| Umang Dairies Limited | ||||
| Rating downgraded to 'CRISIL BBB- / Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its ratings on the bank facilities of Umang Dairies Ltd (UDL) to ‘CRISIL BBB-/Stable’ from ‘CRISIL BBB/Stable’.
The rating action factors in moderation in UDL’s performance in fiscal 2022, as reflected in ~18% decline in revenue in fiscal 2022 and operating losses incurred during the year. The losses are on account of intensified market competition and Covid-19 impacting sales volume in Q1 of fiscal 2022 and thereby company’s revenue, coupled with higher milk procurement prices. While UDL reported gross profit of Rs 1.36 crore in Q1 of fiscal 2023, sustained improvement in company’s revenue and profitability remains to be seen. Further, liquidity is partly constrained by high utilisation of fund-based working capital limits at over 80% in the last 12 months through June 2022, though aided by moderate unencumbered cash and cash equivalents and funding support from the promoters.
While the financial risk profile has moderated, it continues to remain adequate, with moderate capital structure and debt protection metrics.
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. |
Analytical Approach CRISIL Ratings has evaluated the business and financial risk profiles of UDL on a standalone basis. |
Key Rating Drivers & Detailed Description Strengths:
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.
Financial risk profile is likely to be supported by prudent working capital management and absence of any large, debt-funded capital expenditure (capex). While the financial risk profile has moderated in fiscal 2022, it continues to remain adequate. The gearing ratio increased to 1.14 times as on March 31, 2022, from 0.58 time a year ago, on account of Rs 12 crore of interest bearing inter-corporate deposits (ICDs) availed by UDL as on March 31, 2022. The interest coverage ratio was negative for fiscal 2022 due to EBITDA losses, against coverage of 3.9 times in fiscal 2021.
Weakness:
The company reported EBITDA (earnings before interest, tax, depreciation and amortisation) loss of Rs 13.3 crore (CRISIL Ratings adjusted) in fiscal 2022 against EBITDA of Rs 14.3 crore in fiscal 2021, primarily due to higher procurement prices and intensified market competition. The same has materially impacted the coverage indicators in fiscal 2022.
While UDL reported an EBITDA of Rs 1.36 crore in Q1 of fiscal 2023, driven by pick-up in demand and some gain in the lost market share in its key geography, along with impact of price hike. The revenue and profitability are expected to improve in fiscal 2023, with better net sales realisation, and likelihood of softening of raw milk prices in subsequent quarters of this fiscal. Sustained and significant improvement in company’s revenue and profitability remains to be seen.
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.
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. |
Liquidity: Adequate Liquidity is aided by adequate cash accrual, funding support from the promoters and absence of any large capex plans. Expected cash accruals of Rs 5-6 crore in fiscals 2023 to 2025, should cover annual debt servicing obligations of around Rs 3-4 crore. The utilisation of fund-based working capital limits has been high, at over 80% in the last 12 months through June 2022. Further, the unencumbered cash and cash equivalents stood at Rs 2.8 crore as of June 30, 2022. Liquidity is also supported by UDL being a part of the JK group. |
Outlook Stable CRISIL Ratings believe 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
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 through its facility is in Gajraula, Uttar Pradesh. The company also undertakes job work activities for other players. |
Key Financial Indicators*
*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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Bank Lenders & Facilities | |||||||||
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Criteria Details
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