K.P.R. Rice Mills

October 03, 2018

Summary of rated instruments Current Rated Amount Instrument* Rating Action (Rs. crore) Fund based- Cash Credit 11.00 [ICRA]B+ (Stable); Assigned Fund based- Export Packaging Credit 14.00 [ICRA]B+ (Stable); Assigned Total 25.00 *Instrument details are provided in Annexure-1

Rating action ICRA has assigned long-term rating of [ICRA]B+ (pronounced ICRA B plus) to the Rs. 25.00-crore1 fund-based facilities of K.P.R. Rice Mills (KPRRM or the firm)2. The outlook on the long-term rating is ‘Stable’.

Rationale The assigned rating considers the firm’s moderate scale of operations in intensely competitive industry limiting its financial flexibility. The rating is further constrained by the firm’s weak financial profile characterized by low profitability, high gearing and stretched coverage indicators. The firm’s revenues and profitability are exposed to fluctuations in the prices of raw material, agro-climatic risks, and seasonality and crop harvest. The rating also factors in risks associated with partnership firm.

However, the rating favourably factors in the extensive experience of the partners in the rice mill industry, resulting in the established customer and supplier base of the firm. The rating also considers the location advantage, with firm’s manufacturing unit located in major rice producing belt of Andhra Pradesh, providing regular and easy access to the raw materials at lower transportation costs.

Outlook: Stable The stable outlook reflects ICRA belief that KPRRM will continue to benefit from the extensive experience of its partners in the rice milling business. The outlook may be revised to 'Positive' if substantial higher-than-estimated growth in revenue and profitability, strengthens the coverage indicators and financial risk profile. The outlook may be revised to 'Negative' if any major debt-funded capital expenditure, or low cash accruals weakens liquidity.

Key rating drivers

Credit strengths Long experience of the partners – KPRRM was established in 1998 by Mr. Kovvuri Satyanarayana Reddy and his family members, who have extensive experience in the rice mill business leading to established strong customer and supplier base.

1 100 lakh = 1 crore = 10 million 2 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

Favourable location of the manufacturing unit - The manufacturing unit is located at Biccavolu Mandal, East Godavari District, Andhra Pradesh, a major rice producing belt of Andhra Pradesh, providing regular and easy access to the raw materials at lower transportation costs.

Favourable demand prospects for rice- Demand prospects of the rice industry are expected to remain good as rice is a staple food grain and India is the world’s second-largest producer of rice. The rising demand of non-Basmati rice from the other developing countries such as South Africa, Ghana, Togo etc., augur well for KPRRM.

Credit weaknesses Moderate scale of operations - The firm’s scale of operations is moderate with revenues of Rs. 108.9 crore in FY2018, despite growing at a CAGR of 39.3% over the years FY2014-FY2017. The firm’s capacity utilisation has been low at 28.0- 46.0% over the past four years. Moreover, the firm’s revenue de-grew by 9.3% in FY2018 due to decline in average realisations by 17.4%.

Financial profile characterised by low profitability and stretched coverage indicators – The profitability of the firm remained low with operating margin of 1.4% and RoCE of 8.6% due to the low value addition and high competition in the rice mill business. The firm’s gearing stood high at 1.6 times as on March 31, 2018 and the debt coverage indicators remained stretched with interest coverage of 1.0 times, Total debt/OPBDITA of 10.9 times and NCA/Total debt of 3.5% in FY2018.

Highly fragmented industry, given the low entry barriers - The firm faces stiff competition from other unorganised players in the absence of entry barriers, which limits its pricing flexibility and bargaining power with customers, thereby putting pressure on its revenues and margins.

Inherent risks in rice mill industry - The availability of paddy is dependent on climatic conditions prevailing during season. Hence, the firm is exposed to the risk of fluctuations in the availability and prices of the raw-materials. Moreover, rice industry is highly regulated in terms of fixation of paddy procurement price.

Inherent risks being a partnership firm - Being a partnership firm, it is vulnerable to capital withdrawals by the partners.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology

Rating Methodology for Issuers in the Indian Rice Industry

About the Firm: K.P.R. Rice Mills (KPRRM) was established in the year 1998 by Mr. Kovvuri Satyanarayana Reddy and is engaged in the processing of paddy and producing raw, broken and boiled rice. The firm’s processing unit is located at Biccavolu Mandal, East Godavari District, Andhra Pradesh with an installed capacity of 5.4 lakh MTPA.

The firm reported net profit of Rs. 0.1 crore on an operating income of Rs. 108.9 crore in FY2018, as compared to a net profit of Rs. 0.8 crore on an operating income of Rs. 120.1 crore in FY2017.

Key Financial Indicators (Audited) FY 2017 FY 2018

Operating Income (Rs. crore) 120.1 108.9 PAT (Rs. crore) 0.8 0.1 OPBDIT/ OI (%) 1.6% 1.4% RoCE (%) 11.1% 8.6%

Total Debt/ TNW (times) 1.3 1.6 Total Debt/ OPBDIT (times) 7.3 10.9 Interest coverage (times) 1.1 1.0

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years: Chronology of Rating History for the past Current Rating (FY2019) 3 years Date & Date & Date & Date & Rating in Instrument Amount Amount Rating in Rating in Rating FY2017 Type Rated Outstanding FY2016 FY2015 (Rs. crore) (Rs Crore) October

2018 Long [ICRA]B+ - - - 1 Cash Credit 11.00 - Term (Stable) Export Packaging Long [ICRA]B+ - - - 2 14.00 - Credit Term (Stable) Source: K.P.R. Rice Mills

Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1: Instrument Details Date of Amount Coupon Maturity Current Rating and ISIN No Instrument Name Issuance / Rated Rate Date Outlook Sanction (Rs. crore) NA Cash Credit NA - - 11.00 [ICRA]B+ (Stable) NA Export Packaging Credit NA - - 14.00 [ICRA]B+ (Stable) Source: K.P.R. Rice Mills

ANALYST CONTACTS K. Ravichandran R Srinivasan +91-44-45964301 +91-44-45964315 [email protected] [email protected]

Ruchi Gadia Nithya Debbadi +91-40-40676519 +91-40-40676515 [email protected] [email protected]

RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

About ICRA Limited:

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