Rating Rationale
December 31, 2021 | Mumbai
Navabharat Limited
Ratings upgraded to 'CRISIL A- / Stable / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.173 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Stable')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its rating on the bank facilities of Navabharat Limited (NBL) to ‘CRISIL A-/Stable/CRISIL A2+’ from 'CRISIL BBB+/Stable/CRISIL A2'.

 

The upgrade factors in significant improvement in the company’s business risk profile during fiscal 2022 which is expected to be sustained over the medium term. With improved availability of fresh fruit bunches (FFB) and better realisations revenue is estimated to grow over 80% in fiscal 2022 to over Rs 1700 crore. Sales by volume increased almost 50-60% in 2022 over last fiscal. Further, NBL has been able to improve its oil extraction ratio (OER) from 15-15.5% in fiscal 2021 to 17-17.5% in 2022, leading to improvement in operating margin to an estimated 8% in the current fiscal (from 4.3% in the previous fiscal). Continued demand for edible oil, lower reliance on imports and regulated FFB procurement costs from its contract farms should continue to support the company’s business profile.

 

The upgrade also factors in continued strengthening of NBL’s financial risk profile supported by healthy net cash accruals. Sustenance of improved operating performance will be closely monitored.

 

The ratings continue to reflect NBL’s established presence in the crude palm oil (CPO) processing and refining segment and a healthy financial risk profile. These strengths are partially offset by the moderate scale of operations, and exposure to risks arising from volatility in  international prices of crude palm oil, and any unfavorable change in government regulations.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the CPO processing segment and edible oil industry: NBL has been engaged in the CPO processing and edible oil business for over three decades. Longstanding presence has enabled the company to establish its market position and maintain healthy relationships with suppliers and customers. The company has integrated operations across the value chain of palm oil and can produce value added products in the same facilities, enhancing its product diversity and diversification of revenue profile. Operations are managed by a team of professionals.

 

  • Strong financial risk profile: Financial risk profile is expected to remain healthy with estimated net-worth of Rs 160 crore and gearing of 0.66 times by March 31, 2022. Aided by improved operating margin and capital structure, debt protection metrics are expected to remain robust, indicated by interest coverage ratio and net cash accrual to total debt ratios of 14.5 times and 0.95 times, respectively, in fiscal 2022.

 

Weaknesses:

  • Moderate scale of operations: NBL is a moderate sized player in the large and competitive edible oil industry. Though the revenue is estimated to grow substantially in fiscal 2022 the scale remains moderate at about Rs 1700-1800 crore.

 

  • Exposure to risks arising from volatility in international prices of CPO, and any unfavorable change in government regulations: The country’s dependence on imported edible oils is high at over 70% of its total consumption. Out of this, the import of CPO itself constitutes nearly 70% of the total import of edible oils.  The volatility in the international CPO prices may restrict the margins in the refinery segment, though the dependence of NBL on CPO import is minimal. Also the Government intervention to keep the prices of edible oils within the reach of consumers, may result in pressure on the operating margins in FFB processing segment.  However, the prices of the FFB is regulated by the Government, which is linked to the variance in the international CPO prices.

Liquidity: Adequate

Bank limit utilization was moderate at around 35% for the past twelve months ended October 2021. Net cash accrual is estimated to be in the range of Rs 90-100 crore per fiscal over the medium term against which the repayment obligations are expected to be about Rs 18-20 crore over the medium term. Current ratio is expected to improve to 1.46 for March 31, 2022. Unencumbered cash balance was Rs. 28 crore as of December 2021.

Outlook: Stable

CRISIL Ratings believes NBL will maintain a comfortable business risk profile, backed by its established position in the CPO processing segment.

Rating Sensitivity factors

Upward factors:

  • Sustenance of improved revenue growth and operating margin remaining above 7.5-8%.

 

  • Further strengthening of financial risk profile and liquidity, with no major debt-funded capital expenditure (capex) over the medium term

 

Downward factors:

  • Significant weakening in operating performance with reduction in operating margin to below 4%

 

  • Large capex or Sizeable dividends or stretch in working capital cycle constraining the financial risk profile especially liquidity

About the Company

NBL was incorporated in 1992. The company manufactures CPO by processing the Fresh Fruit Bunches and has also forward integrated into refining of CPO and manufacturing of crude palm kernel oil (CPKO).  NBL has its own captive power plant.  A state of the art MEE (Multiple Effective Evaporative Plant) to treat effluents generated during the process of FFB has also been set-up, making it a zero effluent discharge company.  NBL is one of the very few companies in India and the first in Andhra Pradesh to have a farm to-shelf presence with a nursery, plantations a palm fruit crushing plant, refineries, a CPKO plant and captive power generation.  NBL has also set-up a Multi Effective Evaporative Plant (MEE Plant) to treat the effluents generated during the process of FFB which makes it a zero effluent discharge company. 

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

948.87

623.68

Reported profit after tax

Rs crore

6.73

-2.20

PAT margins

%

0.71

-0.35

Adjusted Debt/Adjusted Net worth

Times

0.97

1.62

Interest coverage

Times

4.04

3.52

 

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)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity Level Rating assigned with outlook
NA Bank Guarantee NA NA NA 0.62 NA CRISIL A2+
NA Cash Credit NA NA NA 8.5 NA CRISIL A-/Stable
NA Cash Credit NA NA NA 8.5 NA CRISIL A-/Stable
NA Cash Credit NA NA NA 12.5 NA CRISIL A-/Stable
NA Letter of Credit NA NA NA 45 NA CRISIL A2+
NA Letter of Credit NA NA NA 45 NA CRISIL A2+
NA Letter of Credit NA NA NA 40 NA CRISIL A2+
NA Long Term Loan NA NA Sep-2023 6.88 NA CRISIL A-/Stable
NA Long Term Loan NA NA Dec-2022 6 NA CRISIL A-/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 42.38 CRISIL A-/Stable   -- 30-09-20 CRISIL BBB+/Stable 29-05-19 CRISIL BBB+/Stable / CRISIL A2 10-01-18 CRISIL BBB/Positive CRISIL BBB/Positive
      --   -- 28-08-20 CRISIL BBB+/Stable 01-04-19 CRISIL BBB+/Stable   -- --
Non-Fund Based Facilities ST 130.62 CRISIL A2+   -- 30-09-20 CRISIL A2 29-05-19 CRISIL A2 10-01-18 CRISIL A3+ --
      --   -- 28-08-20 CRISIL A2 01-04-19 CRISIL A2   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bank Guarantee 0.62 CRISIL A2+
Cash Credit 8.5 CRISIL A-/Stable
Cash Credit 8.5 CRISIL A-/Stable
Cash Credit 12.5 CRISIL A-/Stable
Letter of Credit 45 CRISIL A2+
Letter of Credit 45 CRISIL A2+
Letter of Credit 40 CRISIL A2+
Long Term Loan 6.88 CRISIL A-/Stable
Long Term Loan 6 CRISIL A-/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Approach to Recognising Default

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