Press Release Bannari Amman Flour Mill Private Limited

Press Release

Bannari Amman Flour Mill Private Limited January 29, 2021 Ratings Amount Ratings1 Facilities Rating Action (Rs. Crore) 29.88 CARE BBB-; Stable Long-term Bank Facilities Reaffirmed (reduced from 32.19) (Triple B Minus; Outlook: Stable) 29.88 Total (Rs. Twenty nine crore and eighty eight lakh only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities of Bannari Amman Flour Mill Private Limited (BAFM) continues to factor in vast experience of the promoters, the company’s long-standing track record of operations and benefit of being part of the larger Bannari Amman group. The rating is, however, constrained by commodity nature of the finished product which results in relatively low profitability levels, leveraged capital structure and relatively small size of operations in an intensely competitive industry. Rating Sensitivities Positive Factors  Effective utilization of its installed capacity with utilizations above 80%  Improvement in overall capital structure with gearing below 2x Negative Factors  Continued fall in operating margins below 4%  Any increase in leverage from the current levels

Detailed description of the key rating drivers Key rating strengths Vast experience of the promoters BAFM is promoted by the Bannari Amman group, one of the major industrial conglomerates in south India with interests in the production of sugar, industrial/potable alcohol, bio-compost, granite products, power generation and textiles. The promoter, Mr S V Arumugam is the Chairman of BAFM. He has over four decades of experience in managing various businesses. He is also the Managing Director of Bannari Amman Spinning Mills Limited (rated ‘CARE BBB; Stable / CARE A3’). Ms. A. Gayathri, Managing Director (D/o Mr. S. V. Arumugam), takes care of day-to-day operations of BAFM since 2011.

Long track record of operations BAFM is engaged in the production and sale of wheat products, viz, Maida, Sooji, Atta, and Wheat Bran in Tamil Nadu. Its products are marketed in the name of “Samudra”, “Tiger” and “Kuruvi”. The company sells its products to the wholesale traders mainly in the districts of Vellore, Chennai, Cuddalore, Pondicherry, Coimbatore, Tiruppur and in some regions of Kerala. The company has track record of more than two decades in the flour milling industry.

Demand is relatively insulated from economic cycles The flour milling industry has witnessed consistent growth in the past few years. The demand has been driven by the rapidly changing food habits of the average Indian consumer, dictated by the lifestyle changes in the urban and semi-urban regions of the country. Also since the industry mainly caters to the basic needs of the consumer, the industry is relatively insulated from the economic cycles.

Key Rating Weaknesses Commodity nature of finished products resulting in relatively low profitability BAFM profitability remains relatively low due to manufacturing of commodity products viz., Maida, Atta, Sooji and Wheat Bran and the prices of these products are influenced by the market dynamics and no player (except well-established FMCG companies) commands a premium in this market. Wheat is the major raw material accounting for around 80-85% of the total cost of sales. Being an agricultural produce and staple food, the price of wheat is subject to intervention by the government.

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Small scale of operations and low capacity utilizations The operational performance of the company marginally improved in FY20 (refers to period from April 01 to March 31) with total operating income of Rs.71.73 crore as against Rs.62.55 crore in FY19 due to an increase in the volume of the sales and better realizations. The PBILDT margin improved from 4.93% in FY19 to 6.48% in FY20 on back of an increase in the TOI coupled by an increase in the capacity utilizations. The PAT margin also increased in line with the PBILDT margin. BAFM profitability remains low historically due to manufacturing of commodity products viz., Maida, Atta, Sooji and Wheat Bran and the prices of these products are influenced by the market dynamics.

Leveraged capital structure Overall gearing of BAFM improved from 4.76x as on March 31, 2019, and stood at 4.26x as on March 31, 2020 primarily due to the turn-around from losses in FY20 and repayment of term loans, however, the capital structure continued to remain leveraged. The debt coverage indicators remained moderate marked by interest coverage ratio of 1.65x during FY20. The management indicated that the company has no expansion plans in the medium term.

