| Banaskantha District Co-Operative Milk Producers Union Limited | ||||||
| Rated amount enhanced for 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 reaffirmed its ‘CRISIL AA+/Stable’ rating on the long-term bank facilities of Banaskantha District Co-operative Milk Producers Union Ltd (Banas). It has also reassigned its rating on Rs 130 crore bank loan facility to ‘CRISIL AAA(CE)/Stable’ after factoring in a corporate guarantee given by Gujarat Co-Operative Milk Marketing Federation (GCMMF; ‘CRISIL AAA/Stable/CRISIL A1+’).
The ratings factor in the unconditional, continuing and irrevocable guarantee from GCMMF and an undertaking by the parent for securing principal and interest obligations on the debt of the union. The CE suffix reflects the payment structure that is designed to ensure full and time-bound payment to lenders.
Despite the pandemic, revenue recorded a 7% on-year growth to Rs 12,983 crore in fiscal 2021 as a 26% growth in liquid milk sales more than compensated for the decline in demand for value-added products (VAP) such as butter, flavoured milk and ice cream. With retail prices being hiked earlier this fiscal and demand recovering to normal levels, revenue growth is likely to revert to pre-pandemic level of 12-14% and will be around Rs 14,800 crore for fiscal 2022; sales were about Rs 12,300 till January 2022. Operating profitability continues at 9-10% and is expected to remain steady over the medium term.
Lower demand coupled with high milk procurement led to build-up of skimmed milk powder (SMP) and white butter inventory since the first quarter of fiscal 2021. The total inventory of Banas increased to 40,873 tonne as on January 31, 2022, from the pre-pandemic level of 11,338 tonne as on September 30, 2019. The union is likely to undertake capital expenditure (capex) of Rs 400 crore per annum over the medium term (funded through a mix of debt and accrual) to expand the milk processing and production capacity in Gujarat and Uttar Pradesh. Financial risk profile is expected to remain moderate even after factoring in the capex. Timely completion of the capex, ensuring steady improvement in cash flow, will be a key rating sensitivity factor.
The ratings continue to reflect the dominant position of Banas in the value chain of GCMMF, strong support from the federation, and healthy raw milk procurement capability. These strengths are partially offset by average financial risk profile because of modest networth and large, debt-funded capex plans, and susceptibility to government policies and environmental conditions, including epidemics. |
Analytical Approach
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Key Rating Drivers & Detailed Description Strengths
Weaknesses
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Liquidity: Strong Expected annual net cash accrual of over Rs 350 crore will be sufficient to cover yearly debt obligation of Rs 140-150 crore, over the medium term. The union generally maintains unencumbered cash and bank balance of over Rs 400 crore. Additional comfort is derived from bank limit utilisation of just 28% over the 12 months through January 2022. Banas distributes excess profit to union members after meeting debt obligation, capex and working capital requirement, thereby providing financial flexibility. |
Outlook Stable Outlook on rating on facility guaranteed by GCMMF: Stable The outlook is based on the ‘Stable’ outlook on the rating of GCMMF. The rating on Banas will remain sensitive to any change in the ratings on GCMMF.
Outlook on rating on facility not guaranteed by GCMMF: Stable Banas will continue to benefit from its significant contribution to the product portfolio of GCMMF, strong milk procurement capability and wide distribution network. Financial risk profile is also likely to remain adequate, backed by healthy cash accrual and moderate gearing. |
Rating Sensitivity factors Downward factors
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Adequacy of credit enhancement structure Creditworthiness of the guarantor GCMMF has a dominant market position in the Indian dairy industry. It remains the largest dairy product marketing organisation in India, with superior brand equity, wide product portfolio, a well-spread distribution network, and an aggressive marketing strategy. The federation is part of a cooperative structure, wherein farmers are owners and suppliers to district cooperative milk unions that supply milk and milk products to GCMMF for marketing. It follows a two-step price payment mechanism, with the final price during the year reflecting strong control over the effective price paid to unions. Thus, the quality of the rated debt reflects the credit quality of the guarantor, GCMMF. The rating is based on the strength of an unconditional, continuing, and irrevocable guarantee from GCMMF and an undertaking by the parent for securing principal and interest obligations on the company’s entire debt. The (CE) suffix reflects the payment structure that is designed to ensure full and time-bound payment to lenders. According to the payment mechanism, the guarantor, GCMMF, will pay, not later than three calendar days from the due date, any amount due and payable by Banas Dairy, in relation to these instruments if there is any default on, or shortfall in, payment. The guarantee and the undertaking together cover the principal, interest, and other monies payable under the loan. |
Unsupported ratings: CRISIL AA+ CRISIL Ratings has introduced the ‘CE’ suffix for instruments with an explicit Credit Enhancement feature, in compliance with the Securities and Exchange Board of India circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported ratings, CRISIL Ratings has applied its criteria for notching up ratings for parent support. GCMMF support is treated as similar to parent support given the cooperative structure.
Rating sensitivity factors for unguaranteed rating Upward factors
Downward factors
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About the Union Set up in 1969, Banas works within the cooperative structure of GCMMF. It procures milk from 1,461 village dairy cooperative societies (comprising around 4.5 lakh farmers) in Banaskantha. During fiscal 2021, Banas procured an average of 67 llpd. It has capacity to process around 78.5 llpd. It also has capacity to manufacture 2,400 tonne of cattle feed per day. The union has set up processing capacity in Faridabad (Haryana), Kanpur (Uttar Pradesh) and Lucknow. Products are marketed and distributed under the Amul and Sagar brands through the GCMMF channels.
About the federation Set up in 1973, GCMMF is the largest dairy product marketing organisation in India and procures milk from over 34.94 lakh member farmers. The products of its member unions are marketed and distributed under the Amul brand. It has 18,554 active village dairy cooperative societies and is the apex marketing federation of 18 district cooperative milk unions in Gujarat. The sales infrastructure, comprising numerous stock points, is supported by a network of more than 10,000 distributors and 10 lakh retailers across India. |
Key Financial Indicators
*CRISIL Ratings-adjusted numbers |
List of covenants The list of material covenants under guaranteed instrument are as follows:
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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)
*Cash credit is interchangeable with short-term loan |
| 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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Criteria Details
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