Rating Rationale
October 01, 2024 | Mumbai
Umang Dairies Limited
Rating Reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.43.47 Crore
Long Term RatingCRISIL BBB-/Stable (Rating Reaffirmed and Withdrawn)
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Ratings has reaffirmed its rating on the long-term bank facilities of Umang Dairies Limited (UDL) and subsequently withdrawn the rating following a request from the company and receipt of no objection certificates from lenders for the same. The withdrawal is in line with CRISIL Ratings’ rating withdrawal policy.

 

The rating continues to reflect the established position of UDL in the dairy industry, benefits of being part of the JK group and its moderate financial risk profile. These strengths are partially offset by exposure to risks of volatile milk prices and seasonality in operations.

 

Operating performance improved in fiscal 2024, with operating margin increasing to 3.7% against 1.6% in fiscal 2023, on account of moderation in raw milk procurement prices. Going forward, the operating margin is expected to remain at 3.3-3.5% supported by stabilisation of milk prices and higher demand for dairy products. The scale of operations has remained modest at Rs 287 crore in fiscal 2024 (Rs 294 crore in fiscal 2023).

 

Furthermore, the financial risk profile has improved in fiscal 2024 supported by lower debt and better profitability with gearing improving to 0.94 time in fiscal 2024 as against 1.25 times in the previous fiscal. Debt levels are expected to improve further with gradual debt repayment and absence of debt-funded capital expenditure (capex). Liquidity has also improved with accrual of Rs 6 crore in fiscal 2024 against debt repayment of Rs 5 crore. Going forward, the company is expected to generate sufficient accrual to meet the debt obligation.

 

CRISIL Ratings has taken note of the scheme of arrangement (the scheme) announced by UDL wherein the dairy business will be demerged into Panchmahal Properties Ltd (PPL) and the remaining business is to be merged with its parent company, Bengal & Assam Company Ltd (BACL). BACL is the holding company for both UDL (~55.3% shareholding) and PPL (~100% shareholding) and is part of the JK group. As per the scheme, the existing shareholders of UDL will receive shares of BACL in the agreed share exchange ratio. On implementation of the scheme, UDL will cease to exist, but the dairy business will continue to be part of the JK group. The scheme was approved by the board of directors of UDL on June 28, 2023, and is subject to approval from its shareholders, stock exchanges and other regulatory approvals as required.

Analytical Approach

CRISIL Ratings has evaluated the business and financial risk profiles of UDL on a standalone basis.

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. Furthermore, being a part of the JK group, UDL will continue to benefit from the extensive experience of the group’s management.

 

Improving financial risk profile

The financial risk profile is likely to be supported by prudent working capital management, improving profitability and absence of any large, debt-funded capex. The financial risk profile has improved in fiscal 2024, with gearing improving to 0.94 time in fiscal 2024 as against 1.25 times in the  previous fiscal. The debt protection metrics are expected to improve further, supported by gradual debt repayment and absence of capex.

 

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.

 

Seasonality of operations

UDL stocks up inventory during the flush season due to higher milk supply. Consequently, inventory is typically high at the end of March. Nonetheless, inventory holding on 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 requirement.

Liquidity: Adequate

Liquidity is aided by adequate cash accrual, funding support from the JK group and absence of any large capex. Expected cash accrual of Rs 6-7 crore in fiscals 2025 and 2026, should cover annual debt obligation of Rs 1-2 crore. Utilisation of the fund-based working capital limits has been moderate at over 77% on average in the 12 months through March 2024. Liquidity is also supported by UDL being a part of the JK group. UDL had availed inter-corporate deposits (ICDs) from the JK group to meet its cash flow mismatches in the last two fiscals. As on March 31, 2024, the group had outstanding ICDs of Rs 14 crore.

Outlook: Stable

CRISIL Ratings believes that UDL will continue to benefit from its established market presence, extensive experience of the management team and maintain a stable revenue profile.

Rating sensitivity factors

Upward factors

  • Substantial growth in revenue and operating margin of 4.5-5.0% on sustained basis, resulting in higher-than-expected cash accrual
  • Significant improvement in the financial risk profile and working capital management

 

Downward factors

  • Sustained operating losses or 10% lower-than-expected revenue, leading to lower cash accrual
  • Stretched working capital cycle leading to weakened liquidity
  • Any large, debt-funded capex, impacting the company’s leverage and debt coverage metrics

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 through its facility in Gajraula, Uttar Pradesh. The company also undertakes job work for other players.

Key Financial Indicators*

Particulars

Unit

2024

2023

Revenue

Rs crore

287

295

Profit After Tax (PAT)

Rs crore

1

(3)

PAT Margin

%

0.5

(1.1)

Debt/networth

Times

0.94

1.25

Interest coverage

Times

1.98

1.00

*CRISIL Ratings adjusted figures

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.

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Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue Size
(Rs.Crore)		 Complexity
Levels		 Rating Outstanding
with Outlook
NA Cash Credit NA NA NA 35 NA CRISIL BBB-/Stable (Rating Reaffirmed and Withdrawn)
NA Term Loan NA NA 31-Mar-25 8.47 NA CRISIL BBB-/Stable (Rating Reaffirmed and Withdrawn)
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 43.47 CRISIL BBB-/Stable (Rating Reaffirmed and Withdrawn)   -- 05-07-23 CRISIL BBB-/Stable 01-09-22 CRISIL BBB-/Stable 03-06-21 CRISIL BBB/Stable CRISIL BBB/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 35 CRISIL BBB-/Stable (Rating Reaffirmed and Withdrawn)
Term Loan 8.47 CRISIL BBB-/Stable (Rating Reaffirmed and Withdrawn)
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry

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