| Andrew Yule and Co Limited | ||||||
| 'CRISIL BBB-/Stable/CRISIL A3' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has assigned its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings to the bank facilities of Andrew Yule and Co Ltd (AYCL).
The ratings reflect the established position of AYCL in the tea industry along with continued support from the Government of India (GoI), well-established customer base and healthy product diversity supporting the scale and sustainability of operations, healthy capital structure and moderate financial risk profile. These strengths are partially offset by susceptibility to fluctuations in tea prices, seasonality in production and weather conditions, and exposure to inherent cyclicality in demand and volatility in raw material prices. |
Analytical approach In the absence of operations in the subsidiaries of AYCL, CRISIL Ratings has taken a standalone approach. |
Key rating drivers & detailed description Strengths: Established position in the tea industry along with continued support from GoI: Currently, GoI holds an 89.25% stake in AYCL, which operates in three main sectors namely tea, engineering and electrical. The healthy scale provides AYCL operating flexibility in an intensely competitive industry. Further, the promoters’ in-depth understanding of market dynamics, and healthy relations with customers and suppliers will continue to support the business. The rating also factors instances of support from GOI in the past to help the company come out of BIFR.
Well-established customer base and healthy product diversity support the scale and sustainability: AYCL, in operation for over 100 years, is an established player in the market. It has long-standing relationships with its customers—some of the well established players in various industries—and suppliers. The scale of operations remains healthy and diversification of the product basket into tea, electrical and engineering divisions, mitigates the risk of obsolescence in case of any new technology coming into the market.
Healthy capital structure: The low reliance on external funds has yielded modest total outside liabilities to adjusted tangible networth ratio for three years ended March 31, 2021.
Moderate financial risk profile: Limited reliance on external funds yielded a gearing of 0.36 time and total outside liabilities to adjusted tangible networth ratio of 1.30 times as on March 31, 2021. The debt protection measures of the company have also been at a comfortable level despite leverage due to healthy profitability. The interest coverage and net cash accrual to adjusted debt ratios were 3.33 times and 0.40 time, respectively, for fiscal 2021. Debt protection measures are expected to remain at a similar level over the medium term.
Weaknesses: Susceptibility to fluctuations in tea prices: A significant portion of the sales is through auctions at Kolkata and Siliguri, both in West Bengal. Auction prices are determined at the centres, based on demand-supply dynamics. The domestic demand-supply scenario directly impacts prices, while the global situation could affect market sentiment. While the company has some pricing discretion for tea sold through the private channel, these rates are also influenced by auction prices. Moreover, fragmentation in the tea industry limits pricing variation. For instance, realisation price could not match the increase in production cost of tea in fiscal 2019, 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.
Vulnerability to seasonality in production and to weather conditions: Being a seasonal product, tea yield depends on the monsoon. Hence, production declines in poor weather conditions. The crop is also exposed to pest attacks. Tea plantation companies incur high fixed cost, mainly comprising labour and manufacturing expenses. If production lags normal levels, there could be a significant dip in profitability or even an operating loss.
Exposure to inherent cyclicality in demand and volatility in raw material prices: The engineering industry is cyclical and moves in-line with the level of activity in the construction sector. Aluminum (main raw material) is primarily purchased from Hindalco Industries Ltd. However, the absence of forward contracts for mitigating aluminum price volatility risk, impacts the operating margin. Thus, revenue is likely to remain susceptible to the inherent cyclicality in the end-user industries and to significant volatility in raw material prices, over the medium term. |
Liquidity: Adequate Bank limit utilization averaged a low 64% over the 12 months ended July 2021.
Cash accrual, expected at Rs 25 crore per annum over the medium term should comfortably cover yearly debt obligation of less than Rs 0.50 crore and the surplus will support liquidity. The accruals of the company are supported by dividend income from associate company – Tide Water Oil Co. (India) Ltd in the range of Rs. 17 – Rs. 28 crores over the last 5 years.
Current ratio was moderate at 1.11 times as on March 31, 2021.
Low gearing and moderate networth support the financial flexibility of the company. Also, investments in other companies with present day market value of more than Rs. 800 crores also support the financial flexibility of the company and is a key rating driver. |
Outlook Stable CRISIL Ratings believes AYCL will continue to benefit from the extensive experience of its promoters, and established relationships with clients. |
Rating sensitivity factors Upward factors
Downward factors
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About the company AYCL was incorporated in 1919 as a private sector company and later company lost its traditional business of managing agency and GoI acquired the company in 1979 and holds 89.25% stake currently.
The company primarily functions in three sectors namely tea, engineering and electrical. AYCL is engaged in manufacturing and sale of tea, transformers, regulators/rectifiers, circuit breakers, switches, industrial fans, tea machinery and turnkey jobs. It has five operating units out of which four are in West Bengal and one in Chennai. |
Key financial indicators
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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)
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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 | ||||||||||||||||
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This Annexure has been updated on 30-Sep-2021 in line with the lender-wise facility details as on 29-Sep-2021 received from the rated entity
Criteria Details
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