Key Rating Drivers & Detailed Description

Strengths: 

Established market presence

UDL has been operating since 1992 and has an established presence in the dairy industry. The company markets its products such as ghee, dairy creamer, skimmed milk powder [SMP] and whole milk powder under its own brand. The company has a service network of 800 distributors and 1.5 lakh retail outlets.

Strong group presence with majority shareholding

UDL is part of JK Group with promoter shareholding of ~74.6% and continues to benefits from its established market presence and extensive experience of the management team. CRISIL Ratings expects UDL to benefit from financial flexibilities being part of the JK Group. 

Weaknesses:

Susceptibility to volatile milk prices

Milk prices are sensitive to environmental conditions and demand supply dynamics. Milk is procured from dairy farmers; dairy product manufacturers lack direct control over production and hence remain vulnerable to the risk of low milk production because of factors such as variations in climatic conditions impacting the flush season, or livestock diseases.

The company reported EBITDA (earnings before interest, tax, depreciation and amortisation) of Rs 4 crore (CRISIL Ratings adjusted) in fiscal 2023 against EBITDA loss of Rs 13.3 crore in fiscal 2022, Though EBIDTA margins turned positive in fiscal 2023, it remained low at 1.2% primarily due to higher milk procurement prices and market competition. The revenue and profitability are expected to improve in fiscal 2024, with increase in prices, and stabilization of raw milk prices in subsequent quarters of this fiscal. CRISIL Ratings expects UDL to report revenue growth of 8 - 10% with operating profit margins of 3 – 3.5% in fiscal 2024. Sustained and significant improvement in company’s revenue and profitability remains to be seen.

Seasonality of operations:

UDL stocks up inventory during the flush season due to higher milk supply. Consequently, inventory is typically high in March end. Nonetheless, inventory holding on an average remains moderate at 75-90 days. Most of the raw milk is sourced from nearby villages, against low credit, leading to high reliance on bank limits to fund the working capital.

Annexure - Details of Instrument(s)

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