| Andrew Yule and Co Limited | ||||||
| Rating outlook revised to ‘Negative’; Ratings reaffirmed; rated amount enhanced for Bank Debt | ||||||
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| 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 long-term bank facilities of Andrew Yule and Co Limited (AYCL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB-’. Short-term rating has been reaffirmed at 'CRISIL A3’.
The outlook revision factors in deterioration in business risk profile as reflected in modest profitability during five fiscals through fiscal 2023. Operating margins were estimated to be around -6% in fiscal 2023 on account of lower revenue generation in Q3 of fiscal 2023 coupled with losses incurred in Q4 of fiscal 2023. The operating profitability were lower due to increase in employee wages for tea plantation workers w.e.f. January 2023 and lower realization in tea due to surplus crop in the market. However, improvement in revenues and profitability in electrical and engineering divisions supported scale of operations. Going forward, recovery in overall scale of operations remains key rating sensitivity factor.
The ratings continue to reflect the established position in the tea industry along with continued support from Government of India and moderate capital structure. These strengths are partially offset by modest debt protection metrices and susceptibility of profitability to fluctuations in tea prices. |
Key Rating Drivers & Detailed Description Strengths: Established position in the tea industry along with continued support from Government of India: Currently, the government holds 89.25% stake in AYCL, which operates in three main sectors - tea, engineering and electrical. Furthermore, the promoters’ in-depth understanding of market dynamics and healthy relationships with customers and suppliers will continue to support the business. In fiscal 2023, revenue is estimated to be over Rs 374 crore against revenue of Rs 339 crore in fiscal 2022, driven by ramp up scale of operations in electrical (Chennai) division where revenue was around Rs 103 crore in fiscal 2023 against Rs 59 crore in earlier fiscal. Sustained growth remains critical for improvement in market position. The ratings also factor in instances of support from the government in the past to help the company revive under the Board for Industrial and Financial Reconstruction (BIFR).
Moderate capital structure: Healthy networth estimated at Rs 188 crore as on March 31, 2023 support capital structure, yielding gearing of 0.52 time (0.36 time as on March 31, 2022) and TOL/TNW ratio of 1.90 times (1.41 times as on March 31, 2022) as on March 31, 2023. Increase in working capital requirement arising from regular replantation and improvement in revenues exerting pressure on capital structure is a key monitorable.
Weaknesses: Modest debt protection metrices: The interest coverage and net cash accrual to adjusted debt ratios were estimated at -0.63 time and 0.08 time, respectively, for fiscal 2023 against 0.19 time and 0.36 time respectively in fiscal 2022. Profitability has remained modest due to increase in employee and power fuel expenses and significant losses incurred in Electrical-Kolkata division in past. While profitability is susceptible to increase in costs, especially employee wages, increase in revenue is essential for improvement in debt protection metrices.
Susceptibility of profitability to fluctuations in tea prices: A significant portion of the sales is through auctions at Kolkata and Siliguri, West Bengal. Auction prices are determined at the centers based on demand-supply dynamics. The domestic demand-supply scenario directly impacts prices, while the global situation could affect market sentiment. Moreover, fragmentation in the tea industry limits pricing variation. For instance, realization price could not match the increase in production cost of tea in fiscal 2013, leading to reduced profitability or loss for many West Bengal-based tea manufacturers. The situation was similar in fiscal 2020, leading to operating loss for the tea division of AYCL and overall cash losses. |
Liquidity: Adequate Bank limit utilization is around 82% percent for the past twelve months ended May 2023. Cash accruals are expected to be around Rs 5-6 crore which are sufficient against term debt obligation of Rs 1-2 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio was modest around 1 time on March 31, 2023. Additionally, moderate cash and bank balance of around Rs 13 crore as on March 31, 2023 along with dividend income in range of Rs 21-37 crore during 5 fiscals through March 31, 2022 and Rs 19 crore in fiscal 2023 provide the necessary financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook Negative CRISIL Ratings believes AYCL will continue to benefit from the extensive experience of its promoters and improvement in profitability and debt protection metrices are a key monitorable. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company AYCL was incorporated in 1919 as a private sector company. Later, it lost its traditional business of managing agency and the government acquired the company in 1979 and currently holds 89.25% stake. The company primarily functions in three sectors - tea, engineering and electrical. It manufactures and sells tea, transformers, regulators or rectifiers, circuit breakers, switches, industrial fans, tea machinery and undertakes turnkey jobs. It has four operating units, out of which three are in West Bengal and one in Chennai, Tamil Nadu. AYCL also owns 12 tea gardens of which 7 are in West Bengal, 4 in Dooars and 1 in Darjeeling. |
Key Financial Indicators
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Status of non cooperation with previous CRA: AYCL has not cooperated with India Ratings And Research Private Limited and Acuite Ratings and Research Limited which has classified it as non-cooperative vide release dated 9-Oct-2017 and 18-Jul-2022 respectively. The reason provided by India Ratings And Research Private Limited and Acuite Ratings and Research Limited is non-furnishing of information for monitoring of ratings. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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