last 2-3 fiscals, driven by an expanding product portfolio. Operating income from the foods business grew 35% during fiscal 2021, over fiscal 2020, backed by strong growth in the ready-to-cook snacks business amid the pandemic. As a result, revenue share of the foods business increased to 39% in fiscal 2021 vis-a-vis 31% in fiscal 2020. The share of the foods business is expected to increase further supported by new product launches and pruning of volumes in mass oils segment.

 

  • Strong financial risk profile: Debt was nil as on March 31, 2021. The financial risk profile remains strong, marked by large networth of Rs 419 crore as on March 31, 2021, backed by steady cash accrual of over Rs 40 crore each over the last two fiscals. Accrual was Rs 43 crore in fiscal 2021, resulting in comfortable debt protection metrics: adjusted interest coverage ratio was more than 32 times during the period. Gearing should remain minimal while interest coverage should remain strong going forward in absence of long term debt or significant capex plans.

 

  • Support from the parent: Access to Conagra’s branded foods portfolio, including ACT II (popcorn), have helped Agro Tech to steadily improve its own branded foods portfolio in India. Continued focus on its ACT II product portfolio and steady addition of food products under the Sundrop brand have resulted in strong growth, with revenue contribution of the food business.

 

Weaknesses:

  • Exposure to risks associated with the agro-based nature of products: The edible oil business remains susceptible to risks pertaining to availability of oil, high regulations and pricing. Availability of oil, both in the domestic and international markets, is linked to oilseed production, which in turn remains vulnerable to factors such as monsoon, acreage under cultivation and yield. The edible oil and packaged food industries also face significant intervention from the government, given the commoditised nature of products. In order to ensure remunerative prices to farmers, the government fixes the minimum support price on oilseeds periodically. Moreover, it restricts any major hike in end-product prices as edible oil is an essential commodity, which has a bearing on the wholesale price index and inflation.

 

  • Modest operating profitability, with larger proportion of sales in the intensely competitive edible oils business: Around 61% of the revenue was derived from the competitive edible oils business for fiscal 2021. Though the company commands a pricing premium on edible oils by virtue of its strong brand, profit margin is lower than that of integrated branded oil manufacturers. Consolidated operating margins had declined to 4.1% in the quarter ending March 2021 compared to 5.2% in quarter ending March 2020 given steep rise in input prices. Operating margin will, over the medium term, remain sensitive to movements in commodity prices, flexibility to adjust pricing in the branded oils business, and level of sales promotion and advertising expenditure required to support the increasing scale of operations in the branded foods business.

Liquidity: Strong

Liquidity is driven by cash equivalents of Rs 18 crore (including investment in Mutual funds) as on March 31, 2021, and healthy cash accrual of Rs 43 crore for fiscal 2021. Furthermore, fund-based limit of Rs 167 crore remained largely unutilised in the 12 months ended July 31, 2021. The company does not have major long-term debt obligation, with nil debt of as on March 31, 2021. Capital expenditure (capex) is expected to remain moderate during fiscals 2022 and 2023, with yearly cash accrual of Rs 35-45 crore, and available cash equivalents should suffice to meet the capex and dividend requirement.

Outlook Stable

CRISIL Ratings believes Agro Tech will continue to benefit over the medium term from its established brand, expanded product profile and steady operating margin. Financial risk profile is also expected to remain healthy, supported by no debt and strong liquidity.

Rating Sensitivity factors

Upward factors:

  • Improvement in the credit risk profile of Conagra, leading to upward revision in its rating by one or more notches
  • Significant and sustained growth in revenue and operating margin

 

Downward factors:

  • Material weakening of the credit risk profile of Conagra, leading to downward revision in its rating by S&P Global Ratings by one or more notches
  • Sustained decline in operating margin and stagnant revenue, leading to lower cash accrual
  • Any large, debt-funded capex or acquisition

About Agro Tech:

Incorporated in 1986, Agro Tech has an established market position in the edible oils and branded foods business in India, and its primary brands are Sundrop, Crystal, and ACT II. Over the past few years, the company has diversified its portfolio to focus on high-margin, value-added products and reduce dependence on low-margin trading businesses. Agro Tech has strengthened its position in the branded foods market by introducing new products such as Sweet Corn, Chocolate spreads, hummus, Extruded Breakfast Cereals, Granola Cereals, and Chocolate confectionery.

