Ind-Ra Upgrades Avanti Feeds to ‘IND A’/Stable
July 2015: India Ratings and Research (Ind-Ra) has upgraded Avanti
Feeds Limited’s (AFL) Long-Term Issuer Rating to ‘IND A
from ‘IND A-’. The Outlook is Stable. A full list of
rating actions is at the end of this commentary:
KEY RATING DRIVERS
The upgrade reflects the substantial increase in AFL’s scale of operations during FY14 and FY15 driven both by volume and price growth. Over FY13-FY15 the volumes of the feed division increased at a CAGR of 50% and the processing division grew 17%. Realisation of feed and processed shrimp grew at a CAGR of 15% and 13% respectively during this period. Over the same period, Avanti’s revenue grew at a CAGR of 65.5% to INR17.7bn in FY15 (FY14:11.3bn; FY13: 6.5bn) and EBITDA margins improved to 10.3% (FY14: 9.8% ; FY13: 8%) due to better absorption of fixed costs and the company’s ability to pass on the increased raw material prices to customers due to favourable demand
The upgrade also reflects the improvement in AFL’s credit profile with net leverage turning negative at -0.1x in FY15 (FY14: 0.3x; FY13: 1.0x) due to negligible term debt and lower ultisaltion of working capital debt. This was due to better working capital management as a result of which the net cash conversion cycle improved to 37days in FY15 (FY14: 42 days; FY13: 69days) despite the increase in the scale of operations.
The improvement in the working capital cycle was mainly due to better collection days in the feed division which constituted 85% of the total sales in FY15. 75% of AFL’s sales in the feed division are on cash basis while 25% are on a credit basis (10-30 days). Avanti however, extends a credit of 30-90 days to the customers of processed shrimp but this constituted only 15% of the total revenue in FY15. Avanti’s liquidity position is also comfortable with cash and cash equivalents of INR826m at FYE15 (FY14: INR179m).
AFL’s ratings are constrained by the volatility in raw material prices and AFL’s limited ability to pass on increased raw material prices to customers. The ratings also remain constrained due to both divisions being vulnerable to a disease out- break in the aqua culture (both shrimp and fish) and unfavourable industry attributes such as food safety regulations in export markets.
Ind-Ra observes that shrimp prices have increased during the past two years due to the global demand-supply mismatch created by lower supplies from major shrimp producing nations such as Thailand and China as a result of a viral attack on shrimps. The restoration of supplies from these regions would impact the demand-supply dynamics and lead to volatility in the EBITDA margins of shrimp processing and shrimp feed businesses. Demonstration of sustainability of EBITDA margins through the volatility would be a positive for the company
Positive: Demonstration of sustainability of EBITDA margins through volatility in the shrimp industry while maintaining the existing credit profile would be positive for the ratings.
Negative: Deterioration in AFL’s scale of operations and/or EBIDTA margins due to the industry or company-specific factors, leading to significant deterioration in the credit metrics, would be negative for the ratings
In business since 1993, AFL manufactures and sells shrimp and fish feed and also exports processed shrimps. The company is listed both on NSE and BSE.
The company has three shrimp feed units, two in Andhra Pradesh and one in Gujarat and also a fish feed manufacturing unit located in xyz. After the capacity expansion in FY15, the total capacity of the company has increased to 260,000mtpa of shrimp feed and 8,000mt of shrimp processing. AFL also has four wind mills in Karnataka with a power generation capacity of 3.2MW and sells power through a long-term power purchase agreement to the Karnataka Power Transmission Corporation Limited.
-Long-Term Issuer Rating: upgraded to ‘IND A’ from ‘IND A-’; Outlook Stable
-INR9.5m term loan (reduced from INR46.2m): upgraded to ‘IND A’/ Stable from ‘IND A-’
-INR750m fund-based facilities: upgraded to ‘IND A’/ Stable from IND A-’
-INR367.5m non-fund-based facility (reduced from INR370m): affirmed at ‘IND A1’
-Proposed INR350m fund-based facility: ‘Provisional IND A-’; rating withdrawn as debt was not taken
-INR200m new term loan: assigned ‘IND A’/ Stable
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