Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable’ rating on the long-term bank facilities of Gujarat Ambuja Exports Limited (GAEL). 

 

Revenue grew by 3% y-o-y in 9M fiscal 2024, supported by healthy volume growth in maize segment mainly driven by healthy demand from end industries such as feed, pharmaceuticals, textiles, and paper industries and increase in total capacity by 1,000 TPD in March 2023. The volume growth in maize segment was however, offset by moderation in realisation due to lower maize prices and decline in revenue from agro and cotton yarn segment. In fiscal 2023, the revenue growth stood at 5% owing to healthy growth in overall volumes across segments.

 

Earnings before interest, tax, depreciation, and amortisation (Ebitda) margin have dropped to 9.7% in fiscal 2023 and to 9.3% in 9M fiscal 2024, from 14.9% in fiscal 2022 due to inventory losses resultant of correction in prices of maize and soya. For the full fiscal 2024, the Ebitda margin is estimated at 9-11% with revenue growth remaining at 2-4%.

 

The company is focusing towards increasing the share of the high-margin maize processing segment, where it enjoys a strong market position, and is solidifying the same through capacity addition. Capacity of its maize processing segment (accounting for 69% of revenue in the nine months of fiscal 2024 with EBITDA at 16%) is 4,000 tonne per day (TPD) and is expected to increase to 5,000 TPD by fiscal 2025 and 6,000 TPD by fiscal 2026. Additionally, the company is also adding derivative capacity, which will improve the value-added share of the company in the revenue. Revenue from maize segment has been steadily growing by 21% in fiscal 2023 and by 6.5% in 9M fiscal 2024 with EBIDTA remaining healthy at ~16% in fiscal 2023 and 9M fiscal 2024 driving the overall profitability of the company. Increase in its capacity will further strengthen the business risk profile of the company.

 

The agro processing segment (accounting for 29% of revenue in the nine months of fiscal 2024 with EBITDA margins of -1%) is susceptible to demand and price risks, and hence, the company is reducing the segment’s share in revenue with more focus on maintaining price parity and segment profitability. The revenue from this segment has been on a declining trend since fiscal 2022 which has resulted in its share in overall revenue declining to 29% in the nine months of fiscal 2024 from 34% in fiscal 2023 and 38% in fiscal 2022.  Other segments viz. cotton yarn and power’s contribution total revenue is minimal at less than 1%.

 

The ratings continue to reflect the company's established position in the maize-processing and agro processing segments, improving operating efficiency and comfortable financial risk profile. These strengths are partially offset by exposure to risks inherent in agricultural commodity businesses and subdued performance of yarn business.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of GAEL.

Key Rating Drivers & Detailed Description

Strengths:

Established position in the maize processing and edible oil businesses

GAEL is one of the established players in agro and maize processing in India. The company is the largest player in maize processing with capacity of 4,000 TPD and domestic market share of around 20%. The maize processing division contributed to more than 65% of revenue in the nine months of fiscal 2024, and its contribution is expected to increase post completion of ongoing capital expenditure (capex). The company offers a wide range of products such as starch, starch derivatives and starch by-products, which find application in food processing, pharmaceutical, paper and textile industries.

 

In the agro processing division, the company sells soya edible oil, refined palm oil, refined sunflower oil and de-oiled cakes. Customers of GAEL include ITC Ltd (ITC; 'CRISIL AAA/Stable/CRISIL A1+'), Cargill India Pvt Ltd ('CRISIL A1+'), BL Agro Oils Ltd, Agro Tech Foods Ltd ('CRISIL AA-/Watch Negative/CRISIL A1+') and Godrej Agrovet Ltd (CRISIL A1+). The company is reducing the share of the agro processing division owing to the unstable price and demand dynamics of the industry.

 

The company is also expanding in the international market with the share of exports rising from 24% in fiscal 2022 to 31% in fiscal 2023 and 36% in 9m-fiscal 2024.

 

Improving operating efficiency and efficient working capital management

The profitability during 9M fiscal 2024 was at 9.3% and during fiscal 2023 at 9.7%, the same has declined from fiscal 2022 due to mark to market inventory valuations. However, increasing contribution from the maize processing division which has healthy operating margins of 16-17% will support margin growth over the medium term. CRISIL expects the overall operating margins to remain between 9-10%, supported by the company’s ability to pass on the price volatility to its customers.

 

Higher profitability enabled an increase in return on capital employed (RoCE) to around 17% in fiscal 2023 from around 13% in fiscal 2020. Utilisation of around 80% in the maize processing plant and increased share of derivatives in the maize segment will support the operating margin, offsetting volatility in the operating margin of the agro processing division. The company owns its warehouses as well as fleet, unlike its competitors, supporting profitability. Also, most of the processing plants are near raw material sources, which reduces freight costs and improves operating efficiency.  

