Rationale-Press Release

Soaring Spirits Private Limited August 28, 2018 Rating Amount Facilities Rating1 Rating Action (Rs. crore) 6.00 CARE BB; Stable Long-term Bank Facilities Reaffirmed (Double B ; Outlook Stable) Total 6.00

(Rupees Six Crore only) Details of facilities in Annexure-1

Detailed Rationale& Key Rating Drivers The rating assigned to the bank facilities of Soaring Spirits Private Limited (SSPL) continues to be tempered by small scale of operations with low networth base, moderate working capital cycle, geographic concentration risk and highly regulated user industry with change in government policies. The ratings also factor in increase in profitability margins, improvement in capital structure and debt coverage indicators albeit decline in total operating income in FY18 (Prov.) (refers to period from April 01 to March 31). The rating, however, derives strength from the long track record of the company and experienced management and positive demand prospect of distilleries Going forward, ability of the company to increase its scale of operations, enhance its geographical reach, efficient management of working capital requirements without impacting the capital structure would be the key rating sensitivities

Detailed description of the key rating drivers Key Rating Weaknesses Small scale of operations with low networth base and decrease in total operating income Despite having a long track record, the scale of operations are relatively small marked by total operating income (TOI) of Rs.11.58 crore during FY18 (Prov.) with moderate networth base of Rs.9.21 crore as March 31, 2018(Prov.) as compared to other peers in the industry. The total operating of the company decreased from Rs.15.10 crore in FY17 to Rs.11.58 crore in FY18 (Prov.). The company does production on job work basis for John Distilleries Private Limited, MS Biotech Private Limited and Sun Pure Oranges. These customers have to renew their licenses every year. In FY 18, MS Biotech Private Limited could not renew the license till mid of June. So the company could not do the job work for MS Biotech Private Limited for 2.5 months in FY18. Because of the above said factor the revenue from job works decreased from Rs.12.99 crore in FY17 to Rs.7.97 crore in FY18 (Prov.). In Jan 2017, the company started its own product with brand name ‘Smart City’ and generated revenue for 3 months in FY17. In FY 18, the company sold its own product throughout the year. The revenue from sale of products has increased from Rs.0.65 crore in FY17 to Rs.2.64 crore in FY18 (Prov.).

Moderate working capital cycle The operating cycle of the company remained moderate and stood at 123 days in FY18 (Prov.) due to comfortable average collection period. The operating cycle days increased from 66 days in FY17 to 123 days due to increase in average collection period and increase in average inventory period. The average utilization of CC facility was 100% for the last 12 months ended July 31, 2018.

Highly regulated user industry with change in government policies The company is running a distillery – blending and bottling unit which is highly regulated market, controlled by state government rules and regulations. Further, the prices of key raw material of the company i.e. ENA is also subjected to price fluctuations which are regulated as per the MSP’s (Minimum support prices) and further prices of the final products are affected by increasing amount of excise duty levied by the govt., other policy changes. Such volatility in the product prices impact the profitability margins to a large extent.

Geographical concentration risk The products produced by SSPL are being supplied to John Distilleries Private Limited, MS Biotech Private Limited, M & S Bottling Company and Sun Pure Oranges as per the agreements, which in turn is supplied to dealers and shops located in region through Andhra Pradesh State Beverages Corporation Limited. Due to the geographic concentration of the company’s supplies to a single state, any changes in the government rules and regulations in terms of liquor manufacturing and sale may affect the company’s revenues. However, the company is planning to expand their operations and supply their products to Telangana state also with necessary approvals and licenses from Telangana State

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

1 Credit Analysis & Research Limited

Rationale-Press Release

Beverages Corporation Limited from the next financial year (FY19), which would mitigate the risk of geographical concentration of the company.

Key Rating Strengths Long track record of the company and experienced management SSPL was established in the year 2004 and promoted by Mr. Venkateswara Raju Bhupathiraju, Mr. V S V S Raju and Mr. A Krishnam Raju, who have rich exposure of alcohol manufacturing business for more than two decades. All the directors are actively involved in the day to day activities of the business. Furthermore, the top management is assisted by second line of management having adequate experience in the industry.

Increase in profitability margins The PBILDT margin has increased from 22.03% in FY17 to 27.97% in FY18 (Prov.) due to decrease in raw material cost coupled with increase in revenue from sale of its own product in FY18. The firm realizes relatively more operating margins in manufacture of its own products as compared to in manufacture on job work to other companies. The PAT margin has increased from 9.77% in FY17 to 10.72% in FY18 (Prov.) to due increase in PBILDT margin and decrease in interest cost.

