Embed Size (px)
DESCRIPTION
icra
Citation preview
Prakash Snacks Private Limited RATING HISTORY (Rs. million) Amount
Outstanding Maturity
Date Rating Outstanding Previous Ratings
March 2010
Rs. 39 million term loans LA-/ Stable
Rs. 50 million cash credit facilities LA-/ Stable
Rs. 1 million fund-based and non-fund based facilities
LA-/ Stable/ A1
ICRA has assigned LA-/ A1 (pronounced L A minus/ A one) rating to the Rs. 90 million bank facilities of Prakash Snacks Private Limited (PSPL)†. The long-term rating has been assigned a “Stable” outlook.
Credit Strengths
Healthy market position in the organized snack food industry (potato based & extruded snacks) in terms of tonnage of products sold
Widespread distribution network comprising of some 100 Carrying & Forwarding (C&F) agents and around 2,300 distributors covering more than 0.4 million retail outlets in India
Favourable location with the manufacturing plant situated at Indore (Madhya Pradesh), a key hub for chip grade potato production in India
Healthy financial risk profile reflected in steady profitability indicators and healthy debt protection metrics
Credit Challenges
Moderate scale of operations with revenues of Rs. 1 billion in 2008-09
† ”For complete rating definition
please refer to the ICRA website www.icra.in or any of the ICRA Rating Publications“
Exposed to risk of raw material price fluctuation coupled with lack of flexibility in passing on increased raw material prices to customers in view of high competitive intensity in the business
Relatively weak brand franchise given moderate advertisement and promotion efforts
Challenge with respect to management of supply chain efficiency considering the non-existence of any IT systems as of now for integration of channel partners
The ratings favourably consider PSPL’s healthy position in the organized market for potato chips and extruded snacks, its wide distribution network built over a relatively short operating history and the long experience of the company’s promoters in the snack food industry. However, the rating is constrained by the high competitive intensity in the snack food business in view of the presence of a large number of unorganized players and various well-entrenched branded players. Limited pricing power due to competition exposes the company to input cost pressures. PSPL’s profitability remains sensitive to price variations of its key raw materials i.e. potato, rice, gram and corn which are largely sourced from the open market with their availability being subject to agro-climatic conditions.
Nevertheless, the diversification in PSPL’s product portfolio reduces its dependence on a single crop i.e. potato (for chips) and have an alternate product line i.e. extruded snacks with different raw material requirements i.e. rice, gram, corn. PSPL has a healthy financial risk profile reflected in moderate gearing and healthy debt coverage indicators. Considering PSPL’s moderate capex plans going forward and expectation of steady cash accruals, ICRA expects the company to maintain a healthy financial risk profile over the medium term. PSPL is engaged in the manufacture of potato chips and extruded snack foods under the “Yellow Diamond” brand name produced in a variety of variants/flavours. PSPL had started operations in 2004-05 for making potato chips and over the last five years has witnessed its revenues from this product line increase from Rs. 81 million in 2004-05 to Rs. 430 million in 2008-09. In 2006-07, PSPL diversified into the production of extruded snacks (brand Yellow Diamond Chulbule – which competes with Frito Lays’ Kurkure); and recently also launched a new product Puffs within the extruded snacks category (which competes with Frito Lays’ Cheetos). In 2008-09, the extruded snacks product line accounted for 57% of PSPL’s total sales. However, PSPL’s Operating Profit Margin (OPM) in this product
category is relatively lower than that in potato chips. With the company’s plans to expand the extruded snacks manufacturing capacity in 2010-11, the proportion of PSPL’s revenues from extruded snacks is estimated to increase next year. However, with this, PSPL’s overall OPM is expected to accordingly reduce to some extent over the medium term. The snack food industry is characterized by the need for a large distribution network, strong branding and intense competition from organized and unorganized players. With an installed capacity of 3,000 metric tonnes (MT) per annum for making potato chips and 9,000 MT for making extruded snacks, PSPL figures amongst the moderately sized producers of snack foods in India (in terms of quantity produced) in its addressable product range. However, given its relatively weaker brand franchise, its products are positioned at a lower price point than some of the larger branded players. Notwithstanding PSPL’s plans to introduce new products in 2010-11, ICRA expects PSPL’s market position to remain moderate over the medium term considering its limited efforts towards brand building, limited plans to invest in building fresh potato chips manufacturing capacity, and relatively weaker supply chain structure.
