| Amar Singh Chawal Wala | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A-/Stable/CRISIL A2+' ratings on the bank facilities of Amar Singh Chawal Wala (ASCW).
The ratings continue to reflect the firm’s established market position, backed by strong recall for its ‘Lal Quila’ brand and longstanding relationships with clients. The rating also factors in firm’s healthy financial risk profile because of sizeable networth and limited reliance on external debt. These strengths are partially offset by large working capital requirement and susceptibility to volatility in raw material prices. |
Analytical Approach Of the unsecured loan of Rs 34.44 crore provided by the partners as on March 31, 2021, 75% has been treated as equity and 25% as debt, as the loan will remain in the business. |
Key Rating Drivers & Detailed Description Strengths: Established market position and brand, strong track record and geographically diversified reach ASCW is one of the leading basmati rice exporters in India and sells its products under the well-recognised Lal Qilla brand in the domestic and export markets. It has established healthy relationships with customers in the international market, exporting around 70% of its basmati production to buyers in the Middle East, USA and Canada. The firm sells its entire output under its own brand in the domestic market as well through a network of dealers and has started selling through retail chain stores, such as Wal-Mart, Metro, Reliance and Food Bazaar, in the past three years. This has resulted in revenue of Rs 390 crore in fiscal 2021 (against Rs 354 crore in fiscal 2020), driven by volumetric growth of 20%. Revenue is expected to increase further, supported by year-to-date performance of Rs 240 crore until November 2021 and increase in volumetric sales amid healthy demand from customers.
Healthy financial risk profile Despite capital withdrawals by the partners (Rs 15.03 crore in fiscal 2021), capital structure remained healthy, as reflected in networth and total outside liabilities to tangible networth ratio of Rs 177 crore and 0.50 time, respectively, as on March 31, 2021. Networth is expected to improve on account of healthy accretion to reserve and minimal capital withdrawal. Debt protection metrics are expected to remain robust, indicated by interest coverage ratio of 6-7 times over the medium term. The firm is undertaking capital expenditure (capex) to start a trading centre in Punjab and will be funded by internal accrual. In the absence of any sizeable capex and minimal reliance on external debt, the financial risk profile is expected to remain strong over the medium term.
Weaknesses Large working capital requirement Operations are working capital intensive, as reflected in gross current assets of 209 days as on March 31, 2021, driven by high inventory of 181 days. Inventory is high on account of seasonal availability of paddy and its subsequent ageing, in line with the business requirement. The firm procures most of its paddy requirement from November to March for the entire year, thereby leading to higher inventory levels at the end of the fiscal. Payments from export customers are usually backed by letter of credit, while 20-30 days credit is extended in the domestic market, leading to moderate receivables. With ramp-up in the scale of operations, working capital management will be closely monitored.
Susceptibility to volatility in raw material prices Availability of paddy depends on the monsoons. Shortage of paddy because of weak monsoons or crop rotation may result in fall in operating income and profitability. Paddy prices also depend on production levels. Though the firm has an understanding with its customers, it is not binding, rendering the firm susceptible to the risk of a steep decline in prices after procurement. Also, exports of agricultural commodities, including rice, are highly regulated. |
Liquidity: Strong Cash accrual, expected at Rs 15-18 crore per annum, will comfortably meet yearly debt obligation of Rs 0.08 crore over the medium term; the surplus cash will be used as working capital and to fund the capex for setting up a trading centre. Bank limit utilisation averaged 30.30% over the 12 months through October 2021. Cash and equivalents were moderate at Rs 10 crore as on March 31, 2021. Unsecured loans from the partners will remain in the business and support liquidity. |
Outlook: Stable ASCW will maintain its established position in the basmati rice industry, supported by the extensive experience of the partners and the strong brand. |
Rating Sensitivity Factors Upward factors
Downward factors
|
About the Company ASCW, established in 1900 by the late Mr Amar Singh, processes basmati rice and sells it under the Lal Qilla brand, both domestically and internationally. The firm is owned and managed by Mr Kartar Singh, Mr Pritam Singh and Mr Arvinder Singh. |
Key Financial Indicators
|
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)
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
|
This Annexure has been updated on 29-Dec-2021 in line with the lender-wise facility details as on 04-Aug-2021 received from the rated entity.
Criteria Details
|