| Skylark Feeds Private Limited | ||||||
| Rating outlook revised to 'Stable'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 revised its rating outlook on the long-term bank facilities of Skylark Feeds Private Limited (SFPL; a part of the Skylark group) to 'Stable' from 'Negative' while reaffirming the rating at ‘CRISIL A-‘; the short term rating has been reaffirmed at ‘CRISIL A2+’.
The revision in outlook reflects considerable improvement in the business risk profile of the Skylark group, driven by healthy demand from the market resulting in increased sales volumes and improvement in realisation prices of chicken and broilers and timely stabilisation of operations in Skylark Proteins Pvt Ltd. Consequently, the group reported healthy revenue growth of around 40% in fiscal 2022. Operating income is likely to improve further by more than 15% during fiscal 2023, supported by ongoing capacity enhancement, favorable demand from the hotels, restaurants and catering (Horeca) segment and improvement in prices of chicken and broilers. The operating margin sustained at 6.50% in fiscal 2022, despite increase in feed prices, as the group partially passes on the price increase. Nevertheless, sustenance of operating profitability and pick-up in overall volumes will continue to remain key rating sensitivity factors.
The ratings also factor in the group’s strong financial risk profile, driven by strong networth of over Rs 395 crore and low gearing of 0.66 time as on March 31, 2022, backed by healthy accretion to reserves. The group’s debt protection metrics are comfortable as reflected in estimated interest coverage and net cash accrual to total debt ratios of 6.14 times and 0.34 time, respectively, as on March 31, 2022, against 4.09 times and 0.17 time, respectively, as on March 31, 2020.
The ratings also reflect the Skylark group’s established market position in the Indian poultry industry, its integrated operations and strong financial risk profile. These strengths are partially offset by exposure to risks inherent in the poultry industry and average profitability. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Skylark Hatcheries Pvt Ltd (SHPL) and its group companies: SFPL, Skylark Foods Pvt Ltd (SFOPL), Skylark Poultry Pvt Ltd (SPOPL), Skylark Proteins Pvt Ltd (SPPL), Skylark Farms (SF) and Skylark Agro Pvt Ltd (SAPL). All these entities, collectively referred to as the Skylark group, are under a common management, in the same line of business and have operational and financial linkages.
Unsecured loan (Rs 46.89 crore as on March 31, 2022) extended to the group by the promoters has been treated as neither debt nor equity as the loan is subordinate to external debt and may remain in the business over the medium term.
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: Established market position and integrated operations The group undertakes poultry farming from grandparent farming to commercial bird farming (both layer and broiler), hatcheries, production of feed, manufacturing of equipment and related activities in-house. Presence across the value chain, diverse product offerings and unrestricted supply of quality parent chicks offer the group a competitive edge over regional poultry farmers. The group is also the sole supplier of Hubbard and Bowans, which are pure line breeds of broiler and layer chickens, respectively.
The promoters’ experience of over three decades, their strong understanding of local market dynamics and healthy relationships with suppliers and customers should continue to support the business. The group has expanded its capacity and integrated operations over the years. Robust demand led to growth in revenue of 4% in fiscal 2022. Revenue growth will remain supported by increasing demand and incremental revenue from the soya processing unit and feed mills planned to be set up in different states.
Strong financial risk profile Networth was strong at around Rs 395 crore as on March 31, 2022, against Rs 336.45 crore as on March 31, 2021. Despite regular capital expenditure (capex), gearing remained below 1 time in the five fiscals ended March 31, 2022. The group’s debt protection metrics are comfortable, as reflected in estimated interest coverage and net cash accrual to total debt ratios of 6.14 times and 0.34 time, respectively, as on March 31, 2022. The group’s financial risk profile is expected to be comfortable over the medium term, on account of healthy accrual and no further debt-funded capex.
Weaknesses: Exposure to risks inherent in the poultry industry The poultry/broiler industry is driven by regional demand-supply dynamics, given transportation-related constraints and the perishable nature of products. Intense competition and limited brand recall limit the ability to fully pass on any increase in input prices. The business is also susceptible to disease outbreaks, which could lead to decline in sales and realisations. Moreover, demand for poultry is seasonal because of religious factors.
Average profitability The operating margin of the group sustained at 6.5-8.0% in the three fiscals ended March 31, 2022. It declined slightly to 6.50% in fiscal 2022 from 7.92% in fiscal 2021 on account of increase in prices of feeds and decline in chicken consumption and prices in the first quarter of fiscal 2022 due to the Covid-19 pandemic. The operating margin is expected to be 6.75%-7.00%, over the medium term, as the group will benefit from increasing demand due to its established brand presence across the country and strategically located business units. The group's integrated nature of operations will continue to support the operating margin over the medium term. |
Liquidity: Strong The cash accrual of the group is estimated to be around Rs 89 crore against debt obligation of Rs 13.30 crore in fiscal 2022. Cash accrual is expected to be over Rs 100 crore over the medium term, against term debt obligation of Rs 9.10 crore in fiscal 2023 and Rs 1.57 crore in fiscal 2024. The group availed total fund-based limits of Rs 227.72 crore with average utilisation of 78.88% in the past 14 fiscals through May 2022. The group’s limit had been enhanced in fiscal 2022 by Rs 83 crore. There has been funding support from the promoters on a regular basis. Unsecured loan was Rs 46.89 crore in fiscal 2022. It has been treated as neither debt nor equity as it is subordinate to bank debt. The group had cash balance of Rs 6.54 crore as on March 31, 2022. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Group The Skylark group was set up in 1985 by Mr Jasbir Singh Deswal and Mr Jagbir Singh Dhull, with modest capacity of 1,000 broiler breeders in Jind, Haryana.
SHPL was set up as a proprietorship concern named Skylark Hatcheries, with broiler farming as the main activity. It was reconstituted as a private limited company with the present name in 1995.
SFPL was set up in 1997 and manufactures poultry feed. It sells its products under the Nutrich brand and has a strong presence in North India, where it is the only company that produces antibiotic and anticoccidial-drug-free chicken.
SFOPL, set up in 2005, manufactures packaged branded frozen chicken.
SPPL, set up in 2006, rears broiler chicken.
SF is engaged in the layer business.
The group has also set up a soya processing unit under SPRO, which commenced its commercial production in March 2021. |
Key financial indicators (Consolidated)
*CRISIL Ratings adjusted numbers |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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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) | Name of Lender | Rating |
| Cash Credit | 31 | HDFC Bank Limited | CRISIL A-/Stable |
| Letter of Credit | 2 | HDFC Bank Limited | CRISIL A2+ |
| Long Term Loan | 26.43 | HDFC Bank Limited | CRISIL A-/Stable |
| Proposed Long Term Bank Loan Facility | 57.77 | Not Applicable | CRISIL A-/Stable |
| Working Capital Demand Loan | 10 | HDFC Bank Limited | CRISIL A-/Stable |
This Annexure has been updated on 13-Mar-23 in line with the lender-wise facility details as on 17-Feb-23 received from the rated entity.
Criteria Details
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