Rationale cum Press Release Modern Dalkhola Flour Mills Private Limited November 20, 2020 Ratings Amount Facilities/Instruments Ratings Rating Action (Rs. crore) CARE B+; Stable; ISSUER NOT Rating continues to remain under COOPERATING* ISSUER NOT COOPERATING category Long Term Bank Facilities 8.00 (Single B Plus; Outlook: Stable and Revised from CARE BB-; Stable; ISSUER NOT COOPERATING*) (Double B Minus; Outlook: Stable) CARE A4; ISSUER NOT COOPERATING* Rating continues to remain under Short Term Bank Facilities 15.00 (A Four ISSUER NOT ISSUER NOT COOPERATING category COOPERATING*) 23.00 Total Bank Facilities (Rupees Twenty-Three Crore Only) Details of facilities in Annexure-1 Detailed Rationale & Key Rating Drivers CARE has been seeking information from Modern Dalkhola Flour Mills Private Limited (MDFMPL) to monitor the rating vide e-mail communications/letters dated October 05, 2020, October 09, 2020, October 13, 2020 and numerous phone calls. However, despite our repeated requests, the entity has not provided the requisite information for monitoring the ratings. In line with the extant SEBI guidelines, CARE has reviewed the rating on the basis of the publicly available information which however, in CARE’s opinion is not sufficient to arrive at a fair rating. Further, Modern Dalkhola Flour Mills Private Limited has not paid the surveillance fees for the rating exercise as agreed to in its Rating Agreement. The rating on MDFMPL’s bank facilities will now be denoted as CARE B+; Stable; ISSUER NOT COOPERATING and CARE A4; ISSUER NOT COOPERATING*. Further due diligence could not be contacted. Users of this rating (including investors, lenders and the public at large) are hence requested to exercise caution while using the above ratings. Detailed description of the key rating drivers At the time of last rating in September 09, 2019 the following were the rating strengths and weaknesses: (Updated the information available from Ministry of Corporate Affairs) Key Rating Weaknesses: Relatively small scale of operation with low profitability margin: The size of operations of the company remained small marked by total operating income of Rs.17.25 crore with a PAT of Rs.0.27 crore in FY19. The total capital employed was also moderate at Rs.14.44 crore as on Mar.31, 2019. Furthermore, the profitability margin of the company is low marked by PBILDT margin of 6.92% and PAT margin of 1.58% during FY19. Presence in highly competitive and fragmented industry: The commodity nature of the product makes the industry highly fragmented with more than two-third of the total number of players being in the unorganized sector with very less product differentiation. Due to the fragmented nature and low entry barriers in the industry, the mill units have limited flexibility over pricing their products which also results in low profit margins. Volatility in profit margins subject to government regulations: MDPL is primarily engaged in the processing of wheat based products under its roller mills. Wheat being an agricultural produce and staple food, its price is subject to intervention by the government. In the past, the prices of wheat have remained volatile mainly on account of the government policies in respect of Minimum Support Price (MSP) & controls on its exports. The MSP for wheat has been increased from Rs.1925.00 per quintal in 2019-2020 to Rs.1975 per quintal in 2020-2021. Further, the prices of wheat are also sensitive to seasonality, which is highly dependent on monsoon. Accordingly any volatility in the wheat prices will have an adverse impact on the performance of the flour mill. Seasonal nature of availability of wheat resulting in high working capital intensity: Wheat is primarily a Rabi crop in India i.e. its cultivation takes place in winter and the same is traded/ procured by flour millers throughout the year. Hence, the millers are required to carry high levels of raw material inventory in order to mitigate the raw material availability risk, resulting in relatively high inventory period which was in the range of 107 days to 176 days for FY17-FY19. Key Rating Strengths Experienced promoters with long track record of operation: MDPL commenced operation since 1986. Accordingly, the company has a long track record of operations. The company is managed by Mr Subrata Ghosh having about three decades of experience in similar line of business along with other director- Mr Swadhin Ghosh experience of more than three decades. All directors are actively involved in the business of the company. 1 CARE Ratings Limited Credit Analysis & Research Limited Rationale cum Press Release Comfortable capital structure with moderate debt coverage indicators: The capital structure of the company remained comfortable marked by overall gearing ratio of 0.64x in FY19. Further, the debt coverage indicators of the company were also moderate marked by interest coverage ratio of 2.57x and total debt to GCA of 7.44x during FY19. Satisfactory demand outlook of the products: Wheat based products, viz. Maida, Suji and Atta have large consumption across the country in the form of bakery products, cakes, biscuits and different types of food dishes in home and restaurants. 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. The demands for wheat products are sustainable and accordingly, the kind of industry is relatively insulated from economic cycle. Analytical approach: Standalone Applicable Criteria Policy in respect of Non-cooperation by issuer Criteria on assigning ‘outlook’ and ‘credit watch’ Rating Methodology-Manufacturing Companies Criteria for Short Term Instruments Financial ratios – Non-Financial Sector CARE’s Policy on Default Recognition Liquidity Analysis of Non-Financial Sector Entities About the Entity Modern Dalkhola Flour Mills Pvt. Ltd. (MDPL), incorporated in 1986, promoted by Mr Subroto Ghosh and Mr Swadhin Ghosh of Siliguri, is engaged in manufacturing of wheat based products like Atta, Maida, Suji and wheat bran. The company has a manufacturing facility at Dalkhola at West Bengal with an installed capacity of 6, 50,000 quintals per annum. The company sells its finished products in the states of West Bengal, Bihar, Assam etc. Brief Financials (Rs. crore) FY18 (A) FY19 (A) Total operating income 22.78 17.25 PBILDT 1.90 1.19 PAT 0.60 0.27 Overall gearing (times) 1.08 0.64 Interest coverage (times) 2.26 2.57 A: Audited Status of non-cooperation with previous CRA: BWR has placed its rating under non-cooperation as per press release date March 31, 2020 due to non-submission of information. Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Annexure-1: Details of Instruments/Facilities Size of the Name of the Date of Coupon Maturity Rating assigned along with Issue Instrument Issuance Rate Date Rating Outlook (Rs. crore) CARE B+; Stable; ISSUER Fund-based - LT- - - - 8.00 NOT COOPERATING* Cash Credit CARE A4; ISSUER NOT Non-fund-based - - - - 15.00 COOPERATING* ST-Bank Guarantees Annexure-2: Rating History of last three years Current Ratings Rating history Date(s) Name of the Type Rating & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned assigned in assigned in assigned in (Rs. crore) in 2020- 2019-2020 2018-2019 2017-2018 2021 CARE B+; 1)CARE BB-; 1)CARE BB-; 1)CARE BB; Fund-based - LT- Stable; ISSUER Stable; ISSUER Stable; ISSUER Stable 1. LT 8.00 - Cash Credit NOT NOT NOT (14-Dec-17) COOPERATING* COOPERATING* COOPERATING* 2 CARE Ratings Limited Credit Analysis & Research Limited Rationale cum Press Release (09-Sep-19) (13-Dec-18) 1)CARE A4; 1)CARE A4; CARE A4; Non-fund-based - ISSUER NOT ISSUER NOT 1)CARE A4 ISSUER NOT 2. ST-Bank ST 15.00 - COOPERATING* COOPERATING* (14-Dec-17) COOPERATING* Guarantees (09-Sep-19) (13-Dec-18) 1)Withdrawn Fund-based - LT- 3. LT - - - - - (14-Dec-17) Term Loan * Issuer Not Cooperating; based on best available information 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. Non-fund-based - ST-Bank Guarantees Simple Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. 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