| M. K. Proteins Limited | ||||
| Rating reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed the 'CRISIL A-/Stable' rating on the long-term bank facility of M. K. Proteins Limited (MKPL; part of the Shree Ganesh group).
Operating performance of the group remained healthy during fiscal 2021, as the operations were not impacted significantly during pandemic since the group manufactures the raw material for essential commodities, such as personal care products, and is also involved in processing of edible oil. Additionally the group commissioned the plant at Kolkata housed under SGF Industries Pvt Ltd during fiscal 2021 which also saw the healthy ramp up during the fiscal. This has led to healthy improvement in the revenues. The operating profitability of the group too improved to around 9% from around 6% in the earlier fiscal backed by backward integrated operations at Kolkata plant coupled with savings in the freight costs owing to its strategic location coupled with inventory gains and benefits of operating leverage.
The performance continues to remain healthy in current fiscal as the demand for end products, mainly personal care products, continues to remain healthy. The operating margins of the group over medium term are also expected to be higher than ~5-6% which were seen till fiscal 2020 as the benefits of backward integration and freight cost advantages are expected to be permanent.
The financial profile remains healthy with gearing of ~0.7 times in fiscal 2021 improving from 0.8 times in the earlier fiscal and is expected to reduce gradually over medium term as the capital expenditure (capex) plans over medium term remain modest. The debt metrics such as interest cover remained healthy at ~7 times in fiscal 2021 and is expected to remain above 6 times over medium term. The group is expected to generate sufficient cash accruals over the medium term, against term debt repayments.
The rating continues to reflect the extensive experience of the promoters in the industry and healthy financial risk profile. These strengths are partially offset by low pricing power, intense price competition in the end user segment and small scale of operations & modest profitability. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of M.K. Proteins Pvt Ltd (MKPL), Shree Ganesh Fats Pvt Ltd (SGFPL), Kamla Organics Pvt Ltd (Kamla Organics; formerly Shivalik Steels and Alloys Pvt Ltd), Kamla Oleo Pvt Ltd (KOPL), and SGF Industries Pvt Ltd (SGFIPL), collectively referred to as the Shree Ganesh group, as they have similar business, common management, business synergies, fungible cash flow, and common promoters. CRISIL Ratings has combined the business and financial risk profiles of these companies to arrive at the group rating.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoters and strong relationship with customers The promoters have more than 25 years of experience in the soap noodles business. Also, the group has strong relationships with customers, resulting in repeat orders. The group is a major supplier to Hindustan Unilever Ltd (HUL; 'CRISIL AAA/Stable'), which accounts for majority of its direct and indirect sales. The group has a plant close to HUL's soap manufacturing unit in Baddi, Himachal Pradesh. It also caters to HUL's vendors. Other customers include ITC Ltd (ITC; 'CRISIL AAA/Stable/CRISIL A1+'), Reckitt Benckiser India Ltd, Godrej Consumer Products Ltd ('CRISIL A1+'), and local cosmetic manufacturers.
Healthy financial risk profile Gearing is estimated to be comfortable at 0.68 time as on March 31, 2021, driven by healthy networth. The capital structure is expected to remain above average over the medium term because of steady accretion to reserve and modest debt level. Debt protection metrics of the group are expected to remain comfortable, with interest coverage above 7 times and net cash accrual to total debt ratio around 30-50% over the medium term.
Weaknesses: Exposure to intense price competition in the end-user segment Intense competition in the fast-moving consumer goods (FMCG) industry has led to limited pricing power of players, which in turn percolated to the vendors of FMCG players such as the Shree Ganesh group. However, longstanding relationships and presence of plant in the vicinity of the customer's plant provide competitive advantage to the group. These factors, along with contract-based pass on of raw material price movements to the customers should help the group maintain its operating performance over the medium term. Established relationships with customers should also help the company achieve ramp-up of the new plant.
Small scale of operations and modest profitability Intense competition in the soap intermediaries industry limits the group's bargaining power. However, it is insulated from volatility in raw material rates as pricing is mostly linked to raw material price movements. Additionally the new plant at Kolkata commissioned in fiscal 2021 has backward integration in the form of captive production of lauric acid coupled with its strategic location nearby the port leading to savings in freight costs which enables higher operating margin for the plant. The operating margins of the group over medium term are expected to be higher than ~5-6% which were seen till fiscal 2020 as the benefits of backward integration and freight cost advantages are expected to be permanent. |
Liquidity: Adequate The Shree Ganesh group has adequate liquidity, driven by sufficient cash accrual to service the debt obligations, moderately utilised bank lines and modest capex over medium term. The group also had adequate cash and equivalents as on March 31, 2021. The bank limits of the group were moderately utilised at 30-40% on average during the 12 months through March 2021. |
Outlook Stable CRISIL Ratings believes the Shree Ganesh group will continue to benefit from its established relationships with key customers. The business risk profile will be supported by improving geographical diversity and reducing customer concentration. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group Set up in 1994, the Shree Ganesh group manufactures distilled fatty acid (DFA) and soap noodles.
SGFPL is based in Baddi, Himachal Pradesh, and has two units: one unit manufactures hard oil and the other unit manufactures DFA and glycerine. Each unit has a capacity of 150 tonne per day (tpd).
Kamla Organics, based in Baddi, Himachal Pradesh, manufactures soap noodles and has a capacity of 150 tpd.
KOPL, based in Baddi, Himachal Pradesh manufactures DFA with a capacity of 100 tpd and soap noodles with a capacity of 50 tpd.
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Key Financial Indicators: Consolidated Shree Ganesh Group
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Fully interchangeable with Letter of Credit |
Annexure – List of entities consolidated
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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 | ||
| Facility | Amount (Rs.Crore) | Rating |
| Cash Credit* | 13 | CRISIL A-/Stable |
*Fully interchangeable with Letter of Credit
Criteria Details
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