Press Release

Bhagwati Lacto Vegetarian Exports Private Limited

January 07, 2020
Ratings
1
Facilities Amount Ratings Rating Action
(Rs. crore)
CARE BBB-; Stable
Long-term Bank Facilities 322.01 Reaffirmed
[Triple B Minus; Outlook: Stable]
Total Facilities 322.01
(Rupees Three hundred
twenty two crore and one
lakh only)
Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers

The rating assigned to the bank facilities of Bhagwati Lacto Vegetarian Exports Private Limited (BLVEPL) continues to derive
strength from the increasing scale of operations in FY19 (refers to the period April 01 to March 31) and a healthy order book
position. The rating also derives strength from the various quality certifications received by the company, experienced
promoters, favorable manufacturing location and established brand name along with strong customer relations.
The rating is, however, constrained by the customer concentration risk, moderate solvency position, susceptibility of margins
to volatility in raw materials prices & foreign exchange fluctuations, monsoon dependent operations and presence of the
company in a highly competitive & fragmented agro-processing business with a high level of government control.
Positive Factors
 Substantial and sustainable growth in the income with PBILDT margins improving to ~7-8%
 Solvency position improving with overall gearing ratio of under 1.5x on a sustained basis
Negative Factors
 Significant decline in income with PBILDT margins falling consistently to below ~4%
 Sustenance of the debt coverage indicators on the current levels or any further & significant deterioration with
overall gearing ratio deteriorating to over 2x owing to debt funded capex, increased working capital reliance etc.

Detailed description of the key rating drivers

Key Rating Strengths
Experienced and resourceful promoters with established market position: BLVEPL was incorporated in 2007 with the
commercial operations of the company commencing from 2008. The promoters, Mr. Sushil Mittal (Chairman & Managing
Director) and Mr. Sameer Mittal, manage the overall operations of the company. They have a healthy industry experience of
around three and a half decades and one and a half decades, respectively. Group concerns of the company include Bhagwati
Lacto Foods Pvt. Ltd. (BPL; rated ‘CARE B+; Stable’) is also engaged in a similar line of business since 2008 catering primarily
to the domestic market. This has led to well established relations with customers as-well-as the suppliers. Domestically, the
company sells its products through a well-established network of distributors located all over India including reputed retails
chains mainly under its own brand names. In the export market, the company sells mainly in bulk as well as under its various
brands. On the export side, the company has also been participating in procurement of tenders from government trading
houses since long. In FY19, an additional Rs.6.02 Cr. was infused by the promoters and related parties, in the form of
unsecured loans while further Rs.0.64 Cr. was infused in 8MFY20 (Provisional) taking the total unsecured loans outstanding
to Rs.78.90 Cr., as on November 30, 2019 out of which Rs.70.79 Cr. remains subordinate to bank loans.

Increasing scale of operations in FY19 and strong order book position: The total operating income of the company has
grown at a healthy rate of ~26% in FY19 on the back of better export and domestic demand as well as increased prices for
basmati rice. The company has been engaged in export sales since 2010 and has been able to procure orders on regular basis.
However, in 8MFY20 (Provisional) the operating income of the company declined by ~26% on a year-on-year basis owing to
lesser orders executed during the period. The company, however, has unexecuted orders valuing ~Rs.1055 Cr., in hand, as on
December 11, 2019, out of which orders valuing ~Rs.732 Cr. are expected to be executed by March-2020. The complete
order book is expected to be executed by May-2020.

Favorable manufacturing location: BLVEPL’s manufacturing unit is located in Ferozepur, Punjab. The area is one of the hubs
for paddy, leading to its easy availability. The unit is also in proximity to the grain market resulting in procurement at
competitive rates. The presence of the operations in the vicinity of paddy producing regions gives it an advantage over

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

competitors operating elsewhere in terms of easy availability of the raw material as well as favorable pricing terms. The
favorable location also puts the company in a position to cut on the freight component of the incoming raw materials.

Various quality certifications: The company is also a recognized Government Trading House and a three star export house. It
has received accreditations including ISO 22000:2005, ISO 9001:2008 and the manufacturing facilities are also GMP (Good
Manufacturing Practices) approved.

Key Rating Weaknesses

Customer concentration risk: In FY19, top five customers contributed ~75% (PY: ~67%) of the total revenue, while BLVEPL’s
top customer contributed ~37% of the total revenue in FY19 (PY: ~24%) leading to a customer concentration risk in the
revenue profile. Any adverse change in procurement policy or financial performance of the customers will impact the
operations of BLVEPL.

Moderate solvency position: The capital structure of the company remained at a moderate level with the long-term debt
equity ratio and overall gearing ratio at 0.04x and 1.66x, respectively, as on March 31, 2019 as compared to 0.01x and 2.06x
respectively, as on March 31, 2018. The latter improved on account of accretion of profits to the net worth and lower
working capital borrowings outstanding at the end of the year. The total debt to GCA ratio stood at 21.62x, as on March 31,
2019 (PY: 22.76x). The interest coverage ratio of the company remained at a moderate level of 1.52x in FY19 as compared to
1.38x in FY18, with improvement on account of lower interest expenses.

