Detailed Rationale

CRISIL Ratings has revised its outlook on the long term bank facilities of Riddhi Siddhi Gluco Biols Ltd (RSGBL) to 'Stable' from 'Negative’ while reaffirming the rating at ‘CRISIL BBB-‘. The short term rating has been reaffirmed at 'CRISIL A3’. The change in outlook reflects change in the analytical approach, wherein the financial and business risk profiles of RSGBL, Shree Rama Newsprint Ltd (SRNL) and Bluecraft Agro Pvt Ltd (BAPL), collectively referred to as the Riddhi Siddhi group, have been combined, against the earlier approach wherein RSGBL was consolidated with SRNL. This change is driven by the increasing business and treasury synergies of RSGBL and SRNL with BAPL and the recent change in the management’s stance to support both entities in case of exigencies. CRISIL Ratings has received an undertaking from the promoters of the Riddhi group stating the same. Moreover, the management is now focusing on expanding the manufacturing business of BAPL.             

 

The ratings continue to reflect the extensive experience of the promoters in the starch business, stabilisation of operations in BAPL and comfortable financial risk profile. These strengths are partially offset by exposure to counterparty risk associated with inter-corporate deposits (ICDs), shut down of the paper manufacturing facility, project risk in BAPL and susceptibility to volatility in maize prices.

 

The overall revenue of the group is expected to increase ~15% in fiscal 2024 to Rs ~1,600 crore as compared to Rs 1,450 crore in fiscal 2023. The revenue growth is due to increase in capacity in the Yamunanagar plant from 750 tonne per day (TPD) to 1,000 TPD and ongoing capex in the Telangana plant. The revenue in other divisions is expected to remain steady as no major capital expenditure (capex) is expected. The operating margin is expected to improve to approximately 8.0% in fiscal 2024 from 7.6% in fiscal 2023 because of moderation in power and fuel cost and expected fall in maize prices. Furthermore, the company has established two captive power plants of 6 megawatt (MW) and 4 MW in the Yamunanagar plant, which will help to reduce power cost.

 

The financial risk profile of the group remains comfortable with adjusted interest coverage and net cash accrual to adjusted debt ratios of 6.6 times and 0.16 time, respectively, in fiscal 2023. Even though the metrics are expected to moderate to ~5 times and 0.15-0.16 time, respectively, in fiscal 2024 due to debt-funded capex in the Telangana plant, it will continue to remain healthy. Gearing and total outside liabilities to tangible networth (TOLTNW) ratio are also expected to moderate in fiscal 2024 to ~0.4 time and ~0.5 time, respectively, from 0.34 time and 0.43 time, respectively, in fiscal 2023.

 

The Riddhi Siddhi group has adequate liquidity driven by expected cash accrual of more than Rs 110 crore per annum to meet yearly debt obligation of Rs 50-80 crore. The group also has access to fund-based limits of approximately Rs 300 crore, which have been utilised at 63% on average over the 12 months through May 2023. The group’s financial flexibility is aided by net external investments of Rs 631 crore, including ICDs of Rs 400 crore as on March 31, 2023.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has applied the homogenous criteria and combined the business and financial risk profiles of RSGBL, SRNL and BAPL. The other associate companies have not been considered for arriving at the ratings due to no significant business linkages with these entities.

 

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:

Extensive experience of the promoters

The group is promoted by the Chowdhary family who have more than four decades of experience in the maize starch industry. RSGBL initially used to manufacture starch and starch derivatives. The division was sold to Roquette India Pvt Ltd for Rs ~950 crore in fiscal 2012 and the company entered a non-compete deal. As a result, RSGBL entered trading, power generation, bottling and kraft paper manufacturing businesses. Post expiry of the non-compete deal with Roquette Feres in 2017, the group re-entered the starch business through BAPL and now has capacity of 1,400 TPD. In this short period, the company achieved operating income of nearly Rs 1,450 crore with earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 7.6% in fiscal 2023.

 

Stabilisation of operations in BAPL, backed by diversified customer profile

In 2018-19, BAPL expanded the Yamunanagar plant capacity from 200 TPD to 750 TPD. In fiscal 2023, the capacity has been further increased to 1,000 TPD with utilisation levels above 80% while reaching operating margin of 7.6%. This is a result of its established relationships with customers who have been associated with the company for more than 20-30 years.

 

The company has good customer diversification with top five customers accounting for only 22% of total sales and exports forming 11% of total sales in fiscal 2023. Though exports are inclined to South-East Asian countries, the company also has presence in Africa, UAE, Mexico, among other regions.

 

Comfortable financial risk profile at the group level

The financial risk profile of the group will remain comfortable over the medium term, supported by healthy accrual, resulting in comfortable debt protection metrics. The consolidated debt increased to Rs 549 crore as on March 31, 2023, from Rs 334 crore as on March 31, 2022, due to capex in BAPL. Gearing and TOLTNW ratio were healthy at 0.34 time and 0.43 time, respectively, as on March 31, 2023. Credit metrics will remain comfortable over the medium term, with adjusted interest coverage ratio in fiscal 2023 at 6.59 times that is expected to moderate to ~5 times in the near term.

