Rating Rationale Patanjali Food and Herbal Park Nagpur Pvt. Ltd. 30 Mar 2019
Brickwork Ratings revises the ratings for the Bank Loan Facilities amounting to ₹ 849.60 Crores of Patanjali Food and Herbal Park Nagpur Pvt Ltd (‘PFHPL Nagpur’ or ‘the Company’)
Particulars
Amount (₹ Crs) Rating*
Facility Tenure Previous Previous Present Present (July 2018)
BWR A+ (SO) (Pronounced as BWR AA - (SO) (Pronounced BWR Single A Plus) Fund based Long as BWR Double A Minus) (Structured Obligation) Term Loan 849.60 849.60 Term (Structured Obligation) (Credit watch with Outlook: Stable developing Implications) (Downgrade)
Total 849.60 849.60 Rupees Eight Hundred & Forty Nine Crores and Sixty Lakhs Only
*Please refer to BWR website www.brickworkratings.com/ for definition of the ratings Complete details of Bank facilities is provided in Annexure-I
Ratings: Long term rating downgraded to BWR A+ (Structured Obligation) and placed under ‘Credit Watch with Developing Implications)
Rationale/Description of Key Rating Drivers/Rating sensitivities:
BWR has essentially relied upon the Company’s revised projected financials, publicly available information and clarifications provided by the Company.
The suffix Structured Obligation (SO) to the rating indicates the credit enhancement derived from the unconditional and irrevocable corporate guarantee extended by Patanjali Ayurved Limited to the lenders to ensure timely servicing of rated debt obligation of Patanjali Food & Herbal Park Nagpur Pvt. Ltd.
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The revision in the ratings takes into account the overall declining financial performance of its parent company, Patanjali Ayurved Limited, which is likely to restrict further infusion of funds for the project of PHFPL Nagpur, and also delay in achieving COD for the proposed Phase I of the project owing to non-achievement of financial closure. The other constraints such as project execution risks, intense competition with other large FMCG players and risks associated with food processing business remains the same.
However, the ratings draw comfort from the support/commitment of Patanjali Ayurved Limited (PAL) to the Company, experienced management, established market position of PAL, strategic location of the plant with proximity to sources of raw material. BWR also takes note of the considerable amount of funds being invested by PAL in the project and plans to commence at a least single line of production in FY20.
Description of Key Rating Drivers
Credit Strengths:
Experienced management and established track record of Patanjali Ayurved Limited: Patanjali Food & Herbal Nagpur P. Ltd. is a 100% subsidiary of Patanjali Ayurved Limited (PAL), which has a strong manufacturing base and established market position driven by strong retail distribution network pan India which provides comfort for the operational and marketing aspects of the Company.
Unconditional & Irrevocable Corporate Guarantee: The assigned rating derives credit enhancement by the explicit support provided by Patanjali Ayurved Limited (PAL) in the form of unconditional and irrevocable corporate guarantee for Patanjali Food & Herbal Park Nagpur P. Ltd. to its existing lenders. PAL has provided structured payment mechanism that would ensure full availability of funds in Patanjali Food & Herbal Park Nagpur P. Ltd.’s loan servicing accounts at least 3 working days (T-3) prior to the date of each quarterly servicing of interest &/or principal.
Significant funds infused by promoters: As per the C.A. certification dated 08.09.2018, the total amount invested by PAL in the Company’s project was Rs. 372.57 Cr (funded by TL of Rs. 141.68 Cr and equity/promoter’s contribution of Rs. 230.89 Cr). Further, the management has informed that investment in the project has increased to around Rs. 400 Cr (funded by TL - Rs. 141.68 Cr and remaining through equity contribution) till date and the Company also plans to commence operations with a single line of production in FY20.
Debt Service Reserve Account (DSRA) is maintained: DSRA is maintained for one quarter interest in the form of fixed deposits duly lien marked in favor of lender.
Credit Risks:
Delay in achieving COD of its Phase I Project: There is likely be a delay in achieving financial closure as PAL has proposed a fresh TEV study to determine the revised project cost. Thus, there is no clarity as to
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when the Phase I project is expected to be complete. Further, the management is proposing to refinance its existing term loan.
Slow progress in its construction work: Owing to likely revision is project costs, project implementation is going slow, despite PAL having invested a significant amount of funds. In case of delay in achieving financial closure, the promoter proposes to invest further funds in order to start at least a single of production.
Declining performance of its parent company: PAL continues to report de-growth in its turnover and profitability levels in the current financial year. Turnover declined on account of weak supply chain, intense competition from other large FMCG players and operations impacted for two months in FY18 due to GST implementation. Subsequently, profits also declined significantly due to increasing overhead expenses on its infrastructure & ongoing capex, failure to achieve break even levels at its Tezpur, Assam, unit and increasing interest cost & financial charges on account of high debt borrowings over the past two years. The ability of the Company to cut down spending on its future capex coupled with stabilizing its current operations, controlling its expenses towards other advertising & other selling expenses and improving its turnover growth would remain a key rating sensitivity.
Risk associated with food processing business: The Company deals with many agricultural products including rice, wheat, daal etc. for which there is always uncertainty of prices getting revised by the government through increased Minimum Support Price (MSP). This may increase input costs for the Company, and in the event of its inability to pass it on to customers, it is likely to reduce future profitability margins.