Highly fragmented industry with intense competition The flour industry is highly fragmented with more than two-third of the total number of players being unorganized and most of the flour being supplied through small ‘chakki’ units. Due to the highly fragmented nature of the industry the flour mill units have limited flexibility over pricing their products. BAFM’s market is also geographically restricted to regions around Coimbatore and in some regions of Kerala, where it faces tough competition from large players from Karnataka and Andhra Pradesh.

Liquidity- Adequate Adequate liquidity characterized by moderate cushion in accruals vis-à-vis repayment obligations and moderate cash balance of Rs.0.13 crore as on March 31, 2020. The company does not have any capex plans in the foreseeable future. Its bank limits are utilized to the extent of ~86%, supported by above unity current ratio of 1.18x as on March 31 2020. The company had opted for the Moratorium facility for the deferment of the interest and the term loan installment for a period of 5 months from March 2020 to July 2020. The entire amount of interest was repaid in August 2020.

Industry Outlook India processes approximately 200 million tons of various grains and the industry employs roughly 400,000 persons. Indian grain milling industry is a quaint amalgam of the traditional and the modern. Traditional milling equipment co-exist with modern mills. The flour milling industry has witnessed consistent growth in the past few years. The demand has been driven by the rapidly changing food habits of the average Indian consumer, dictated by the lifestyle changes in the urban and semi- urban regions of the country. Largely driven by FMCG companies, people are being exposed to the wheat-based western cuisines, in place of rice-based local cuisines. BAFM’s prospect is dependent upon the ability of the company to increase its realization by focusing into higher quality products and improve its capacity utilization levels.

Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook and credit watch to Ratings CARE’s Policy on Default Recognition Financial ratios – Non-Financial Sector CARE’s methodology for Manufacturing Companies Liquidity Analysis of Non-Financial Sector Entities

About the Company BAFM originally incorporated in 1946 and became part of Coimbatore-based Bannari Amman group (BAG) in 1988, is engaged in the production and sale of wheat products, viz., Maida, Sooji, Atta, and Bran in Tamil Nadu. The company sells its products to wholesale traders mainly in the districts of Vellore, Chennai, Cuddalore, Pondicherry, Coimbatore, Tiruppur and in some regions of Kerala. BAFM runs a flour mill in Coimbatore with capacity of 87,120 tonnes per annum (TPA) as on March 31, 2018. BAFM also has four windmills (for captive consumption) with aggregate capacity of 1.5 megawatt (MW) as on March 31, 2019.

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(Rs. Crore) Brief Financials FY19 (A) FY20 (A) Total operating income 62.55 71.73 PBILDT 3.08 3.48 PAT (0.65) 0.48 Overall gearing (times) 4.76 4.26 Interest coverage (times) 1.09 1.65 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 Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3

Annexure-1: Details of Instruments/Facilities Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Fund-based - LT-Term CARE BBB-; Stable - - Nov. 2023 4.88 Loan Fund-based - LT-Cash CARE BBB-; Stable - - - 25.00 Credit

Annexure-2: Rating History of last three years Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned in assigned in assigned in assigned in (Rs. crore) 2020-2021 2019-2020 2018-2019 2017-2018 CARE 1)CARE BBB- 1)CARE BBB- 1)CARE BBB- Fund-based - LT-Term BBB-; ; Stable ; Stable ; Stable 1. LT 4.88 - Loan Stable (17-Feb-20) (05-Mar-19) (14-Mar-18)

CARE 1)CARE BBB- 1)CARE BBB- 1)CARE BBB- Fund-based - LT-Cash BBB-; ; Stable ; Stable ; Stable 2. LT 25.00 - Credit Stable (17-Feb-20) (05-Mar-19) (14-Mar-18)

Annexure-3: Detailed explanation of covenants of the rated instrument / facilities: Not Applicable

Annexure 4: Complexity level of various instruments rated for this company Sr. Name of the Instrument Complexity Level No. 1. Fund-based - LT-Cash Credit Simple 2. Fund-based - LT-Term Loan Simple 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.

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Analyst Contact Name - Ms Swathi Subramanian Contact no.- 94442 34834 Email ID- [email protected]

Relationship Contact Name: Mr V. Pradeep Kumar Contact no. : 98407 54521 Email ID : [email protected]

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