| Umang Dairies Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL BBB/Stable’ rating on the long-term bank facilities of Umang Dairies Ltd (UDL). CRISIL Ratings has also withdrawn its rating on the Rs 6.53 crore bank facilities of UDL on receipt of relevant documents from bankers. The rating action is in line with CRISIL Ratings' policy on withdrawal of ratings.
Despite impact of COVID-19 in fiscal 2021, the company has been able to sustain its volume sales, especially driven by its strong customer base and network in north-east India. Revenue was Rs 248 crore in fiscal 2021 as against Rs 245 crore in fiscal 2020. Operating margins increased by 115 bps to 5.9%, driven by lower milk prices. Financial risk profile also remains healthy, with comfortable capital structure and debt protection metrics. CRISIL Ratings believes UDL’s business and financial risk profile will sustain at healthy level over medium term.
The rating continues to reflect the established position of UDL in the dairy industry, benefits of being a part of the JK group and a moderate financial risk profile. These strengths are partially offset by exposure to risks of volatile milk prices, changes in government regulations and seasonality in operations. |
Analytical Approach The business and financial risk profiles of UDL have been evaluated on a standalone basis as the entity has no subsidiaries, associate companies or joint ventures. |
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, creamer (skimmed milk powder and whole milk powder) and paneer under its own brand. The distribution network is spread across 1.5 lakh retail outlets. Furthermore, being a part of the JK group, UDL will continue to benefit from the extensive experience of the group’s management.
* Moderate financial risk profile Financial risk profile should remain supported by prudent working capital management and the absence of any large, debt-funded capital expenditure (capex). Gearing moderated to 0.57 time as on March 31, 2021, from 0.73 time a year ago. Also, interest coverage ratio improved to 3.90 times in fiscal 2021 from 3.25 times in the previous fiscal.
Weaknesses * Susceptibility to volatile milk prices and changes in government regulations Milk prices are sensitive to government policies and environmental conditions. 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 or livestock diseases.
* Seasonality of operations UDL has combined milk-handling capacity of 11.5 lakh litre per day (LLPD). As UDL stocks up inventory during the flush season, inventory is typically high in March end. Nonetheless, inventory holding on an average remain moderate at 60-90 days. Most of the raw milk is sourced from nearby villages, against low credit, leading to high reliance on bank limit to fund the working capital. |
Liquidity: Adequate Expected cash accrual of Rs 7-8 crore per annum for fiscal 2022 and 2023, should sufficiently cover annual maturing debt of around Rs 1-2 crore along with capex of about Rs 5 crore per annum, largely towards maintenance and technology costs. Utilisation of the working capital limit has been moderate, at an average of 65% during fiscal 2021. Liquidity is also supported by UDL being a part of the JK group. For example, in July 2017, UDL received unsecured loans of Rs 3 crore temporarily from a group company, for its liquidity requirement. |
Outlook: Stable UDL will continue to benefit from the extensive experience of the promoters and maintain a stable profitability. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company Formerly known as JK Dairy and Foods Ltd, UDL was incorporated in 1992. The company, a part of the JK group, is promoted by Bengal and Assam Company Ltd. UDL manufactures milk products and processes/packages liquid milk. Its facility is in Gajraula, Uttar Pradesh, and has a drying plant with installed capacity of 4.5 LLPD, a liquid milk processing (LMP) plant with capacity of 6.0 LLPD, and a curd and buttermilk plant with capacity of 1.0 LLPD. The LMP and curd plants are utilised for carrying out job work activities for Mother Dairy Fruits and Vegetable Pvt Ltd. |
Key Financial Indicators (Reported)
*FY21 Provisional financials |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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