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Heritage Beverages Pvt. Ltd. February 27, 2019 Ratings Facilities Amount Rating1 Remarks (Rs. crore) Long term Bank 47.38 CARE A-; Stable Revised from CARE BBB+; Stable Facilities (reduced from Rs. 53.00 crore) (A Minus; Outlook Stable) (Triple B Plus; Outlook Stable)

Short term Bank 9.00 CARE A2 Revised from CARE A3+ Facilities (enhanced from Rs. 6.50 crore) (A Two) (A Three Plus) Total 56.38 (Rs. Fifty Six Crore and Thirty Eight Lakh only) Details of facilities in Annexure-1 For arriving at the ratings, the combined business & risk profile of Enrich Agro Food Products Pvt. Ltd. (EAFPPL), Versatile Polytech Pvt. Ltd. (VPPL) & Heritage Beverages Pvt. Ltd. (HBPL) has been considered. This is because the three companies together referred to as the Enrich group, are under a common management and have integrated operations, with VPPL and HBPL supplying preforms to EAFPPL. Detailed Rationale & Key Rating Drivers The revision in ratings assigned to the bank facilities of Heritage Beverages Pvt. Ltd. (HBPL) takes into account significant improvement in financial risk profile marked by consistent growth in total operating income and operating profitability, strong networth, comfortable debt coverage indicators and working capital utilization. The rating continue to derive strength from its long established track record of operations backed by extensive experience of promoters in the bottling and distribution industry, stable market position with exclusive franchise agreement for the defined territory with Coca-Cola Pvt. Ltd. (CCI) and successful commissioning of enhanced capacity at Rohtak Plant. The ratings are, however, constrained by geographically concentrated revenue profile, the seasonal nature of the business, low bargaining power for the raw materials, susceptibility to change in consumers’ preferences and regulatory changes. Going forward, the company’s ability to achieve the envisaged revenue and profitability while effectively managing its working capital requirements and continued business relationship with CCI India will remain key rating sensitivities. Furthermore, timely completion of the new capex within the envisaged cost as well as envisaged timelines so as to capitalize on the summer 2019 season would also be a key rating sensitivity. Key Rating Strengths Long track record of operations and established relationship with Coca Cola Enrich Agro Food Products Pvt Ltd (EAFPPL) has been in the soft drinks industry for almost 35 years. EAFPPL was incorporated in 1984 for manufacturing and marketing of Parle products. As a franchisee of Parle’s, EAFPPL was earlier manufacturing , , , , etc. with an installed capacity of 400 BPM (Bottles Per Minutes). During 1994, when Parle sold its brands to Coca-Cola, EAFPPL put up the renewed plant with an installed capacity of 600 BPM at the same location for manufacturing Coca-Cola, , Limca, Thums-up, , Soda etc. Presently, the company is a franchisee of Coca-Cola India. The parent company i.e. CCI provides for process parameters of quality raw materials to be used and other technical inputs, wherever so required. It also assists in selection of plant and equipment and specifies the design and size of glass bottles/ PET etc. The parent company also specifies the quality checks and tests to be carried out in the laboratory. Experienced promoters and management team EAFPPL is promoted by Mr. Nirmal Singh Kandhari and is currently managed by his son Mr. Varinder Pal Singh Kandhari who has more than 3 decades of experience in the beverage bottling industry. Mr. Nirmal Singh Kandhari is associated with EAFPPL since 14 December, 1984 and have about 5 decades of experience in the soft drinks industry, having started his first soft drink venture in 1966 at Chandigarh as franchisee of Parle soft drink products viz. Thums -Up, Limca, Gold Spot etc. He is currently designated as Chairman of the Kandhari Group of Industries.

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.