The key raw materials used in the production of potato chips include chip-grade potatoes, edible oils, hydrogenated oils and flavours. The raw materials used in the production of extruded snacks (Chulbule & Puffs) include mixture of rice, gram and corn granules, oils and flavours. Indirect raw materials consist of packaging materials, corrugated boxes, primary bags, strapping and labels. PSPL’s diversification into the production of extruded snacks (from 2006-07 onwards) allowed it to reduce its dependence on potato and have an alternate product line with different agro-raw material requirements i.e. rice, gram, corn. Nevertheless, considering that a
large proportion of the inputs used are agri-products, PSPL is exposed to risks associated with their timely availability and purchase price. This risk is accentuated by the company’s limited ability to pass on increased costs to customers in a highly competitive market structure. To protect profit margins, manufacturers generally resort to reducing the SKU grammage leaving the price points of Rs. 5, Rs. 10 and Rs. 20 untouched. While raw material price risk is an industry-wide concern, some of the bigger players benefit from backward integration through contract farming which enables them to exercise better control over costs, quality of seeds and benefits of assured supply.
PSPL’s revenues at Rs. 1 billion in 2008-09 have reported a robust growth over the last five years at a CAGR of 88% driven by aggressive product pricing and establishment of a wide distribution network across India. However, ICRA expects PSPL’s revenue growth to be moderated over the medium term in view of the absence of its plans to expand potato chips manufacturing capacity even though existing capacity utilization is high†. PSPL’s OPM has remained steady in the region of 9-10% in the past. However, the company’s OPM † Under the Income Tax Act, a
deduction of 100% of profit for five years and 25% of profits for the next five years is allowed in case of agro processing industries set up to process, preserve and package fruits and vegetables – which includes manufacture of potato chips. PSPL has not incurred any incremental capex since inception for the expansion of potato chips manufacturing capacity. Instead, the promoter group formed a new company (in 2009-10) - Pratap Snacks Pvt Limited – for making potato chips which makes this new company eligible for a 100% income tax holiday for a period of five years, an incentive which had reduced to 25% for PSPL after 2008-09.
decreased to 10.2% in 9m 2009-10 (11.8% in 2008-09) following the sharp increase in agri-input costs in Q3 2009-10 in view of the sharp rise in potato and rice prices. Nevertheless, the decline in PSPL’s OPM was arrested to some extent as the company reduced the SKU size of its potato chips and extruded snacks from September 2009 onwards. With healthy revenue and profit growth in the past, limited capex incurred and high capacity utilization, PSPL’s RoCE increased to 42.5% in 2008-09 from 18.6% in 2005-06. PSPL has moderate capex plans going forward and accordingly its RoCE is expected to remain healthy over the medium term. PSPL purchases agri-inputs largely from the open market where it enjoys a credit period of 15-20 days and sells its products to distributors through C&F agents with receivable days varying from 8-10 days. PSPL’s stock levels tend to be high at March-end owing to the seasonality of potato crop because of which the company is required to maintain potato stock levels upfront for its production requirement for the period April to September. Overall, PSPL’s working capital intensity has remained low. However, the company extended interest-free advances to one of its promoter group company in 2008-09 for supporting its business needs. The ICRA ratings assume that going forward cash outflow from PSPL on account of such transactions may be limited. The capex incurred by PSPL in the past has been moderate with a large part of it being towards the expansion of extruded snacks production capacity. The capex was funded by a mix of debt, fresh equity and internal accruals. With strong cash accruals in 2008-09, the company’s gearing reduced to 0.6x as on March 31, 2009 from 1.0x as on March 31, 2008. The company’s debt protection metrics are also healthy with Total Debt/ OPBITDA of 0.9x and DSCR of 4.1x in 2008-09. Considering the modest capex plans, PSPL’s gearing
and debt protection metrics are expected to remain healthy over the medium term.
Recent Results In 9m 2009-10 (provisional), PSPL’s Net Sales at Rs. 1,045 million reported a growth of 45% over the corresponding previous period. Also, the company’s profit before depreciation, interest and tax at Rs. 107 million in 9m 2009-10 reported a
growth of 20% over the corresponding previous period. Company Profile Prakash Snacks Private Limited (PSPL) is a part of the BCM Group which was promoted by Late Mr. B.C. Mehta. The group currently has a presence across diverse businesses such as Snacks Food Manufacturing, Food Processing, Hire-Purchase Finance, Construction and Education. PSPL is engaged in the manufacture
of potato chips and extruded snack foods under the “Yellow Diamond” brand name. The company had started operations in 2004-05 for making potato chips and in 2006-07 diversified into the production of extruded snacks. PSPL’s manufacturing facilities are located at Indore (Madhya Pradesh).