Improved capital structure and debt coverage indicators The capital structure of the company stood comfortable marked by debt equity ratio and overall gearing ratio of 0.39x and 0.46x respectively as on March 31, 2018 (Prov.) (as against 0.90x and 0.91x respectively as on March 31, 2017). The debt equity and overall gearing ratio marginally improved due to decrease in debt levels at the back of repayment of term loans, vehicle loans and unsecured loans coupled with increase in networth at the back of accretion of profits. The debt coverage indicators of the company improved marginally and stood comfortable. The PBILDT interest coverage ratio has improved from 7.59x in FY17 to 9.56x in FY 18 (Prov.) due to decrease in interest cost at the back of repayment of term loans and vehicle loans. The total debt to GCA has improved from 2.95x in FY17 to 1.52x in FY18 (Prov.) due to decrease in debt levels at the back of repayment of term loans, vehicle loans and unsecured loans coupled with increase in gross cash accruals (GCA) levels.

Positive demand prospect of distilleries Extra Neutral Alcohol (ENA) is the key raw material for IMFL (Indian made Foreign Liquor) manufacturers, the IMFL segment, comprising 36% of the Indian alcoholic beverages industry. As has huge youth population, the demand of alcohol would remain high in the coming years. Pan-India, the undivided AP and accounted for the highest share of 21 per cent share in the IMFL space, followed by with 18 per cent. These three geographies account for a major 60 per cent of the total IMFL sales in the country. State division has given a fresh boost to the IMFL market, which otherwise has seen marginal growth in the last couple of years, as the scope for market expansion has been created for a variety of reasons. In the present scenario, both AP and Telangana may together bypass Tamil Nadu to become the largest IMFL market in the country.

Analytical Approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit ratings CARE's Policy on Default Recognition Financial ratios – Non-Financial Sector Rating Methodology-Manufacturing Companies

About the company Incorporated in August 2004, Soaring Spirits Private Limited (SSPL) was promoted by Mr. Venkateswara Raju Bhupathiraju, Mr. V S V S Raju and Mr. A Krishnam Raju. The company is engaged in the business of distillation, blending and bottling of alcohol, primarily Indian-made foreign liquor (IMFL). The company derives 100% revenue from job work. The company has entered into one year agreement (can be mutually extended) with John Distilleries Private Limited (rated BWR A Stable / BWR A2+ as on April 12, 2018) for job work of 25000 cases/month and for which it receives Rs. 56/case. Also, with MS Biotech Private Limited, it produces 75000 cases/ month and receives Rs. 60/case. SSPL has also agreement with Sun Pure Oranges for producing of 10000 cases/ month for which it receives Rs. 73/case. The company’s plant facility is located at West Godavari in Andhra Pradesh. Initially, the factory was equipped with 3 production lines. Subsequently, the production lines increased to 5 lines in 2016 which came into operational in 2017 out of which 3 are fully automated and 2 being semi-automated line with a total installed capacity of 1.21 lakh cases per month. The final product is produced by adding different varieties of flavors to Extra Neutral Alcohol (ENA). The major raw material of the company is ENA and other packaging materials which include bottles, caps, labels, etc. are procured from domestic suppliers. The products come in various quantities i.e. 90ml, 180ml, 375ml, 750 ml and 1000ml.`

2 Credit Analysis & Research Limited

Rationale-Press Release

Brief Financials (Rs. crore) FY17 (A) FY18 (CA certified Prov.) Total operating income 15.10 11.58 PBILDT 3.33 3.24 PAT 1.48 0.96 Overall gearing (times) 0.91 0.46 Interest coverage (times) 7.59 9.56

A-Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not applicable Rating History for last three years: Please refer Annexure-2 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. Manish Kumar Tel: 040-6900 0504 Mobile: + 91 99495 47551 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.

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.

3 Credit Analysis & Research Limited

Rationale-Press Release

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 - - - 0.70 CARE BB; Stable Loan Fund-based - LT-Bank - - - 1.00 CARE BB; Stable Overdraft Fund-based - LT-Cash - - - 4.30 CARE BB; Stable Credit

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 0.70 CARE BB; - 1)CARE BB; - - Loan Stable Stable (08-Nov-17)

2. Fund-based - LT-Bank LT 1.00 CARE BB; - 1)CARE BB; - - Overdraft Stable Stable (08-Nov-17)

3. Fund-based - LT-Cash LT 4.30 CARE BB; - 1)CARE BB; - - Credit Stable Stable (08-Nov-17)

4 Credit Analysis & Research Limited

Rationale-Press Release

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, PashupatiAkshatHeights, Plot No. D-91, No. 30, M.G. Road, - 560 001. Madho Singh Road, NearCollectorateCircle, 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] Mr. Anand Jha KOLKATA SCF No. 54-55, Ms. PritiAgarwal 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 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 KumarSenate, T-3, 3rd Floor, Manchester Square Plot No. 970, Bhamburda, SenapatiBapat Road, Puliakulam Road, Coimbatore - 641 037. ShivajiNagar, Pune - 411 015. Tel: +91-422-4332399 / 4502399 Cell: +91-98361 07331 Tel: +91-20- 4000 9000 Email: [email protected] E-mail:[email protected]

CIN - L67190MH1993PLC071691

5 Credit Analysis & Research Limited