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Mr. Varinder Pal Singh, Managing Director,has done B.Com (Hons), Post Graduate Diploma in Business administration from University of Wales (U.K) & is associated with EAFPPL since 01 October 1986 Mr. Taran Pal Singh Kandhari is an MBA from UK, having completed his post-graduation, has joined the family business and is looking after Marketing of Enrich Agro Food Products Pvt. Ltd. since 2016. The top management is supported by a professional management team which looks after the day to day operations of the company. Manufacturing capabilities already built for CSD with locational advantage of the new Rohtak plant and new manufacturing lines for juices to be operational from April, 2019 The company has two operational plants for CSD (Carbonated Soft Drinks) in Haryana (one each in Gurgaon and Rohtak). The company has an installed capacity of 1550 bpm, which includes 1150 bpm of RGB (Returnable Glass Bottles) and 400 bpm of PET bottles at its first plant in Gurgaon. The second plant at Rohtak has a production capacity of 1500 bpm (1st line of 750 bpm & 2nd line of 750 bpm). For making PET bottles, the company requires preforms which it procures from its associate companies Heritage Beverages Pvt. Ltd (HBPL) and Versatile Polytech Pvt. Ltd. (VPPL) EAFPPL already has an established network of dealers and agents in place across its defined territory. The company presently caters to its allotted territories, which are West and South Delhi, Gurgaon and Faridabad. The production at the Rohtak plant was undertaken to meet the demand from Hindustan Coca-Cola Beverages Pvt. Ltd. (HCCB) and EAFPPL’s existing territories as well as to establish its position in new territories of HCCB in Rajasthan and other neighboring areas. Capex undertaken for juice project: Originally, the Rohtak plant was planned in a way that it could accommodate multiple bottling lines keeping in view the future expansion plans. The 3rd line (400 bpm for PET bottles) & 4th line (125 ppm for Tetra pack) are under implementation which is essentially the company’s first Juice manufacturing facility expected to be operational from April-19. Currently, EAFPPL is already selling juice in both PET & Tetra Pack through trading. The project cost of new Juice manufacturing line is estimated at Rs. 112.71 crore and is proposed to be funded by Rs.32.21 crore of internal accruals and Rs. 80.50 crore of debt. (Debt equity of 2.50:1). Besides a working capital requirement of Rs. 10.00 crore is estimated for the third line. This line is expected to be operational from April, 2019 onwards and is timed to cater to the peak summer 2019 demand. Significant improvement in financial risk profile marked by consistent growth in scale of operations and healthy PBILDT margins: Revenue: The group has reported a total operating income of Rs.555.85 crore in FY18 (P.Y: Rs. 405.30 crore) registering a growth of 37%. The company achieved the growth mainly on account of increased volume sales in EAFPPL and on back of increased production from its CSD lines in Rohtak. EAFPPL had increased capacity post operationalization of Rohtak plant. During FY18, which is first year of full operations for both the lines at Rohtak, the company achieved sales of 139 lakh cases worth Rs. 503.85 crore. Profitability: The PBILDT margin increased to 17.07% in FY18 (P.Y: 15.20%) on account of company mainly saving in operational and administrative cost due to economies of scale, leading to a minor improvement in PAT margins to 1.93% in FY18 (P.Y: 1.81%). Solvency: The overall gearing of the company stood at 1.59x as on March 31, 2018 as compared to 1.77x as on March 31, 2017 mainly on account of repayment of term loans availed in FY17 for second bottling line of 750 bpm at Rohtak plant. The debt coverage indicators remained comfortable. The interest coverage improved to 3.23x (P.Y: 2.49x) and total debt to GCA improved to 4.27x (PY: 7.34x) mainly due to increase in GCA. Liquidity: The overall liquidity of the group improved in FY18, marked by an improvement in operating cycle to 69 days FY18 from 79 days in FY17, marked by a decrease in average collection period to 48 days (P.Y: 61 days). The liquidity ratio as reflected by current ratio continued to remain low, however increased to 1.08x as on March 31, 2018 (P.Y: 0.92x) mainly due to high current portion of long term debt (CPLTD). The average WC utilization stood at 52% for the past 12 months from Dec-17 to Dec-18. Key Rating Weaknesses Geographically concentrated revenue profile and competition The exclusive franchise agreement constrains EAFPPL’s future growth potential because of restriction to sell only in the defined territory. Additionally, with consumers increasingly turning health conscious, the CSD market is losing share to the non-carbonated drinks segment. Further, EAFPPL’s CSD products, which significantly contribute to its revenue, will continue to face competition from bottlers of Pepsico India and from other type of beverages (such as water and other non-carbonated drinks). Further, EAFPPL’s sales growth and size will remain contingent on introduction of any new product by Coco-Cola in India which could drive sales or allotment of additional franchise to the company. Low bargaining power over raw material prices The major raw materials used in the production of beverages are concentrate, sugar and PET preforms. EAFPPL sources PET preforms from Heritage and Versatile. This helps the group capture a larger part of the value chain. However, the

