Rating Rationale
June 24, 2024 | Mumbai
Ovobel Foods Limited
Ratings reaffirmed at 'CRISIL BB+/Stable/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities RatedRs.29.9 Crore
Long Term RatingCRISIL BB+/Stable (Reaffirmed)
Short Term RatingCRISIL A4+ (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 BB+/Stable/CRISIL A4+’ ratings on the bank loan facilities of Ovobel Foods Ltd (OFL).

 

The ratings continue to reflect the strong operational and technical support from the management, established market position and strong relationships with customers and suppliers, and moderate capital structure and healthy debt protection metrics. These strengths are partially offset by susceptibility of operating margin to volatility in raw material prices and foreign exchange (forex) rates.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position and strong relationships with customers and suppliers: The company is one of the few egg powder manufacturers and frozen egg suppliers in India, and mainly caters to customers in Southeast Asia. It procures eggs daily from poultry farms in Karnataka through a wide network of suppliers. Longstanding association with these farms has enabled the company to negotiate better credit terms, thereby easing pressure on liquidity. OFL also acquired a functioning egg-breaking facility in the fourth quarter of fiscal 2024, which is expected to increase the overall egg-breaking capacity.

 

  • Comfortable capital structure: Gearing and total outside liabilities to tangible networth ratio were healthy at 0.37 time and 0.49 time, respectively, as on March 31, 2024. Despite planned capital expenditure (capex), capital structure is expected to remain stable over the medium term with better scale and profitability, and higher accretion to reserves.

 

  • Strong debt protection metrics: Above-average profitability led to robust debt protection metrics, with interest coverage and net cash accrual to total debt ratios of 18 times and 97%, respectively, for fiscal 2024. The company turned profitable in fiscal 2023, and the improvement in margin is expected to continue in the current fiscal as well. However, decline in realisation for egg powder and higher egg prices contributed to lower margin in fiscal 2024.

 

Weakness:

  • Susceptibility of operating margin to volatility in raw material prices and forex rates: Since revenue is almost entirely derived from exports to Southeast Asia and Europe, operating margin remains susceptible to volatility in forex rates. Profitability is also exposed to any sharp rise in egg prices.

Liquidity- Adequate

Bank limit utilisation was around 82% for the 11 months through May 2024. Expected cash accrual of over Rs 18 crore will be sufficient to meet term debt obligation of Rs 2-2.8 crore, over the medium term. Current ratio was healthy at 2.4 times as on March 31, 2024. Cash and bank balance stood at around Rs 30 crore as on March 31, 2023. Strong gearing and moderate networth provide financial flexibility and cushion against any adverse condition or downturn in the business.

Outlook: Stable

The company will continue to benefit over the medium term from its established market position

Rating Sensitivity factors

Upward factors:

  • Steady revenue growth and sustenance of operating margin at more than 12%, coupled with revenue traction from acquired asset
  • Efficient working capital management and maintenance of financial risk profile, with gearing under 0.35 time

 

Downward factors:

  • Significant decline in scale or margin leading to net cash accrual of less than Rs 12 crore
  • Substantial increase in working capital requirement or large, debt-funded capex weakening financial risk profile and liquidity

About the Company

Set up in 1993 by Mr Vishan Swarup Aggarwal and Mr Shanti Swarup Aggarwal, the management of OFL changed in December 2020, when Mr Sathish Babu and Mr Sharad M S took over the company.OFL exports whole eggs in frozen form, and also processes them into yolk and albumen powder. The products find application in bakery goods, pasta, doughnut premixes, mayonnaise, baby food, fish and meat.

Key Financial Indicators

As on / for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

174.63

220.90

Reported profit after tax (PAT)

Rs crore

17.89

38.82

PAT margin

%

10.24

17.58

Adjusted debt/adjusted networth

Times

0.25

0.49

Interest coverage

Times

18.76

37.24

Status of non cooperation with previous CRA:

OFL has not cooperated with Credit Analysis & Research Ltd (Care Ratings), which has classified it as issuer not cooperative vide release dated Mar 19, 2020. The reason provided by the CRA is non-furnishing of information

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 the instrument Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs. Crore)
Complexity
Level
Rating assigned
with outlook
 NA Cash credit NA NA NA 25 NA CRISIL BB+/Stable
 NA Proposed Working Capital Facility NA NA NA 1.25 NA CRISIL A4+
 NA Term Loan NA NA Apr-2026 3.65 NA CRISIL BB+/Stable
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/ST 29.9 CRISIL BB+/Stable / CRISIL A4+   -- 28-03-23 CRISIL BB+/Stable / CRISIL A4+ 03-08-22 CRISIL BB-/Stable / CRISIL A4+ 26-11-21 CRISIL BB-/Stable / CRISIL A4+ CRISIL A4+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 25 HDFC Bank Limited CRISIL BB+/Stable
Proposed Working Capital Facility 1.25 Not Applicable CRISIL A4+
Term Loan 3.65 HDFC Bank Limited CRISIL BB+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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