Detailed Rationale CRISIL Ratings ratings on the bank facilities of Hatsun Agro Products Limited (Hatsun’s) continue to reflect Hatsun’s leading market position in the dairy sector supported by strong brand, particularly in South India; healthy operating efficiency backed by established procurement and distribution networks; and a diversified product portfolio. The ratings also consider a strong financial risk profile with comfortable capital structure and robust debt protection metrics. These strengths are partially offset exposure to risks related to entry into new geographies and susceptibility to changes in environmental conditions.
CRISIL Rating had upgraded the ratings on the bank facilities of Hatsun to CRISIL AA-/Stable/CRISIL A1+ from CRISIL A+/Positive/CRISIL A1 on February 15, 2022 |
Key Rating Drivers & Detailed Description Strengths:
Hatsun is the largest private sector dairy company in India, with a portfolio of established brands, superior brand equity, well-spread distribution and procurement networks, and an aggressive marketing strategy. Over the last 5 years the company has been diversifying geographically with revenues from Tamil Nadu reducing to around 54 percent in fiscal 2021 from around 67 percent 5 years earlier. Product diversification is marked by revenues from milk at around 58 percent in fiscal 2022 as against over 70 percent in fiscal 2016. Strong market position in the milk segment is cemented by widespread presence in South India, with majority of the processing units located across Tamil Nadu. HAP’s established market position is reflected in its turnover of around Rs.4500-5600 crore over the last 4 fiscals ended March 2021.
Hatsun owns over 12,000 procurement centers covering around 14000 villages, with chilling and dairy units across its key operating markets. This enables it to reach out to over 3.5 lakh farmers. Further the company has an established network of through its network of around 3500 own distribution outlets.
Hatsun’s networth is strong at around Rs.1023 crore for as on 30th September 2021 while gearing is comfortable at around 1.6 times on the same date. Debt protection metrics is expected to remain strong with expected interest coverage of around 8-9 times over the medium term. Financial risk profile is expected to remain strong over the medium term aided by moderation in debt funded capital expenditure and sustainability of operating profitability. Hatsun has also announced a qualified institutional placement (QIP) for Rs 750 crore in fiscal 2021; which is yet to be completed. Usage of the funding is yet to be finalised and hence it is expected to create a buffer for any funding requirements. Proceeds from this QIP are likely to support the capital structure of the company over the medium term.
Weaknesses:
Hatsun plans to widen its procurement network to Andhra Pradesh, Telangana, and Maharashtra; apart from penetrating further into Tamil Nadu and Karnataka. Since capital investment is planned across divisions, marketing costs and other manufacturing overheads could be high. Further, intense competition from established players operating in newer geographies may continue to constrain scalability, pricing power, and profitability.
Prices of key products, milk and skimmed milk powder, have fluctuated in the past, owing to droughts and supply constraints. Susceptibility to failure in milk production because of external factors such as cattle diseases also impact the business. Also, higher rainfalls in the last quarter in Tamil Nadu and other southern states dented the ice cream sales, leading to lower margins for the company. As a result, impact of weather conditions and further Covid mutations leading to lockdowns could constrain revenue growth and profitability. |
Liquidity: Superior Liquidity is likely to remain superior over the medium term. Cash accrual is projected at Rs 550-600 crore annually for the next two fiscals against yearly maturing debt of around Rs 300 crore. Average utilisation on the working capital facilities was less than 50 percent over the 12 months ended December 2021. Cash and cash equivalent was at around Rs.40 crore as on September 30, 2021, and is expected to remain healthy over the medium term. Dividends are likely to remain similar to that seen in previous fiscals. Board approval for Rs.750 crore QIP supports the company’s liquidity, allowing for a quick funding support for any exigent needs. |
Outlook: Stable CRISIL Ratings believes Hatsun’s business risk profile shall continue to remain strong while financial risk profile will continue to witness sustainable improvement. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Hatsun was incorporated by Mr R G Chandramogan in 1986. The Chennai-based company processes over 40 lakh litres of milk and milk products daily, with strong market presence in Tamil Nadu. It has 20 processing facilities across Tamil Nadu, Andhra Pradesh, Karnataka, and Telangana. Popular brands include Arokya milk; Arun ice creams; Hatsun curd, ghee, and butter; and an ice-cream chain under the Ibaco brand and Santosa Cattle Feed. The company has also entered into the ready-to-eat category, with a pizza chain under the Oyalo brand. Hatsun is listed on the National Stock Exchange and BSE Ltd. |
Key Financial Indicators
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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 01-Mar-2022 in line with the lender-wise facility details as on 15-Feb-2022 received from the rated entity.
Criteria Details
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