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Press Release concentrate has to be procured from CCI and other inputs like sugar, from third party suppliers. As EAFPPL is exclusively dependent on CCI for the supply of concentrate, it has low bargaining power in determination of the cost of its key raw material i.e. concentrate. Further, any increase in raw material prices will be partially passed on to the consumer by increase in the price of the products by CCI. Also, the company’s margins are contingent on the price of sugar which is dependent on external factors of demand- supply scenario and government policies. Capital intensive nature of operations EAFPPL has to continuously invest in plant & machinery including marketing equipment’s (mainly trucks) for growing its operations. The company also has to incur capital expenditure as per the requirement of Coca Cola. Besides, the demand being seasonal, the capex has to take account of the peak season demand resulting in incurrence of higher cost. Seasonal nature of business and susceptibility to consumers preference The company’s nature of business is seasonal, and most of the sales are in the summer season i.e. period April-September which accounts for approx. 75% of the total annual sales. The debt repayment obligations of the company are thus structured in a staggered manner with major repayments due in April- September wherein the company has sufficient cash flows to pay off its debt obligations. However, this also poses as a risk to the beverage manufacturing companies such as EAFPPL as any technical or other event that may affect the operations of the company during the said period could negatively impact the cash flows and thus affect the debt servicing ability of the company. The beverage industry is also susceptible to changing preference of consumers. However, the company caters to the wide spectrum of consumer demand by offering products in various sizes and packs across a wide range of brands marketed by Coco Cola. Industry prospects Soft drinks, juice beverages market is mainly driven by urbanization, changing consumption pattern and rising disposable income. Rise in disposable income and consumer preferences for ‘on-the-go’ foods is driving the sales of enriched, sugar free and low calories beverages. Moreover vegan diet trend due to various health issue & ethical factors will play a key role to grow non-alcoholic beverages market. Analytical approach: the combined business & risk profile of Enrich Agro Food Products Pvt. Ltd. (EAFPPL), Versatile Polytech Pvt. Ltd. (VPPL) & Heritage Beverages Pvt. Ltd. (HBPL) has been considered. This is because the three companies together referred to as the Enrich group, are under a common management and have integrated operations, with VPPL and HBPL supplying preforms to EAFPPL. Applicable criteria: Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition CARE's Methodology for manufacturing Industry Financial ratios – Non-Financial Sector CARE’s methodology for Factoring Linkages in Ratings

