| D F M Foods Limited | ||||||
| Ratings downgraded to 'CRISIL BBB/Stable/CRISIL A3+ ' | ||||||
| Rating Action | ||||||
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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 downgraded its ratings on the bank facilities of D F M Foods Limited (DFM) to ‘CRISIL BBB/Stable/CRISIL A3+’ from 'CRISIL BBB+/Stable/CRISIL A2.
The ratings downgrade reflects deterioration in the business risk profile with significant drop in operating margin, owning to increased marketing expenses towards brand building and go-to-market expansion resulting in lower-than-expected cash accruals in 9MFY23. DFM has reported operating margin (EBIDTA) of -6.61% (Rs. -30.51 crore) during 9MFY23 from -0.36% (Rs. -1.49 crore) in 9MFY22 as it had incurred selling and marketing expenses of more than Rs.58 crore in 9MFY23 to penetrate its presence in large value packs segment and diversify its geographical reach. Despite continuous huge marketing spends over the last six quarters, company still generates more than 78% revenue from North Indian market. However, ramp-up of operations from new territories and large value packs, resulting in improved operating income and revival in profitability will remain key rating sensitivity factors. Operating profitability is expected remain negative for full year FY23 as marketing expenses are likely to keep the margin constrained for the near to medium term. DFM has reported revenue of Rs.461 crore in 9MFY23 at an against Rs.412 crore in 9MFY22. Revenue is expected to be in the range of 590-600 crore for the full fiscal 2023.
Rating downgrade also factors deterioration in the financial risk profile with interest coverage of -5.29 times and net cash accrual to total debt of -0.16 times and liquidity of the company has declined in liquid funds from Rs.88 cr. in March 22 to Rs. 51.04 cr. as on Sep 2022.
The ratings also factor DFM's established market position, marked by wide distribution network and strong brand image, efficient working capital management. These strengths are partially offset by susceptibility to risks of volatility in commodity prices, Exposure to intense competition and Product concentration in the revenue profile. |
Key Rating Drivers & Detailed Description Strengths:
Company has a strong market presence in the extruded snacks segment with major presence in the northern region. DFM plans to penetrate areas other than north India through increase in marketing initiatives to ensure higher presence in rural and urban regions, and addition of ecommerce and modern trade channel to market itself. However the impact of marketing to penetrate into the regions other than north will remain the key monitorable.
Weaknesses:
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Liquidity: Adequate The cash credit limit of Rs. 40 cr. was utilised at just around 50-60% for the 12 months through Jan 2023. Cash accruals in 9MFY23 are at negative Rs. 22.9 cr. and expected to be negative Rs. 15-20 cr. for full fiscal 2023 against the repayment obligations of Rs. 18-23 cr. The cushion in the bank lines and liquid funds of ~Rs. 51 cr. (as on Sep 2022) will support the repayment over the medium term. Current ratio was declined to 0.89 times on March 31, 2022.
Cash and bank balance along with marketable securities were high at around ~Rs.51 crore as on Sep 2022; this balance, however, is expected to be rationalised to fund the higher marketing expenditures and other obligations in the near term. |
Outlook: Stable CRISIL Ratings believe DFM will continue to benefit from established market position of its brands and its efficient working capital cycle. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company DFM started as a division of Delhi Flour Mills Pvt Ltd as a diversification measure, was incorporated in its current form in 1993 in Delhi. In February 2020, 73.95% of the stake was acquired by a US based private equity firm, Advent International, through its company AI Global Investments (Cyprus) PCC Ltd.
DFM is engaged in the business of manufacturing, selling, and marketing of packaged foods such as ready-to-eat packaged snacks, mainly corn-based extruded snacks and namkeen’s. DFM’s products profile consists of 18 distinct product variants and sells it under the brand of ‘CRAX’, ‘CURLS’ and ‘NATKHAT’. It has two manufacturing facilities located in Uttar Pradesh (Ghaziabad and Greater Noida) with the total capacity of the company at 48,400 M.T. per annum. |
Key Financial Indicators
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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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 27-Mar-23 in line with the lender-wise facility details as on 09-Mar-23 received from the rated entity
Criteria Details
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