Rating Rationale
July 26, 2024 | Mumbai
Gopal Snacks Limited
Ratings upgraded to 'CRISIL A/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.102 Crore
Long Term RatingCRISIL A/Stable (Upgraded from 'CRISIL A-/Positive')
Short Term RatingCRISIL A1 (Upgraded from 'CRISIL A2+')
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 Gopal Snacks Ltd (GSL) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Positive/CRISIL A2+’.

 

The upgrade factors in the overall improvement in the business risk profile, with revenue registering a compound annual growth rate of 11.4% in the five fiscals through 2024, to Rs 1,402 crore. Operating margin improved to above 14% in fiscal 2023 from the historical average of 5-7%, and has sustained above 12% in fiscal 2024 and the first quarter of fiscal 2025. The management has also optimised product mix and weight continuously to improve market position, while maintaining healthy profitability. Operating revenue will register moderate growth over the medium term, and margin will continue to sustain above 11%.

 

Operations continued to be efficiently managed, with gross current assets (GCAs) of 72 days as on March 31, 2024. Networth was healthy at Rs 388 crore while gearing and total outside liabilities to tangible networth (TOLTNW) ratio were comfortable at 0.17 time and 0.38 time, respectively. The ratios are expected to remain at similar levels over the medium term with no debt-funded capital expenditure (capex) plans. Debt protection metrics remained robust, with interest coverage and net cash accrual to total debt (NCATD) ratios of above 32 times and 2.01 time, respectively, for fiscal 2024. Liquidity will remain strong over the medium term, backed by healthy cash accrual and moderately utilised bank limit.

 

The ratings reflect the established distribution network of GSL, its strong brand image in the lower and middle-income customer segments, and healthy financial risk profile, supported by efficient working capital management. These strengths are partially offset by exposure to intense competition, geographical concentration and volatility in raw material prices.

Key Rating Drivers & Detailed Description

Strengths:

  • Established distribution network and strong brand image: Benefits from the three-decade-long experience of the promoters in the packaged snacks business and strong network of over 750 dealers across Gujarat, Rajasthan, Madhya Pradesh, Uttar Pradesh, Rajasthan and other states will continue to aid business risk profile. Strong positioning in the 'value-for-money' segment has helped the company to build a healthy brand among customers in the lower and middle-income groups. GSL continues to be the market leader in gathiya, which accounts for about 28% of its total revenue. However, income from other products such as wafers is also expected to grow with continuous capacity addition. Revenue was largely stable in fiscals 2023 and 2024, and is likely to grow at a moderate pace over the medium term with addition of new products and increase in geographical presence.

 

  • Healthy financial risk profile: Gearing and networth were strong at 0.17 time and Rs 388 crore, respectively, as on March 31, 2024. Debt protection metrics were robust, as reflected in interest coverage and NCATD ratios of above 32 times and 2.01 time, respectively, for fiscal 2024. With no debt-funded capex plans, gearing is expected to remain stable over the medium term on the back of sufficient accretion to reserve and prudent working capital management.

 

  • Efficient working capital management: The GCAs were around 72 days as on March 31, 2024, due to credit of less than a week given to customers. Also, since bulk of the raw materials are procured locally, the company maintains small inventory of 30-45 days. However, inventory increased to 61 days as on March 31, 2024, from 44 days as on March 31, 2023, due to opportunistic procurement of raw material considering expected price movements in the near term based on monsoon, crop yield and management experience.

 

Weaknesses:

  • Susceptibility to volatility in raw material prices: The company’s Ebitda (earnings before interest, taxes, depreciation and amortisation) margin moves in tandem with the prices of raw materials such as pulses, flour, chana, palmolein oil, spices, seasonings and packaging materials. Sustaining margin amid sudden input price movements will be monitorable.

 

  • Exposure to intense competition and geographical concentration in revenue: The company mainly operates in the Gujarati namkeen segment and faces direct competition from other well-known retailers such as Everest Namkeen, Real Namkeen, and Balaji wafers. Though the management has taken steps to widen geographic reach, it continues to draw about 70% of the revenue from Gujarat.

Liquidity: Strong

Bank limit utilisation was around 37.25% for the 12 months through April 2024. Expected annual cash accrual of Rs 135-150 crore will be more than sufficient to meet minimal yearly term debt obligation of Rs 2-3 crore, over the medium term; leaving majority of the accrual to support liquidity.

 

Current ratio was healthy at 2.39 times as on March 31, 2024. Strong gearing and networth provide financial flexibility and cushion against any adverse condition or downturn in the business.

Outlook: Stable

The company will continue to benefit from the extensive experience of its promoters, established market position and strong financial risk profile over the medium term.

Rating Sensitivity factors

Upward factors

  • Increase in revenue by 25% and sustenance of improved operating margin leading to high cash accrual
  • Stable working capital cycle and stronger capital structure

 

Downward factors

  • Substantial decline in revenue or operating margin leading to a 30% drop in cash accrual
  • Any large, debt-funded capex and stretch in working capital cycle weakening financial risk profile

About the Company

Rajkot (Gujarat)-based GSL was formed as a partnership firm (Gopal Gruh Udyog) in 1999. It was reconstituted as a private limited company in 2009. Promoted by Mr Bipin Hadvani and his family, GSL manufactures ready-to-eat packaged snacks and food pellets under the Gopal brand. The company was listed on the Bombay Stock Exchange and the National Stock Exchange in March 2024. Funds were raised entirely through offer for sale by existing shareholders, and no fresh funds has been raised through IPO (initial public offering).

Key Financial Indicators

As on/for the period ended March 31

 Unit

2024

2023

Operating income

Rs.Crore

1,402.32

1,396.07

Reported profit after tax (PAT)

Rs.Crore

99.57

112.37

PAT margin

%

7.10

8.05

Adjusted debt/adjusted networth

Times

0.17

0.37

Interest coverage

Times

32.12

18.27

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.

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Annexure - Details of Instrument(s)

ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Complexity Levels Rating Assigned with Outlook
NA Cash Credit NA NA NA 100 NA CRISIL A/Stable
NA Standby Letter of Credit NA NA NA 0.31 NA CRISIL A1
NA Proposed Fund-Based Bank Limits NA NA NA 1.69 NA CRISIL A/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 101.69 CRISIL A/Stable   -- 03-05-23 CRISIL A-/Positive 30-03-22 CRISIL A-/Stable 07-01-21 CRISIL A-/Stable CRISIL A-/Stable
Non-Fund Based Facilities ST 0.31 CRISIL A1   -- 03-05-23 CRISIL A2+ 30-03-22 CRISIL A2+ 07-01-21 CRISIL A2+ CRISIL A2+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 100 HDFC Bank Limited CRISIL A/Stable
Proposed Fund-Based Bank Limits 1.69 Not Applicable CRISIL A/Stable
Standby Letter of Credit 0.31 HDFC Bank Limited CRISIL A1
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 Criteria for rating short term debt

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