Rating Rationale
March 28, 2022 | Mumbai
Baba Agro Food Limited
Ratings upgraded to 'CRISIL BBB/Positive/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.142 Crore
Long Term RatingCRISIL BBB/Positive (Upgraded from 'CRISIL BBB-/Stable' )
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3')
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 upgraded its ratings on the bank facilities of Baba Agro Food Limited (BAFL; formerly, Sri Krishna Metcom Ltd) to CRISIL BBB/Positive/CRISIL A3+from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The upgrade reflects the stabilisation of operations after completion of capital expenditure (capex), making the company the biggest non-basmati player in east India (almost twice the size of the second-largest player). The upgrade also factors in expected improvement in the capital structure from fiscal 2022 while maintaining healthy profitability and working capital cycle.

 

Improvement in capacity utilisation while maintaining liquidity and profitability will be a key monitorable.

 

The ratings reflect the extensive experience of the promoters in the rice milling industry, and the comfortable financial risk profile and efficient working capital management of the company. These strengths are partially offset by exposure to intense competition.

Key Rating Drivers and Detailed Description

Strengths:

  • Extensive experience of the promoters: The promoters’ experience of more than 15 years in the rice industry and healthy relationships with customers and suppliers will continue to support the business. The company deals with over 500 wholesalers and retailers across east India. The brand, Baba, has an established market position and is sold in the open market to traders or retailers in Jharkhand, West Bengal and Bihar.

 

  • Comfortable financial risk profile: Despite the debt-funded capex towards setting up the facility in Aurangabad, Bihar, gearing increased marginally to 1.45 times as on March 31, 2021, from 1.35 times a year earlier on account of significant improvement in networth to Rs 100.33 crore as on March 31, 2021 from Rs 80.2 crore a year earlier. Debt protection metrics were robust, reflected in interest coverage and net cash accrual to total debt ratios of 4.08 times and 0.22 time, respectively, in fiscal 2021. The financial risk profile will remain comfortable over the medium term.

 

  • Efficient working capital management: Gross current assets were 67-127 days in the three fiscals through March 31, 2021, driven by inventory and receivables of 49-108 and 20-24 days, respectively.

 

Weakness:

  • Exposure to intense competition: The rice milling business in east India is highly competitive with several players catering to regional demand. Despite the company’s presence of over a decade and established relationships with customers and farmers, competitive pressure persists.

Liquidity: Adequate

Bank limit utilisation was high at 89% on average for the 18 months through January 2022. Cash accrual, expected over Rs 31 crore per annum, will sufficiently cover yearly term debt obligation of Rs 7-8 crore over the medium term. The surplus will cushion the liquidity of the company.

 

Current ratio is healthy at 1.4 times as on March 31, 2021.

Outlook: Positive

CRISIL Ratings believes BAFL will continue to benefit from the extensive experience of the promoters and its established brand. Improvement in capacity utilisation while maintaining liquidity and profitability will be a key monitorable.

Rating Sensitivity Factors

Upward factors:

  • Steady improvement in revenue and profitability resulting in net cash accrual above Rs 35 crore
  • Prudent working capital management
  • Comfortable financial risk profile and liquidity

 

Downward factors:

  • Decline in operating margin below 5% and stretched working capital cycle
  • Large, unplanned debt-funded capex weakening the capital structure

About the company

Set up in 2008, BAFL operates a non-basmati parboiled rice mill in Ranchi, Jharkhand. Operations are managed by the promoter-directors, Mr G P Sahu and Mr Yogesh Sahu. Its unit has capacity of 60 tonne per hour.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

568.32

542.86

Reported profit after tax (PAT)

Rs crore

19.68

19.79

PAT margin

%

3.46

3.64

Adjusted debt / adjusted networth

Times

1.45

1.35

Interest coverage

Times

4.08

6.60

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 instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity level Rating assigned with outlook
NA Cash credit NA NA NA 30 NA CRISIL BBB/Positive
NA Fund- and non-fund based limits NA NA NA 19.37 NA CRISIL BBB/Positive
NA Long-term loan NA NA Mar-2026 5.63 NA CRISIL BBB/Positive
NA Proposed cash credit limit NA NA NA 10 NA CRISIL BBB/Positive
NA Proposed non-fund based limits NA NA NA 27 NA CRISIL A3+
NA Proposed term loan NA NA NA 30 NA CRISIL BBB/Positive
NA Warehouse receipts NA NA NA 20 NA CRISIL BBB/Positive
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 95.63 CRISIL BBB/Positive   --   -- 31-12-20 CRISIL BBB-/Stable 03-10-19 CRISIL BBB-/Stable CRISIL BBB-/Stable
Non-Fund Based Facilities ST/LT 46.37 CRISIL A3+ / CRISIL BBB/Positive   --   -- 31-12-20 CRISIL BBB-/Stable / CRISIL A3 03-10-19 CRISIL BBB-/Stable / CRISIL A3 CRISIL A3
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 20 Bank of Baroda CRISIL BBB/Positive
Cash Credit 10 IDBI Bank Limited CRISIL BBB/Positive
Fund & Non Fund Based Limits 19.37 HDFC Bank Limited CRISIL BBB/Positive
Long Term Loan 5.63 HDFC Bank Limited CRISIL BBB/Positive
Proposed Cash Credit Limit 10 Bank of Baroda CRISIL BBB/Positive
Proposed Non Fund based limits 27 Not Applicable CRISIL A3+
Proposed Term Loan 30 Bank of Baroda CRISIL BBB/Positive
Warehouse Receipts 10 Bank of Baroda CRISIL BBB/Positive
Warehouse Receipts 10 IDBI Bank Limited CRISIL BBB/Positive

This Annexure has been updated on 17-Feb-23 in line with the lender-wise facility details as on 28-Jan-23 received from the rated entity.

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 Approach to Recognising Default

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