Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A-/Stable/CRISIL A2+’ ratings on the bank loan facilities of Gokul Agro Resources Ltd (GARL; part of the Gokul Agro group).

 

The ratings continue to reflect the group’s healthy business risk profile with established presence, large scale of operations with significant market share, strong distribution networth across India and a robust customer base. Operating income grew at a compound annual growth rate (CAGR) of 25% for the five fiscals through 2024 to reach Rs 13,854 crore backed by growth in volumetric sales by 55% and is expected to achieve revenue growth of more than 25% to over Rs 17,000 crore by fiscal 2025 and over 15% growth in fiscal 2026 backed by improvement in the sales of branded products and enhancement in revenue mix with decline in share of palm oil and increase in the share of sunflower oil/ soyabean oil. Though margins have declined in fiscal 2024 to 2.1% against 2.6% in fiscal 2023 due to fluctuation in raw material prices and increased overhead due to operationalisation of two new plants recently. However, prices have stabilised in fiscal 2025 and operating margin is expected to improve to 2.4-2.5% over fiscals 2025 and 2026 on account of cost-saving measures undertaken by the group such as installation of captive solar power plant and the bio-diesel unit as a forward integration. Also, the group’s working capital requirement has increased due to an increase in inventory from 23 days as on March 31, 2023 to 35 days as on March 31, 2024 resulting in increased dependence on debt to fund the same. The group’s total outside liabilities to tangible networth (TOLTNW) ratio increased to 3.1 times as on March 31, 2024 due to debt funding of capital expenditure (capex) and higher working capital requirements. Further, the company is carrying out debt funded capex for installation of captive solar power plant and the bio-diesel unit to the extent of Rs 150 crore funded through debt of Rs 110 crore in the current fiscal, which will result in TOLTNW remaining higher than 2.5 times over the medium term. CRISIL Ratings believes that timely stabilisation of operations of new plants and controlled working capital cycle leading to improvement in capital structure will remain key monitorable over the medium term.

 

The rating continues to reflect the group’s strong business risk profile, backed by established industry presence, large scale of operations and sound operating efficiency. These strengths are partially offset by leveraged capital structure, susceptibility to intense competition and volatility in profitability and vulnerability to regulatory changes and climatic conditions.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GARL, and Riya Agro Industries Pvt Ltd (RAIPL; wholly owned subsidiary of GARL), Maurigo PTE Ltd (MPL ; wholly owned subsidiary of GARL), Riya International PTE Ltd (RIPL; wholly owned subsidiary company of MPL), Maurigo Indo Holdings PTE Ltd (MIHPL; wholly owned subsidiary of MPL), PT. Riya Palm Lestari (wholly owned subsidiary of MIHPL), PT Riya Pasifik Nabati (Associate of MIHPL) as it is collectively referred as the Gokul Agro group, are under the same management and have operational and financial linkages. This is because the entities, collectively referred to as the Gokul Agro group, are under the same management and have operational and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established presence with strong customer-supplier base and large scale of operations: Mr Kanubhai Thakkar and his family members are the promoters of the group and have industry experience of over four decades. The group generates 6-12% of its revenue through exports of soya meal, mustard de-oiled cake, castor oil and its derivatives, while the domestic revenue is spread throughout the country. The group has a customer base with over 500 dealers and distributors; the top five clients contribute to 15-20% of the overall revenue. The group is well established and has a reputed clientele. It also enjoys wide presence through its brands Vitalife, Zaika, Mahek, Pride, Richfield, Puffpride and Biscopride.

 

On the procurement side, the group benefits from the presence of its subsidiaries in Singapore (which is a key oil trading hub) and its longstanding association with the largest of the industry players and plantations. Its longstanding presence in its segment of operations has enabled the group to maintain healthy relationships with suppliers and buyers, which is critical for its line of activity.

 

The Gokul Agro group has seed processing capacity of 3,200 tonne per day (TPD), De-oiled Cake capacity of 1,000 TPD, oil refining capacity of 3,400 TPD, vanaspati manufacturing capacity of 200 TPD and castor derivative capacity of 100 TPD and Bio-diesel manufacturing capacity of 300 TPD (expected to get operationalized from FY26 onwards) at its plant at Gandhidham, Gujarat. With the operationalisation of its two other plants at Haldia in West Bengal having oil refining capacity of 1,200 TPD and Krishnapatnam in Andhra Pradesh having refining capacity of 1,400 TPD., the group registered revenue of Rs 13,853.94 crore in fiscal 2024 at compounded annual growth rate (CAGR) of 25% over the five fiscals through 2024. With overall contribution from palm oil expected to reduce leading to better revenue mix, the group has established its place among the top players in the segment. The group will continue to benefit from its established position and the promoters’ experience over the medium term.

 

• Sound operating efficiency: The healthy operating efficiency is reflected in robust return on capital employed (RoCE) of over 23.4% in fiscal 2024. RoCE has been healthy at 19-32% in earlier fiscals as well. The maintenance of healthy RoCE in fiscal 2024 was backed by low yet improving operating performance and faster rotation of capital resulting in scale-up of operations. The average capacity utilisation is around 80-90% at the refining unit (through the year) and the seed crushing unit (during the season). Further, with the operationalisation of its two new plants in West Bengal and Andhra Pradesh along with the plant at Gujarat, the group now caters to western, eastern, northeastern and South India markets. These plants will benefit from their proximity to ports and the markets they cater to, thus resulting in lower logistic costs and response time leading to better efficiency.

