Ind-Ra Assigns Avanti Feeds ‘IND A-’; Outlook Stable

Ind-Ra-Hyderabad- 19 May 2014: India Ratings & Research (Ind-Ra) has assigned Avanti Feeds Limited (AFL) a Long-Term Issuer Rating of ‘IND A-’. The Outlook is Stable. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS

The ratings reflect the significant improvement in AFL’s scale of operations and EBITDA margins during FY10-FY13. The company’s revenue grew at a CAGR of 89% to INR6,480m in FY13 from INR961m in FY10, driven by an increase in the scale of operations and higher prices of shrimp feed and processed shrimps. EBITA margins improved to 8.0% in FY13 (FY12: 11.5%; FY11: 3.7x; FY10: negative 2.5%) due to the higher scale and the favourable demand scenario in the shrimp market.

The ratings also take into account AFL’s strong credit profile in FY13 with net leverage of 1.0x (FY12: 0.2x; FY11: 5.8x) and interest cover of 13.2x (11.1x; 1.7x). Net leverage for FY13 was higher than FY12, due to a fall in EBITDA margins as a result of a substantial increase in raw material prices which the company could pass on to customers only in FY14.

AFL’s strategy to fund its working capital requirements from internal accruals and low reliance on debt has helped keep its interest cost low. The company was able to maintain its net working capital cycle at 69 days in FY13 (FY12: 45 days; FY11: 92 days), despite a bigger scale of operations, as most of its feed segment sales are made on cash basis while the execution of export orders and realisations thereof are timely.  AFL also has a concessional interest rate due to a 250bp subvention on the export packing credit given to exporters. The technical and marketing support from Thai Union Frozen foods PLC further strengthens the ratings.

AFL’s ratings are constrained by its volatile EBITDA margins and limited ability to pass on increased raw material prices to customers. A change in the demand-supply situation in the shrimp market, as the major shrimp producing countries such as Thailand, Vietnam and China are fighting a viral attack on shrimps, will also have a significant impact on shrimp prices and hence its culture in India.

RATING SENSITIVITIES

Positive: Ability to maintain stable margins and achieve a higher scale of operations backed by volume growth while maintaining credit metrics and forging long-term business relationships with large global importers 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.

COMPANY PROFILE

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 and a fish feed manufacturing units, three in Andhra Pradesh and one in Gujarat. After the capacity expansion in FY14, the total capacity of the company has increased to 220,000mtpa of shrimp feed and 5,000mt 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.

9MFY14 provisional figures indicate revenue of INR8,543.4m, EBITDA margins of 10.3%. Its net debt was negative and interest cover was 30.2x for this period.

AFL’s ratings:
- Long-Term Issuer Rating: assigned ‘IND A-’; Outlook Stable
- INR750m Fund-based facility: assigned ‘IND A-'  
- INR370m Non-fund-based facility: assigned ‘IND A1’
- INR46.2m Term loan: assigned ‘IND A-’
- Proposed INR350m fund-based facility: assigned ‘IND A-(exp)’

Contacts:
Primary Analyst
Niraj Rathi
Senior Analyst
+91 40 4025 8622
India Ratings & Research Pvt Ltd
6-3-669, Ozone Complex
1
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Hyderabad 500082

Secondary Analyst
Amit Bhuwania
Analyst
+91 40 4017 8616

Committee Chairperson
Sreenivasa Prasanna
Senior Director
+91 44 4340 1700

Media Relations: Saraanya Shetty, Mumbai, Tel: + 91 22 4000 1729, Email: saraanya.shetty@indiaratings.co.in.

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

Applicable criteria, ‘Corporate Rating Methodology’, dated 12 September 2012, are available at www.indiaratings.co.in.

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