Susceptibility of margins to fluctuation in raw materials prices & foreign exchange fluctuations with prospects also
dependent on climatic conditions: Agro-based industry is characterized by its seasonality owing to its dependence on the
availability of raw materials, which further varies with different harvesting periods. The price of rice moves in tandem with
the prices of paddy. Availability and prices of agro commodities are highly dependent on the climatic conditions. The timing
of monsoons has a huge bearing on crop availability which determines the prevailing paddy prices. The profitability margins
are therefore susceptible to the risk of any adverse price movement in the raw material prices which have remained
fluctuating in the past. The PBILDT margins have continuously declined on a year on year basis in the last three years to
4.21% in FY19 from 7.09% in FY17 (5.49% in FY18) primarily on account of increase in paddy procurement prices which could
not be passed on to the customers completely. The PAT margins declined to 0.79% in FY19 from 1.2% in FY18 owing to the
aforementioned as well as the tax provisions made. In 8MFY20 (Provisional) the PBILDT and PAT margins improved to 4.56%
and 1.04% respectively from 4.16% and 0.93% respectively, in 8MFY19 (Provisional) mainly on account of lower paddy
procurement prices. Furthermore, BLVEPL is engaged in the export of Basmati rice to the Middle East, Canada, Australia,
Europe etc., where the primary currency of dealing for the company remains US dollars. This exposes the profitability
margins of the company to any adverse movement in the foreign exchange rates. Though the company hedges a part of the
exposure by booking forward contracts, the remaining exposure is kept unhedged.

Fragmented nature of industry coupled with high level of government regulation: The commodity nature of the product
makes the rice industry highly fragmented with numerous players operating in the unorganized sector with very less product
differentiation. The raw material (paddy) prices are regulated by government to safeguard the interest of farmers, which in
turn limits the bargaining power of the rice millers.

Adequate liquidity
The liquidity ratios remained moderate with current ratio and quick ratio of 1.30x and 0.78x respectively, as on March 31,
2019 as compared to 1.31x and 0.82x respectively, as on March 31, 2018. The company has a negligible repayment obligation
of Rs.0.05 Cr. for FY20 to be met through the internal accruals while there are also no capex plans in the near future as well.
The operating cycle of the company remained elongated at ~125 days as on March 31, 2019. The same shortened from ~153
days as on March 31, 2018 owing to the shortened inventory holding period and elongated creditor period. Owing to the
elongated operating cycle the operations of the company, the average utilization of the working capital limits remained ~97%
for the twelve month period ended October-2019.

Analytical Approach: Standalone

Applicable Criteria
Criteria on assigning ‘outlook’ and ‘credit watch’
CARE’s Policy on Default Recognition
Financial ratios – Non-Financial Sector
CARE’s methodology for manufacturing companies

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 Press Release

About the company

Incorporated in 2007, BLVEPL is engaged in the processing of paddy since FY08. The company operates at its single
manufacturing facility in Ferozepur, Punjab with an installed capacity of 32TPH (tonnes per hour). BLVEPL is primarily
engaged in the export of Basmati rice to the Middle East, Canada, Australia, etc. with income from exports constituting
around 82% of the total operating income in FY19. The company also caters to the domestic market through a network of
distributors and wholesalers located all over India. While in the domestic market, the company sells rice mainly under its own
brand names- ‘GARIMA’ and ‘KASTURIKA’, ‘RADHIKA’, ‘KIRPA SAGAR’, ‘RAMESHWARI’ etc.; on the export side, majority of the
sales are made in bulk. Group entities of the company include Bhagwati Rice Mills (BRM) and Bhagwati Lacto Foods Private
Limited (BPL; rated, ‘CARE B+; Stable’) with the former having lease income only.

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in
Annexure-3

Brief Financials (Rs. crore) FY18 (A) FY19 (A)

Total operating income 1145.55 1444.56
PBILDT 62.85 60.80
PAT 13.73 11.39
Overall gearing (times) 2.06 1.66
Interest coverage (times) 1.38 1.52
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

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-Working - - - 300.00 CARE BBB-; Stable
Capital Limits
Fund-based - LT-Term - - February-2018 17.01 CARE BBB-; Stable
Loan
Non-fund-based - LT- - - - 5.00 CARE BBB-; Stable
BG/LC

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
2019-2020 2018-2019 2017-2018 2016-2017
1. Fund-based - LT-Working LT 300.00 CARE - 1)CARE BBB- 1)CARE BBB- 1)CARE BB+
Capital Limits BBB-; ; Stable ; Stable (17-Aug-16)
Stable (07-Jan-19) (08-Feb-18)
2. Fund-based - LT-Term LT 17.01 CARE - 1)CARE BBB- 1)CARE BBB- 1)CARE BB+
Loan BBB-; ; Stable ; Stable (17-Aug-16)
Stable (07-Jan-19) (08-Feb-18)
3. Non-fund-based - LT- LT 5.00 CARE - 1)CARE BBB- 1)CARE BBB- 1)CARE BB+
BG/LC BBB-; ; Stable ; Stable (17-Aug-16)
Stable (07-Jan-19) (08-Feb-18)

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 Press Release

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

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.
Contact us
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Group Head Email ID- [email protected]

Relationship Contact
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Contact no.: +91-0172-4904000/1
Email ID : [email protected]

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