 

Weaknesses:

• Leveraged capital structure: Networth of the Gokul Agro group is healthy at Rs 785 crore as on March 31, 2024; however, gearing remained healthy at 0.75 time, total outside liabilities to tangible networth ratio (TOLTNW) was moderately high at 3.08 times. TOLTNW is high on account of significant funding requirement for the group’s scale of operations. The group’s TOLTNW ratio is expected to remain leveraged on account of significant working capital and capex requirement.

 

In fiscal 2023, the group acquired oil refining unit in West Bengal and set up a new oil refinery in Andhra Pradesh through a debt of Rs 230 crore. Also, the group has undertaken a debt-funded capex of Rs 150 crore in fiscal 2025 for the establishment of the bio-diesel unit, which has capacity of 300 TPD and captive power plant at Gandhidham. The capex is funded through a term debt of Rs 120 crore and balance through internal accrual. Hence, the group’s capital structure is expected to remain leveraged over the medium term.

 

• Susceptibility to intense competition and volatility in profitability: Presence of several small, unorganised players across the value chain, from crushing to refining and branding, has led to intense competition in the edible oil industry. The industry also has several edible oil variants, such as soybean, mustard, sunflower, groundnut, and palm oil, vying for a share of consumption. Intense competition and customer loyalty towards specific oil types and brands, as well as competition from traditional/unrefined oils, could hamper the penetration of refined oils in the edible oil market. Furthermore, prices of edible oils are directly linked to the prices of crude palm oil (CPO), which is highly volatile; the domestic vegetable oil market depends on the availability of CPO and vegetable oil substitutes in the international market. Because of the decline in prices in fiscal 2024, operating margin fell to 2.13% (2.62% in fiscal 2023). However, prices have stabilised in fiscal 2025 and operating margin is expected to improve to 2.4-2.5% over the medium term on account of cost-saving measures undertaken by the group.

 

• Susceptibility to regulatory changes and climatic conditions: The edible oil industry is closely monitored and regulated by the government because of its direct bearing on the average person’s food plate composition. Furthermore, the industry is vulnerable to government policy in the form of duties imposed on the import of refined and crude edible oil, and volatility in edible oil prices and foreign exchange (forex) rates. However, forex risk is mitigated by entering into forward contracts. Any large change in edible oil prices or forex rates could adversely impact the scale, operating margins and working capital operations of players. At various points in time, the government has imposed restrictions through imposition/reduction in duties and exemptions/limitations in imports of certain edible oils or from certain countries. Furthermore, India’s high import dependence makes the industry vulnerable to international demand-supply dynamics and regulations in the origin country. The Gokul Agro group derives 30-35% of its revenue from the palm products segment in the current fiscal, indicating moderate revenue concentration and import dependence risks. Moreover, edible oil, being an agricultural commodity derivative, is affected by changes in weather, epidemics and monsoon, which may affect the yield, price and availability in a particular year. Thus, the group’s performance is exposed to these factors. The susceptibility is further compounded by the group’s low and volatile operating margin, which is exposed to sudden commodity price and forex fluctuations.

Liquidity: Strong

Average utilisation of fund base limits stood around 56% through 12 months to September 2024 and for non-fund base+ fund base utilisation was 92%. Cash accruals are expected to be over Rs 220 crore, which is sufficient against term debt obligation of Rs 64-85 crore over the medium term. In addition, it will act as a cushion to the liquidity of the company. Current ratio is moderate at 1.15 times as on March 31, 2024. As of March 2024, the group had unencumbered deposits with cash and bank balance of ~Rs 220 crore. Low gearing and healthy networth support financial flexibility.

Outlook: Stable

The Gokul Agro group will continue to benefit from the promoters’ extensive experience and established relationships with clients.

Rating sensitivity factors

Upward factors:

• Improvement in the financial risk profile with TOLTNW improving to 2.5 times
• Better diversification among oils in terms of revenue concentration along with steady rise in cash accrual and stable working capital cycle

 

Downward factors:

• Increase in TOLTNW ratio over 3.5 times or weakening of debt protection metrics
• Fall in operating margin, stretched working capital cycle or large capex, weakening the liquidity

About the Group

GARL came into existence following the demerger of Gokul Refoils and Solvent Ltd (GRSL). The demerger received approval and sanction from the High Court of Gujarat, with the effective date being July 1, 2015. GRSL started operations in 1982 as a partnership firm to carry out trading of sugar and edible oil, with Mr Kanubhai Thakkar and Mr Balvantsinh Rajput as its promoters. In 1992, the firm was incorporated as Gokul Refoils and Solvent Pvt Ltd. Over the years, it has expanded its refining capacity and has set up crushing and extraction facilities at different locations.

 

Operations of GARL are managed by Mr Kanubhai Thakkar and his family members. The Gokul Agro group has seed processing capacity of 3,200 TPD, DOC capacity of 1,000 TPD, oil refining capacity of 3,400 TPD, vanaspati manufacturing capacity of 200 TPD and castor derivative capacity of 100 TPD at its plant in Gandhidham.

 

GARL has a subsidiary, Maurigo Pte Ltd, and a step-down subsidiary, Riya International Pte Ltd. These entities are based in Singapore and are engaged in procurement and supply for GARL. Their presence in Singapore eases procurement of crude oil by the group and lowers the borrowing cost.

Any other information: Not Applicable