Analytical Approach
For arriving at its ratings, BWR has taken into account inter alia, the explicit support provided by Patanjali Ayurved Limited (PAL) to Patanjali Food & Herbal Park Nagpur Pvt. Ltd. in the form of corporate guarantee and undertaking to lenders to ensure full availability of funds in Patanjali Food & Herbal Park Nagpur Pvt Ltd’s loan servicing accounts at least 3 working days (T-3) prior to the date of each quarterly servicing of interest &/or principal. Please refer to the detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).
Rating Outlook: Credit Watch with Developing Implications The Company has proposed to revise the project cost through a fresh TEV study. Consequently, the Company will approach potential lenders to fund the revised project cost. Achieving financial closure and COD as per revised schedule remains uncertain and thus, the outstanding rating of Patanjali Food & Herbal Park Nagpur Pvt. Ltd is placed under ‘Credit Watch with Developing Implications’.
About the Company
Patanjali Food & Herbal Nagpur is a 100% subsidiary of Patanjali Ayurved Limited, established in the year 2017. The Company has proposed to set up a mega food park at Nagpur under Mega Food Park
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Scheme of Ministry of Food Processing Industries, Govt. of India. The project is being set-up on 106 acres and is located at MIHAN Non-SEZ, Nagpur. The management has planned to complete its Phase I project initially with a project cost of Rs. 750 Cr (TL - 500 Cr and Promoter’s equity - Rs. 250 Cr) and has presently deferred the plan for its Phase II project, until Phase I is operationalised. Proposed COD for Phase I project has been deferred as the promoter is undertaking a fresh TEV study to determine revised project cost.. Phase I project had envisaged to manufacture all kinds of juices such as tomatoes, guava, orange, amla, aloevera etc. and other food products such as biscuits, tomato ketchup, candy, whole-wheat Atta, mix-fruit jam, sarbat amongst other food items.
As the Company's project is currently under implementation, there are no meaningful financial statements.
About the Guarantor
PAL is a flagship company of Patanjali Group and is engaged in the manufacturing & trading of FMCG, herbal & Ayurvedic products. It was established in 2006 and later converted into a public limited company in 2007. It sells its products under the brand name of “PATANJALI”
PAL’s major three manufacturing units are located in Haridwar along with peas processing unit in Uttarakhand. PAL has set up a new unit at Tezpur (Assam) in 2017 with a total investment of more than Rs. 700 Cr. It also acquired two other units – Rice plant (Haryana) and Dairy plant (Nevasa, MH) with a combined investment of around Rs. 175 Cr during 2017. Further, the Patanjali Group is in process to establish more units in various states to support its growth business & increase penetration towards new markets. The total investments in Fixed Asset is expected to be ~ Rs. 3000 Crs for FY19.
Major (98.54%) of the Company’s shareholding is held by Acharya Balkrishan (Managing Director)
Guarantor Financial Performance
Patanjali Ayurved Limited has reported a total turnover of Rs. 8135.65 Cr in FY18 as against Rs. 8964.03 Cr in FY17. It has reported a net profit of Rs. 342.56 Cr in FY18 as against Rs. 1190.42 Cr in FY17. As on 31st March 2018, it has reported tangible net worth of Rs. 2521.43 Cr as against Rs. 2517.29 Cr as on 31st March 2017. As per the audited financials for FY18, retained profits remain lower.
Rating History for the last three years
S.No Facility Current Rating (2019) Rating History
Amount Type Rating 17 July 2018 2017 2016 (₹ Crs)
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BWR A+ (SO) (Pronounced as BWR Single A Plus) BWR AA - (SO) (BWR Fund Based Long (Structured Obligation) Double A Minus) 1 849.60 N.A. N.A. Term Loans Term (Credit watch with developing (Structured Obligation) Implications) (Outlook Stable) (Downgrade)
Total 849.60 INR Eight Hundred & Forty Nine Crores and Sixty Lakhs Only
Status of non-cooperation with previous CRA - N.A. Any other information: Nil
Key Financial Indicators of Patanjali Ayurved Limited (Guarantor)
Key Parameters Units 2018 2017 Result Type Audited Audited Operating Revenue Rs. Crores 8135.65 8964.03
EBITDA Rs. Crores 732.03 1633.36 PAT Rs. Crores 342.56 1190.42 Tangible Net worth Rs. Crores 2521.43 2517.29
Total Debt/Tangible Net worth Times 1.12 0.82
ISCR Times 4.07 24.91
Annexure I - Instrument/Bank Facility Details
ISIN Instrument/Facili Date of Coupon Maturit Amt. in Current Rating & ty Sanction/Renew Rate y Date Rs. Cr Outlook al - Fund Based 8.75% - 849.60 BWR A+ (SO) (Credit Term Loan 06 Feb 2018 p.a. watch with Developing Implications)
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Source: Patanjali Food & Herbal Park Nagpur Pvt. Ltd
Hyperlink/Reference to applicable Criteria
● General Criteria
● Approach to Financial Ratios
● Manufacturing Companies
● Short Term Debt
For any other criteria obtain hyperlinks from website
Analytical Contacts Media
Ashwini Mital [email protected] Director-Ratings Relationship Contact
[email protected] [email protected]
Phone: 1-860-425-2742
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