 

Comfortable financial risk profile

Steady cash accrual and prudent funding of capex resulted in comfortable gearing of 0.10 time as on September 30, 2023. The company has availed only working capital debt. Efficient use of working capital is also reflected in GCA days of 82 days as of March 31, 2023. Debt protection metrics were healthy, as reflected in interest coverage and total outside liabilities to tangible networth (TOL/TNW) ratios of around 29 times and 0.2 time, respectively, as of September 30, 2023, and expected at similar levels over the medium term. Liquidity remains strong with cash and cash equivalents of over Rs.700 crores and sufficient unutlised bank limits.

 

Weaknesses:

Exposure to risks inherent in agricultural commodity business

The company is susceptible to risks associated with the agriculture-based commodity business, such as availability of raw materials, fluctuations in prices and changes in government regulations, mainly in agro processing division. For instance, the solvent extraction (edible oil) business is vulnerable to availability of soya bean seeds in the domestic market as well as the international prices of degummed soya oil and crude palm oil, which are imported. Over the past years, the operating margin for the agro processing division has been volatile with EBIDTA loss of -1% in the 9M fiscal 2024 as against EBIDTA of 3% in fiscal 2023 and 9% in fiscal 2022 . Furthermore, demand-supply of soya bean oil and de-oiled cakes are affected by changes in regulations in the exporting and importing countries.

 

Average performance of the cotton yarn division

The cotton yarn segment has been incurring losses over the past few years. Company also has diversified into polyester yarn during the current financial year. Nonetheless, this has not impacted on the overall performance of the company as the share of this segment reduced to 1% of revenue in the nine months of fiscal 2024 from 4% in fiscal 2020.

Liquidity: Strong

Cash accrual is expected at Rs 400-500 crore per annum over the next three fiscals against nil term debt obligation over the medium term. Cash surplus of over Rs 700 crore and bank limit utilization remaining low at around 25% up to February 2024 to support liquidity. Planned annual capex of Rs 400-500 crore p.a. over the next two fiscals will be funded through internal accrual.

Outlook: Stable

GAEL will continue to benefit over the medium term from its strong market position in the maize business, which should improve further with the addition of capacity. The financial risk profile will remain comfortable, supported by moderate capex and prudent working capital management, leading to low reliance on debt.

Rating Sensitivity Factors

Upward Factors

• Substantial increase in scale of operations and improvement in operating profitability backed by addition of maize processing capacity leading to annual cash accruals over Rs 700-800 crore
• Sustenance of healthy debt protection metrics, supported by moderate capex and prudent working capital management.

 

Downward Factors

• Operating profitability significantly weaker-than-expected (below 7-8%), impacting cash accruals
• Significant impact on debt metrics, due to higher-than-expected debt levels on account of sizeable capex or elongation of working capital cycle (GCA beyond 150 days)

About the Company

Incorporated in 1991 by late Mr Vijay Kumar Gupta, GAEL is currently managed by his son, Mr Manish Gupta. The company manufactures refined oil (mainly soya bean oil) and de-oiled cakes; maize products such as starch, glucose, sorbitol, dextrose monohydrate powder and maltose dextrine powder (obtained through wet corn milling technology); and cotton yarn.

 

It has solvent extraction facilities in Kadi-Gujarat, Akola-Maharashtra, and Pithampur and Mandsaur, both in Madhya Pradesh, with seed-crushing capacity of 1.32 MTPA and refining capacity of 0.39 MTPA. It has maize processing capacities of 4,000 TPD in Himatnagar-Gujarat; Sitarganj-Uttarakhand, Hubli-Karnataka, Chalisgaon, Maharashtra, Malda, West Bengal. Its cotton yarn spinning unit, with capacity of 65,520 spindles, is in Himatnagar-Gujarat

Key Financial Indicators

Particulars	Units	2023	2022
Revenue	Rs.Crore	4909	4672
Profit After Tax (PAT)	Rs.Crore	329	473
PAT Margin	%	6.7	10.1
Adjusted debt/adjusted networth	Times	0.09	0.13
Interest Coverage	Times	41.02	128.53

 

Any other information: Not Applicable

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	649	NA	CRISIL AA-/Stable

&Limits can be used interchangeably with letter of credit, export packing credit/pre-shipment credit in foreign currency, export bills, working capital demand loan, trade credit for imports, bank guarantee, vendor finance, customer finance, FCNR, import letter of credit