ICRA Credit Perspective

ANMOL BISCUITS LIMITED

Rating Analyst Contacts
Jayanta Roy JAYANTA@ICRAINDIA.COM +91 33 2280 0008 Mahi Agarwal MAHI.AGARWAL@ICRAINDIA.COM +91 33 2287 6617 Bhavesh Nahata BHAVESH.NAHATA@ICRAINDIA.CO
M

ICRA has reaffirmed the LA- (pronounced L A minus) rating assigned to the Rs. 16.75 crore1 term loans (reduced from Rs. 20.00 crore), Rs. 12.50 crore fund based bank limits (enhanced from Rs. 8.00 crore) and Rs. 1.84 crore non fund based bank limits (enhanced from Rs. 0.50 crore) of Anmol Biscuits Limited (ABL)2. The outlook on the long term rating is stable. Key Financial Indicators Net Sales Operating Income (OI) OPBDIT Profit After Tax (PAT) Net Cash Accruals (NCA) Total Debt (TD) Tangible Net worth (TNW) OPBDIT/OI PAT/OI PBIT/Average (TD+TNW+DTL-CWIP) Total Gearing OPBDIT/Interest & Finance Charges (GCF+ Interest)/Interest NCA/Total Debt Total Debt/OPBDITA Debtor days Inventory days Creditor days 2008-09 154.04 154.42 9.25 4.57 5.18 10.54 12.89 6.0% 3.0% 42.1% 0.82 13.39 9.40 49.1% 1.14 5 13 25 2009-10 199.00 199.88 10.19 5.19 5.89 16.90 22.14 5.1% 2.6% 39.0% 0.76 15.55 6.80 34.9% 1.66 5 10 20 10.09 5.7% 2010-11* 249.00 252.86 14.39 11.67#

+91 33 2283 1411

Relationship Contacts Anuradha Ray ANURADHA@ICRAINDIA.COM +91 33 2283 1411

May 2011

*Provisional # Profit before Tax (PBT) Note: Amounts in Rs. Crore; OI: Operating Income; OPBDIT: Operating Profit before Depreciation, Interest and Tax; PAT: Profit after Tax; PBIT: Profit before Interest and Tax; DTL: Deferred Tax Liability; CWIP: Capital Work in Progress; GCF: Gross Cash Flows

Website www.icra.in
1 2

100 lakh = 1 crore = 10 million For complete rating scale and definitions, please refer to ICRAs website www.icra.in or other ICRA Rating Publications.

ICRA Credit Perspective

Anmol Biscuits Limited

Key Rating Considerations Credit Strengths

Favourable demand outlook of the biscuit industry, and the longstanding market position of ABL in the biscuit industry in Eastern India supported by an established distribution network Favourable financial profile of the company as reflected by a healthy growth in operating income and return on capital employed, moderate gearing level, and comfortable coverage indicators, notwithstanding some moderation in the coverage indicators during 2010-11 on account of higher debt availed for capacity expansion Improvement in capacity utilization following streamlining of operations Presence in Northern India through the subsidiary Anmol Bakers Private Limited (ABPL); proposed plan to increase holding in ABPL to 100% would further improve the operational and financial profile of ABL at a consolidated level Low working capital intensive nature of the business results in comfortable liquidity

Credit Challenges
Intense competition from both unorganized and established players, which is likely to keep margins under check High sensitivity of profits to raw material price movements Significant proposed capacity additions in ABL and its subsidiary company over the medium term relative to the groups current capacity and balance sheet size expose the group to project and offtake risks; ABLs return on capital employed (at a consolidated level) post commissioning could witness a deterioration if the group is unable to achieve an acceptable level of capacity utilization

Rating Rationale
The reaffirmation of the rating takes into account the favourable financial profile of the company as reflected by a healthy growth in operating income resulting from deeper market penetration supported by the companys established distribution network, moderate gearing level, healthy return on capital employed, and comfortable coverage indicators, notwithstanding some moderation in coverage indicators during 2010-11 on account of higher debt availed for capacity expansion. The rating also factors in the higher capacity utilization during the first nine months of 2010-11 (9M2010-11) following streamlining of operations, and the low working capital intensity of the business. While reaffirming the rating, ICRA has taken a consolidated view of the operational and financial profile of ABL with Anmol Bakers Private Limited (ABPL) and Bansal Biscuits Pvt. Ltd. (BBPL), both being subsidiary companies of ABL. The rating also takes into consideration the high sensitivity of the profitability of biscuit manufacturers, including ABL, to fluctuations in raw material prices and intense competition from the existing players, which is likely to keep margins under check, although the favourable demand outlook for the biscuit industry and ABLs established market position in Eastern India are expected to support growth to some extent. ICRA notes that ABL and its subsidiaries are aggressively planning to expand their capacities over the medium term; however the ability of the group to achieve an acceptable level of capacity utilization and mitigate off-take risks associated with the same would remain key rating sensitivities going forward. ABL has been manufacturing biscuits for over one and a half decades. The company has an established distribution network in Eastern India (primarily in Orissa, West Bengal and Bihar). The Anmol group is also present in Northern India through ABLs subsidiary, ABPL, which manufactures and markets the brands of Anmol in exchange for a royalty payment to ABL. During the first nine months of 2010-11 (9M2010-11), ABLs capacity utilization improved to around 85% from 63% in 2009-10 due to streamlining of operations, wherein high volume variants were produced in-house, which enabled the company to run its capacity without much change-overs, leading to better capacity utilization. Other lower volume variants were outsourced. Consequently, the total production from the companys own facility increased substantially during 9M2010-11, although the proportion of the production outsourced to job workers still remained significant at 52% during 9M2010-11 as against 57% in 2009-10. Moreover, the company focused on changing its product mix to increase the proportion of sales being generated from relatively high margin