 

Weaknesses:

Reduced operations and liquidity in SRNL

In fiscal 2023, the company announced discontinuation of the paper division which led to reduction in operating income from Rs 330 crore in fiscal 2022 to Rs 46.7 crore in fiscal 2023. This division has been discontinued due to want of coal and increased prices of wastepaper. The total assets held for sale is Rs 236 crore with liabilities directly associated with these assets approximately Rs 93.80 crore. Liquidity of Rs 142.85 crore has been stuck in the form of net assets directly associated with the disposal group. The proceeds from the sale of these assets will remain a key monitorable.

 

Exposure to counterparty risk associated with ICDs

ICDs extended to unrelated and undisclosed parties were Rs 399.73 crore as on March 31, 2023. Since the credit profile of these entities is unknown, the counterparty risk associated with the ICDs continues to remain. Reduction in ICDs to external parties and loans provided to group companies will remain a key monitorable.

 

Exposure to project risk and susceptibility to volatility in raw material prices

The company has recently completed the capex in Yamunanagar plant wherein capacity increased from 750 TPD to 1,000 TPD. In fiscal 2024, capex in Telangana plant is ongoing where the capacity will be increased from 200 TPD to 350 TPD and rice-based starch with the capacity of 125 TPD will be established. Stability of operations and capacity utilisation will be key monitorable.

 

Maize being an agricultural product and key raw material for the production of starch, is exposed to climatic conditions, government policies, and other factors. Therefore, if raw material prices fluctuate, the operating margin will be impacted (as seen in fiscal 2023, when it reduced to 7.6% compared to 13.7% in fiscal 2022).

Liquidity: Adequate

The Riddhi Siddhi group has adequate liquidity driven by expected cash accrual of more than Rs 110 crore per annum for yearly debt obligation of Rs 50-80 crore over the medium term. The group also has access to fund-based limits of approximately Rs 300 crore (Rs 261.75 crore in BAPL and Rs 40 crore in RSGBL), which was utilised at 63% on average over the 12 months through May 2023.

Outlook: Stable

CRISIL Ratings believes the credit risk profile of the Riddhi Siddhi group will benefit from the increasing scale in operations in the starch business and sustenance of healthy financial risk profile, supported by adequate liquidity.

Rating Sensitivity Factors

Upward factors

• Substantial increase in scale of operations while maintaining operating profitability above 11-12% on sustained basis
• Higher-than-expected decline in debt levels, driven by prepayment leading to improvement in debt protection metrics

 

Downward factors

• Decline in operating margin to below 5-6% on sustained basis
• Higher-than-expected, debt-funded capex or acquisition leading to deterioration in debt protection metrics

About the Company

RSGBL is promoted by the Ahmedabad-based Chowdhary group having decades of experience in marketing starches and starch products in India. However, in 2011-12 the corn wet milling business was transferred to Roquette Feres. The wind energy segment was retained in RSGBL.

 

The total capacity of windmills stood at 33.15 MW and are in Tamil Nadu (28.50 MW), Maharashtra (3.00 MW) and Gujarat (1.65 MW). Energy generated from the windmills were sold to the respective state distribution companies. Total energy generated during the year under review was 31.44 million units against 25.71 million units in the previous year yielding revenue of Rs 1,018.69 lakh against Rs Rs 862.41 lakh in the previous year.

 

Starch and its by-products manufactured by BAPL are used in varied industries such as pharmaceuticals, food, paper and boards, textiles and animal nutrition. The company procures maize from Madhya Pradesh, Telangana, Punjab, Haryana, Uttar Pradesh and Bihar during the two harvesting seasons, rabi and kharif. The company has a total storage capacity of 50,000 MT (owned) and leased a total of 36 warehouses in Bihar, Madhya Pradesh and Orissa with cumulative maize crushing capacity of 4.9 lakh MT.

 

SRNL had no production in the paper division during fiscal 2023 as against 63,000 MT (48% capacity utilisation) during fiscal 2022. The paper division of the company was shut down from December 18, 2021, for want of coal and later because abnormal rise in rates of wastepaper and coal rendered its operations unviable. The company retrenched all workmen in the paper division with effect from February 17, 2022.

 

SRNL also manufactures packaged drinking bottles under the brand name Clear on behalf of Energy Beverages Pvt Ltd. The company produced 44.57 lakh cases (1,629.54 lakh bottles) during fiscal 2023 against 30.78 lakh cases (1,087.44 lakh bottles) in the previous financial year.

Key financial indicators (Riddhi Siddhi Group)

As on / for the period ended March 31	Units	2023	2022
Revenue	Rs crore	1450	1256
Profit after tax (PAT)	Rs crore	-38	63
PAT margin	%	-2.6	5.0
Adjusted debt/adjusted networth	Times	0.34	0.20
Interest coverage	Times	6.59	8.34

CRISIL Ratings-adjusted financials. Impairment losses of Rs 99.84 crore has been recognized as an exceptional item.

 

Key financial indicators (RSGBL)*

As on / for the period ended March 31	Units	2023	2022
Revenue	Rs crore	173	223
Profit after tax (PAT)	Rs crore	-85	2
PAT margin	%	-49.1	1.0
Adjusted debt/adjusted networth	Times	0.10	0.10
Interest coverage	Times	10.88	13.94

RSGBL consolidated with SRNL. CRISIL Ratings-adjusted financials. Impairment losses of Rs 99.84 crore has been recognized as an exceptional item.

Any other information: Not Applicable