ICRA : revises ratings for bank facilities of Shri Ganesh Veg Oil Products Private Limited to BB-; outlook stable

June 09, 2017

Shri Ganesh Veg Oil Products Private Limited

Summary of rated instruments

Instrument*	Rated Amount (in crore)	Rating Action
Cash Credit	6.00	[ICRA]BB- (Stable); Revised from [ICRA]BB (Stable)
Unallocated	4.00	[ICRA]BB- (Stable); Revised from [ICRA]BB (Stable)
Total	10.00

*Instrument details are provided in Annexure-1

Rating action

ICRA has revised the long-term rating assigned to the Rs. 10.00-crore1bank facilities of Shri Ganesh Veg Oil Products Private Limited (SGVOPPL/the company) to [ICRA]BB- (pronounced ICRA double B minus) from [ICRA]BB (pronounced ICRA double B)2. The outlook on the long-term rating is 'stable'.

Rationale

The rating revision takes into account the sharp decline in revenues of the company in FY2017 owing to the closure of the refining facility at Nagpur and the increase in the working capital intensity due to high inventory holding as on March 31, 2017. The rating also factors in the weak financial profile of the company, characterised by low profitability owing to the limited value added nature of the business and weak debt coverage indicators. Further, the rating continues to remain constrained by the competitive and fragmented nature of cotton seed processing, which limits the pricing power, threats from imports and substitutes and vulnerability of the company's operations to agro-climatic conditions. It is also constrained by the volatility in raw material costs and risks of regulatory changes.

Nonetheless, the rating positively takes into account the long track record of operations of the company in the cotton seed processing industry, its established relationship with suppliers and customers in the industry and its proximity to a major cotton-growing area resulting in ease of raw material availability and logistics cost savings.

Key rating drivers Credit strengths

• Extensive experience of the promoters in the cotton oil extraction and refining business

• Diversified and established customer and supplier base

• Proximity to cotton producing belt of Maharashtra resulting in favourable access to cotton seed

1 100 lakh = 1 crore = 10 million

2 For complete rating scale and definitions, please refer to ICRA's websitewww.icra.in or other ICRA Rating Publications

Credit weaknesses

• Sharp decline in revenues in FY2017 and high working capital intensity due to increased inventory levels as on March 31, 2017

• Weak financial profile characterised by low profitability and weak debt coverage indicators

• Exposure to high volatility in realisations on the back of seasonal nature of business and agro climatic conditions

• Inherent risks associated with the oilseed industry owing to high fragmentation and intense competition, lack of pricing power and threat from cheaper import substitutes (edible refined oil)

  Description of key rating drivers:

  The company produces cotton wash oil, cotton seed cake and cotton refined oil from cotton seeds. Manufacturing (extraction and refining) accounts for the bulk of revenues and contributed to 85% of the total revenue in FY2017 (84% in FY2016) while the rest is derived from trading activity. Besides refined cotton oil, the company also sells cotton oil cake (a by-product of the crushing process) which is primarily sold to traders in the cattle feed market. The total revenues in FY2017 declined to Rs. 29.29 crore from Rs. 50.17 crore in FY2016 due to the closure of the Nagpur facility following the expiry of its leave and licence period which was not renewed by the company.

  Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. Links to applicable criteria:

  • Corporate Credit Rating Methodology

  • Edible Oil (Solvent Extraction) Industry

About the company:

Shri Ganesh Veg Oil Products Private Limited (SGVOPL/the company) was established in 1997 with the Mohata Group taking over an existing cotton oil refinery in Khamgaon, Maharashtra. At present the company is involved in the extraction and refining of cottonseed oil and has a cotton oil mill with a capacity of 40 tonne/day and a refining unit with a capacity of 80 tonnes/day. It also has a de-linting unit at Khamgaon. The company also had a refining facility at Nagpur, however, the operations of the same were closed in January 2016.

Status of non-cooperation with previous CRA: Not applicable Any other information: In FY2017, on a provisional basis, the company reported a net profit of Rs. 0.09 crore on an operating income of Rs. 29.29 crore, as compared to a net profit of Rs. 0.16 crore on an operating income of Rs. 50.17 crore in the previous year. Rating history for last three years: Table:

S. No.	Instrument	Current Rating (FY2018)				Chronology of Rating History for the past 3 years
		Type	Amount Rated (Rs. Crore)	Date & Rating	Date & Rating	Date & Rating in FY2016	Date & Rating in FY2015	Date & Rating in FY2014
June 2017	August 2016	August 2015	-	July 2013
1	Cash Credit	Long Term	6.00	[ICRA]BB- (Stable)	[ICRA]BB (Stable)	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)
2	Unallocated	Long Term	4.00	[ICRA]BB- (Stable)	[ICRA]BB (Stable)	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the websitewww.icra.in

Annexure-1

Instrument Details

Instrument	Date of Issuance / Sanction	Coupon Rate	Maturity Date	Amount Rated (Rs. crore)	Current Rating and Outlook
Cash Credit	-	-	-	6.00	[ICRA]BB- (Stable)
Unallocated	-	-	-	4.00	[ICRA]BB- (Stable)

Source: SGVOPPL