About the Company  Heritage Beverages Pvt. Ltd. (HBPL) was incorporated as Associated Bottlers Pvt. Ltd. in 1981, and got its current name in 1996. The company started PET preform and corrugated carton manufacturing unit at Gurgaon in 2008. The corrugated carton and PET preform divisions commenced operations from June 2009 & March 2010, respectively. Currently, HBPL is into manufacturing of preforms of various sizes for CSD, water and hotfill (related to juices). The preforms of CSD are supplied to EAFPPL and remaining to other parties.  Enrich Agro Food Products Pvt. Ltd. (EAFPPL), promoted by Mr. Nirmal Singh Kandhari, was incorporated in 1984 for bottling and distribution of Parle Agro’s soft drink products such as Thums Up, Limca, Gold Spot, Citra, Maaza etc. with an installed capacity of 400 bpm (bottles per minute). Subsequently, in 1993, when Parle Agro sold its various brands to The Coca-Cola Company, EAFPPL was retained by the Coca-Cola India Pvt. Ltd. (CCI). EAFPPL is a manufacturer of Carbonated Soft Drinks (CSD) in both Polyethylene terephthalate (PET) bottles and in Returnable glass bottles (RGB). EAFPPL has two manufacturing facilities first in Gurgaon with an installed capacity of 1550 bpm, which includes 1150 bpm of RGB and 400 bpm of PET bottles. The company has an exclusive franchise agreement with CCI to bottle Coca Cola, Fanta, Limca, Thums Up, Sprite, Kinley Soda and market these in West & South Delhi, Gurgaon & Faridabad area. The second plant in Rohtak with a production capacity of 1500 bpm for CSD (1st line of 750 bpm & 2nd line of 750 bpm). The company has tie-up with Hindustan Coca Cola Beverages Pvt. Ltd. for off take (Rohtak Plant) with focus of meeting the demand in and around Delhi/ Gurgaon and to establish its position in new territories of HCCB in Rajasthan and other neighboring areas. The 3rd line (400 bpm) & 4th line (125 ppm) is under implementation which is essentially the company’s first Juice manufacturing facility expected to be operational from April-19.

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At present the company is selling juices (Maaza, -Pulpy Orange, Neebu Fresh & Mix fruit in both PET & Tetra pack) and cans through trading catering to the entire spectrum of consumer needs in form of aerated drinks, fruit juices to lemonade etc. EAFPPL has seven distributers, 3 in Delhi & 4 in Haryana and a fleet size of 160 trucks (owned by EAFPPL), which are used to transport products to distributer’s depots; distributors use these trucks to deliver products to around 18,000 retailers.  Another promoter group company Versatile Polytech Private Limited (VPPL) was incorporated as a joint venture between Moon Beverages Ltd. (Moon) and Enrich in January 2004 and both Moon and Enrich are franchise bottlers of CCI. The growing PET segment in Soft Drink Industry coupled with shortage of preforms’ supplies then, forced the two groups to join hands and put up a common feeder facility by way of backward integration unit with stakes of 50% each. It is involved in manufacture of plastic preforms for CSD and meets the requirements of Moon and Enrich (comprising around 90% of its total production). The controlling office of VPPL is located at Udyog Vihar, Phalse-1 Gurgaon, which is also controlling office HBPL. Further, the day to day management including banking, accounting & finance, procurement & marketing is handled by Mr. Varinder Pal Singh Kandhari himself. Mr. Pradeep Kumar Shastri, Vice President of VPPL, who is also the director of EAFPPL, heads and controls functioning of VPPL.  Brief Financials-Standalone (HBPL): Brief Financials (Rs. crores) FY17 (A) FY18 (A) Total operating income 62.87 72.21 PBILDT 12.72 12.45 PAT 1.27 0.89 Overall gearing (times) 1.82 1.73 Interest coverage (times) 1.95 2.05 A: Audited  Brief Financials-Combined (EAFPPL, HBPL, VPPL) Brief Financials (Rs. crores) FY17 (A) FY18 (A) Total operating income 405.30 555.85 PBILDT 61.62 94.89 PAT 7.37 10.76 Overall gearing (times) 1.77 1.59 Interest coverage (times) 2.49 3.23 A: Audited

Status of non-cooperation with previous CRA: NA Any other information: NA Rating History for last three years:

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications. Analyst Contact: Name: Mr. Manek Narang Tel: 011-4533 3233 Mobile: 9810596225 Email: [email protected]

**For detailed Rationale Report and subscription information, please contact us at www.careratings.com About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. 4 CARE Ratings Limited

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Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors.

