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