Rating Rationale
February 06, 2024 | Mumbai
M. K. Proteins Limited
Rating reaffirmed at 'CRISIL A/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.13 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
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 reaffirmed its ‘CRISIL A/Stable’ rating on the long-term bank facility of M. K. Proteins Ltd (MKPL; part of the Shree Ganesh Fats [SGF] group).

 

The rating continues to reflect the healthy business risk profile of the group, marked by growth in revenue and stable profitability and its comfortable financial risk profile. The rating also factors in the extensive experience of the promoters in the specialty chemicals industry. These strengths are partially offset by low pricing power amidst intense price competition in the end-user segment.

 

The SGF group saw its operating performance improve, driven by healthy revenue growth of 28% and stable operating margin of 7.5% in fiscal 2023. Growth was driven by strong demand for end-products, mainly in the personal care segment, and established relationships with large fast-moving consumer goods (FMCG) players, with focus on continuous expansion of the customer base.

 

The financial risk profile should also remain comfortable, aided by steady accretion to reserves, a healthy capital structure and adequate debt protection metrics.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of 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). All the companies, collectively referred to as the SGF group, have similar businesses, common management and promoters, business synergies and fungible cash flow.

 

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:

  • Growing scale of operations and steady profitability: Operating performance of the group improved in fiscal 2023, with revenue rising by 28% year-on-year to Rs 1,686 crore, as against 53% growth to Rs 1,322 crore reported in fiscal 2022. Plants commissioned in Kolkata and Gujarat (housed under SGFIPL and KOPL, respectively) contributed to the ramp up in scale, led by healthy increase in volume. The Kolkata plant is integrated backward and aims to enhance the geographical reach of the group. Other entities continued to exhibit stable performance.

 

Operating margin was modest at 7.5% in fiscal 2023, owing to hike in raw material cost. It is likely to remain steady at 7-8% over the medium term, aided by backward integration benefit and the cost plus conversion charges method based supply contracts.

 

 

 

Weaknesses:

  • Susceptibility to competition among FMCG players: Intense competition among FMCG players limits their pricing power and the impact percolates to vendors, such as the SGF group. However, longstanding relationships with customers, proximity to their plants and smooth supply chain management, provide the group a competitive edge. Moreover, market share of organised FMCG players has improved post pandemic, which benefits the group. These factors, along with cost plus conversion charges in supply contracts, should help the group pass on raw material price fluctuations to customers and sustain its operating performance over the medium term.

 

Liquidity: Adequate

Liquidity is supported by sufficient cash accrual against modest term debt as on December 31, 2023, moderate bank limit utilisation and no major capex plan for the medium term. The group also had adequate cash and equivalents of Rs 52 crore as on March 31, 2023. Bank limit utilisation was 40-60% in KOPL during the 10 months through December 2023. There was negligible utilisation of limits in other entities of the group.

Rating Sensitivity factors

Upward factors

 

Downward factors

  • Weaker-than-expected operating performance, leading to operating margin below 6% on a sustained basis.
  • Any large, debt-funded capex, weakening the capital structure and debt protection metrics, with interest cover below 5 times.

About the Group

Set up in 1994, the SGF group manufactures distilled fatty acid (DFA) and soap noodles.

 

SGFPL, based in Baddi, has two units: one for hard oil and the other for DFA and glycerin, each with capacity of 150 tonne per day (TPD).

 

Kamla Organics, based in Baddi, manufactures soap noodles and has capacity of 150 TPD.

 

KOPL, based in Baddi, manufactures DFA with capacity of 150 TPD and soap noodles with capacity of 200 TPD.

 

MKPL, based in Ambala, manufactures vegetable refined oil for vanaspati mills and has capacity of 250 TPD.

 

SGFIPL, based in Kolkata, produces toilet soap noodles and DFA with combined capacity of 1,000 TPD.

Key Financial Indicators (Consolidated)*

Particulars

Unit

2023

2022

Revenue

Rs crore

1,686

1,322

Profit after tax (PAT)

Rs crore

71

59

PAT margin

%

4.2

4.5

Adjusted debt/adjusted networth

Times

0.19

0.52

Interest coverage

Times

10.03

8.86

*All figures are adjusted by CRISIL Ratings

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.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of

allotment

Coupon
rate (%)

Maturity

date

Complexity

level

Issue size
(Rs.Crore)

Rating assigned with outlook

NA

Cash Credit*

NA

NA

NA

NA

13

CRISIL A/Stable

*Fully interchangeable with letter of credit

Annexure - List of Entities Consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Shree Ganesh Fats Pvt Ltd

Full

Common management and promoters, business synergies

Kamla Organics Pvt Ltd

Full

Common management and promoters, business synergies

M K Proteins Ltd

Full

Common management and promoters, business synergies

Kamla Oleo Pvt Ltd

Full

Common management and promoters, business synergies

SGF Industries Pvt Ltd

Full

Common management and promoters, business synergies
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 13.0 CRISIL A/Stable   --   -- 06-12-22 CRISIL A/Stable 25-08-21 CRISIL A-/Stable CRISIL A-/Stable
      --   --   -- 14-11-22 CRISIL A/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit* 13 HDFC Bank Limited CRISIL A/Stable
*Fully interchangeable with letter of credit
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 Chemical Industry
Criteria for rating entities belonging to homogenous groups
CRISILs Criteria for Consolidation

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