March 2010
Key Financial Indicators
Rs. million 2006-07 2007-08 2008-09
Net Sales 355 666 1,002
Operating Income 355 666 1,002
OPBDITA 33 63 118
Profit after Tax 18 39 83
Equity Capital 2 3 4
Net Worth 56 104 187
OPBDIT/Operating Income (%) 9.3% 9.4% 11.8%
PAT/Operating Income (%) 5.0% 5.8% 8.3%
PBIT/avg. (Total Debt + Net Worth + DTL – Capital work-in progress) (%) 26.0% 33.4% 42.5%
OPBDIT/Interest & Finance Charges (Times) 5.3
7.8
11.8
Net Cash Accruals/Total Debt (%) 30.5% 42.3% 82.3%
Total Debt/ (TNW+ Minority Interest) (Times) 1.2
1.0
0.6
CWIP: CAPITAL WORK-IN-PROGRESS; DTL: DEFERRED TAX LIABILITY; OI: OPERATING INCOME; OPBDITA: OPERATING PROFIT BEFORE
DEPRECIATION, INTEREST, TAX AND AMORTISATION; PAT: PROFIT AFTER TAX; PBIT: PROFIT BEFORE INTEREST AND TAX; NCA: NET CASH
ACCRUALS; TNW: TANGIBLE NET WORTH
For further details please contact: Analyst Contacts: Mr. Subrata Ray, (Tel. No. +91 22 30470027) [email protected]
Relationship Contacts: Mr. Vivek Mathur, (Tel. No. +91-124-4545310) [email protected]
© Copyright, 2010, ICRA Limited. All Rights Reserved.
Contents may be used freely with due acknowledgement to ICRA
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. The ICRA
ratings are subject to a process of surveillance which may lead to a revision in ratings. Please visit our website
(www.icra.in) or contact any ICRA office for the latest information on ICRA ratings outstanding. All information
contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although
reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’
without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or
implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein
must be construed solely as statements of opinion and ICRA shall not be liable for any losses incurred by users from
any use of this publication or its contents
You can reach us at any of our offices:
Registered Office
ICRA Limited
1105, Kailash Building, 11th Floor, 26, Kasturba Gandhi Marg, New Delhi 110001
Tel: +91-11-23357940-50, Fax: +91-11-23357014
Corporate Office
Mr. Vivek Mathur
Mobile: 9871221122
Email: [email protected]
Building No. 8, 2nd Floor, Tower A, DLF Cyber City, Phase II, Gurgaon 122002
Ph: +91-124-4545310 (D), 4545300 / 4545800 (B) Fax; +91-124-4545350
Mumbai
Mr. L. Shivakumar
Mobile: 91-22-30470005/9821086490
Email: [email protected]
3rd Floor, Electric Mansion, Appasaheb Marathe Marg,
Prabhadevi, Mumbai - 400 025
Ph : +91-22-2433 1046/ 1053/ 1062/ 1074/ 1086/ 1087
Fax : +91-22-2433 1390
Kolkata
Ms. Anuradha Ray
Mobile: 91-33-22813158/9831086462
Email: [email protected]
A-10 & 11, 3rd Floor, FMC Fortuna, 234/ 3A, A.J.C. Bose
Road, Kolkata-700020.
Tel: +91-33-2287 6617/ 8839/ 2280 0008
Fax: +91-33-2287 0728
Chennai
Mr. Jayanta Chatterjee
Mobile: 9845022459
Email: [email protected]
Email: Mr. K. Ravichandran
Mobile: 91-44-45964301/ 9940008808
Email: [email protected]
5th Floor, Karumuttu Centre, 498 Anna Salai, Nandanam,
Chennai-600035.
Tel: +91-44-2433 3293/ 94, 2434 0043/ 9659/ 8080, 2433
0724, Fax:91-44-24343663
Bangalore
Mr. Jayanta Chatterjee
Mobile: 9845022459
Email: [email protected]
'The Millenia',
Tower B, Unit No. 1004, 10th Floor, Level 2, 12-14, 1 & 2,
Murphy Road, Bangalore - 560 008
Tel:91-80-43326400 Fax:91-80-43326409
Ahmedabad
Mr. L. Shivakumar
Mobile: 9821086490
Email: [email protected]
907 & 908 Sakar -II, Ellisbridge,
Ahmedabad- 380006
Tel: +91-79-26585494, 26582008,26585049, 26584924
TeleFax:+91-79- 2648 4924
Pune
Mr. L. Shivakumar
Mobile: 9821086490
Email: [email protected]
5A, 5th Floor, Symphony, S.No. 210, CTS 3202, Range Hills
Road, Shivajinagar,Pune-411 020
Tel : (91 20) 2552 0194 -96; Fax : (91 20) 2553 9231
Hyderabad
Mr. M.S.K. Aditya
Mobile: 9963253777
Email: [email protected]
301, CONCOURSE, 3rd Floor, No. 7-1-58, Ameerpet,
Hyderabad 500 016.
Tel: +91-40-2373 5061 /7251 Fax: +91-40- 2373 5152