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Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the Rating assigned Instrument Issuance Rate Date Issue along with Rating (Rs. crore) Outlook Fund-based - LT-Term - - Apr-2023 29.88 CARE A-; Stable Loan Fund-based - LT-Cash - - - 17.50 CARE A-; Stable Credit Non-fund-based - ST- - - - 9.00 CARE A2 Bank Guarantees Annexure-2: Rating History of last three years

Sr. Name of the Current Ratings Rating history No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) & Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s) (Rs. crore) assigned in assigned in assigned in assigned in 2018-2019 2017-2018 2016-2017 2015-2016 1. Fund-based - LT-Term LT 29.88 CARE A-; - 1)CARE - - Loan Stable BBB+; Stable (06-Dec-17)

2. Fund-based - LT-Cash LT 17.50 CARE A-; - 1)CARE - - Credit Stable BBB+; Stable (06-Dec-17)

3. Non-fund-based - ST- ST 9.00 CARE A2 - 1)CARE A3+ - - Bank Guarantees (06-Dec-17)

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CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: + 91 98190 09839 Cell: + 91 98196 98985 E-mail: [email protected] E-mail: [email protected]

Ms. Rashmi Narvankar Mr. Saikat Roy Cell: + 91 99675 70636 Cell: + 91 98209 98779 E-mail: [email protected] E-mail: [email protected] CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai - 400 022 Tel: +91-22-6754 3456 | Fax: +91-22-6754 3457 | E-mail: [email protected]

AHMEDABAD HYDERABAD Mr. Deepak Prajapati Mr. Ramesh Bob 32, Titanium, Prahaladnagar Corporate Road, 401, Ashoka Scintilla, 3-6-502, Himayat Nagar, Satellite, Ahmedabad - 380 015 Hyderabad - 500 029. Cell: +91-9099028864 Cell : + 91 90520 00521 Tel: +91-79-4026 5656 Tel: +91-40-4010 2030 E-mail: [email protected] E-mail: [email protected]

BENGALURU JAIPUR Mr. V Pradeep Kumar Mr. Nikhil Soni Unit No. 1101-1102, 11th Floor, Prestige Meridian II, 304, Pashupati Akshat Heights, Plot No. D-91, No. 30, M.G. Road, Bangalore - 560 001. Madho Singh Road, Near Collectorate Circle, Cell: +91 98407 54521 Bani Park, Jaipur - 302 016. Tel: +91-80-4115 0445, 4165 4529 Cell: +91 – 95490 33222 Email: [email protected] Tel: +91-141-402 0213 / 14 E-mail: [email protected] CHANDIGARH Mr. Anand Jha KOLKATA SCF No. 54-55, Ms. Priti Agarwal First Floor, Phase 11, 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) Sector 65, Mohali - 160062 10A, Shakespeare Sarani, Kolkata - 700 071. Chandigarh Cell: +91-98319 67110 Cell: +91 85111-53511/99251-42264 Tel: +91-33- 4018 1600 Tel: +91- 0172-490-4000/01 E-mail: [email protected] Email: [email protected] NEW DELHI CHENNAI Ms. Swati Agrawal Mr. V Pradeep Kumar 13th Floor, E-1 Block, Videocon Tower, Unit No. O-509/C, Spencer Plaza, 5th Floor, Jhandewalan Extension, New Delhi - 110 055. No. 769, Anna Salai, Chennai - 600 002. Cell: +91-98117 45677 Cell: +91 98407 54521 Tel: +91-11-4533 3200 Tel: +91-44-2849 7812 / 0811 E-mail: [email protected] Email: [email protected] PUNE COIMBATORE Mr.Pratim Banerjee Mr. V Pradeep Kumar 9th Floor, Pride Kumar Senate, T-3, 3rd Floor, Manchester Square Plot No. 970, Bhamburda, Senapati Bapat Road, Puliakulam Road, Coimbatore - 641 037. Shivaji Nagar, Pune - 411 015. Tel: +91-422-4332399 / 4502399 Cell: +91-98361 07331 Email: [email protected] Tel: +91-20- 4000 9000 E-mail: [email protected]

CIN - L67190MH1993PLC0716

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