About Conagra:

With annual revenue of USD 11.05 billion (for fiscal 2020), Conagra is one of the leading food companies in North America. It held a majority stake of 51.77% in Agro Tech as on March 31, 2021.

 

For the three months ended June 30, 2021, Agro Tech reported an operating income of Rs 206 crore and profit after tax (PAT) of Rs 8 crore, against Rs 203 crore and Rs 13 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators

As on / for the year ended March 31

 

2021

2020

Revenue

Rs crore

893

835

Profit after tax

Rs crore

31

34

PAT margin

%

3.5

4.05

Adjusted debt/adjusted networth

Times

--

0.01

Adjusted Interest coverage*

Times

32

32

*includes impact of Ind AS 116 for lease interest

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. 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)

ISIN

Name of Instrument

Date of Allotment

Coupon Rate

Maturity Date

Issue Size

Complexity Level

Rating Assigned with Outlook

NA

Bank Guarantee

NA

NA

NA

10

NA

CRISIL A1+

NA

Cash Credit *

NA

NA

NA

80

NA

CRISIL AA-/Stable

NA

Cash Credit

NA

NA

NA

5

NA

CRISIL AA-/ Stable

NA

Letter of Credit

NA

NA

NA

5

NA

CRISIL A1+

NA

Letter of credit & Bank Guarantee

NA

NA

NA

25

NA

CRISIL A1+

NA

Working Capital Demand Loan

NA

NA

NA

30

NA

CRISIL AA-/ Stable

NA

Working Capital Loan #

NA

NA

NA

42

NA

CRISIL AA-/ Stable

NA

Standby Letter of Credit

NA

NA

NA

5

NA

CRISIL A1+

NA

Term Loan

NA

NA

01-Dec-24

4.7

NA

CRISIL AA-/ Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

40.3

NA

CRISIL AA-/ Stable

NA

Commercial Paper

NA

NA

7 – 360 days

50

Simple

Withdrawn

* Fully interchangeable between fund-based facility and non-fund based facility

# Interchangeable between working capital loan and cash credit

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Sundrop Foods India Pvt Ltd

Fully consolidated

Strong business and financial linkages

Agro Tech Foods (Bangladesh) Pvt Ltd

Fully consolidated

Strong business and financial linkages

Sundrop Foods Lanka Pvt Ltd

Fully consolidated

Strong business and financial linkages

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 202.0 CRISIL AA-/Stable   -- 17-08-20 CRISIL AA-/Stable 15-03-19 CRISIL AA-/Stable 29-03-18 CRISIL AA-/Stable CRISIL AA-/Stable
      --   -- 02-03-20 CRISIL AA-/Negative   --   -- --
Non-Fund Based Facilities ST 45.0 CRISIL A1+   -- 17-08-20 CRISIL A1+ 15-03-19 CRISIL A1+ 29-03-18 CRISIL A1+ CRISIL A1+
      --   -- 02-03-20 CRISIL A1+   --   -- --
Commercial Paper ST 50.0 Withdrawn   -- 17-08-20 CRISIL A1+ 15-03-19 CRISIL A1+ 29-03-18 CRISIL A1+ CRISIL A1+
      --   -- 02-03-20 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bank Guarantee 10 CRISIL A1+
Cash Credit& 35 CRISIL AA-/Stable
Cash Credit 5 CRISIL AA-/Stable
Cash Credit& 45 CRISIL AA-/Stable
Letter of Credit 5 CRISIL A1+
Letter of credit & Bank Guarantee 25 CRISIL A1+
Proposed Long Term Bank Loan Facility 40.3 CRISIL AA-/Stable
Standby Letter of Credit 5 CRISIL A1+
Term Loan 4.7 CRISIL AA-/Stable
Working Capital Demand Loan 30 CRISIL AA-/Stable
Working Capital Loan% 42 CRISIL AA-/Stable
& - Fully interchangeable between fund-based facility and non-fund based facility
% - Interchangeable between working capital loan and cash credit
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
Mapping global scale ratings onto CRISIL scale
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Criteria for Consolidation

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