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ICRA Credit Perspective

Anmol Biscuits Limited

cream sandwich and butter biscuits, leading to an improvement in margins in 2010-11. The working capital intensity of ABL is low, with around 90% of sales being made on cash basis, which helps the companys liquidity position. The company has recently undertaken a capacity expansion at its existing unit at a cost of around Rs. 27 crore that has led to an increase in the installed capacity from 24500 MTPA to 56000 MTPA. The project was delayed by around 9 months on account of delays in civil work that led to an increase in project cost by around Rs. 1 crore, although the overall capital expenditure (capex) declined by Rs. 3 crore on account of alteration in the project scope. ABL is also setting up a new manufacturing facility in Bihar under Bansal Biscuits Private Limited (BBPL), a 100% subsidiary of ABL, which would cater to Bihar as well as new markets in southern and western India. The total capacity of the plant would be 47,700 MTPA. The total project cost is estimated at around Rs. 55 crore, proposed to be funded at a project gearing of 3.4 time (debt includes unsecured loans from promoters). BBPL has already tied up the debt for the proposed capex and the same is expected to be commissioned in the short term. ABL is also planning to undertake further capex of Rs. 75 crore at Orissa with an installed capacity of around 65000 MTPA, which is likely to be commissioned in the medium term. The same is expected to be funded by fresh equity raised from the capital market; however, in ICRAs opinion, the mobilisation of the required funds would be influenced by the health of the capital market. ICRA notes that Anmol Group proposes to increase its capacity from 116,000 metric tonnes per annum (MTPA) currently to 228,500 MTPA over the medium term, which is around double the existing capacity. Given the large size of the total capex plan relative to the groups balance sheet size and current capacity, the group is likely to be exposed to project and off-take risks that would adversely impact the business risk profile of the consolidated entity in the short to medium term. The groups return on capital employed post commissioning could suffer some moderation if it is unable to achieve an acceptable level of utilization of the expanded capacity. Additionally, the group would also be subject to pricing pressures to push higher sales, given the intensely competitive nature of the industry. The operating income of the company has grown at a compounded annual growth rate (CAGR) of 23% to reach Rs. 199.9 crore in 2009-10. The growth has been driven by increased sales promotion carried out through the companys established distribution network. Going forward, the favourable demand outlook of the industry, driven primarily by rising disposable income and growing preference for packaged foods in India is expected to aid sustained growth in the revenues of ABL. Moreover, Anmol Industries Limited, a group company of ABL, engaged in the manufacturing of rusks and cakes, was merged with ABL with effect from April 1, 2010, which is likely to support revenue growth in the future as well. Additionally, the company is planning to increase the share of exports in the overall turnover of the company; however, the same is likely to contribute only a small portion to the overall business. ABLs profitability is vulnerable to adverse movements in raw material prices, as reflected by a decline in the operating margins during 200910, when both sugar and flour prices increased. However, a change in product mix with increased sales of higher margin biscuits coupled with improved capacity utilization resulted in an improvement in the operating margins despite an increase in the raw material prices during 9M2010-11. Despite moderate operating margins, the return on capital employed (ROCE) remained healthy at around 39% for 2009-10, primarily because a significant portion (over 50%) of biscuit production is outsourced, resulting in low investment in fixed assets. The company has a moderate capital structure, with a gearing of 0.76 time as on 31st March, 2010 which, coupled with moderate margins, has resulted in healthy coverage indicators, with an interest cover of 15.6 times and net cash accruals relative to total debt of around 35% during 200910. However, an increase in debt availed to fund ABLs capex plan resulted in some deterioration in the coverage indicators with interest cover declining to 10.1 times during 2010-11.

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ICRA Credit Perspective

Anmol Biscuits Limited

Company Profile
Anmol Biscuits Limited (ABL) was incorporated in 1993, and is engaged in the manufacture of biscuits at its unit located at Dankuni, West Bengal, with an installed capacity of 56000 MTPA. ABL also outsources around 50% of its production to third party processors. Sales are generated primarily from the Eastern region of India, but the Anmol brand is also present in North India through Anmol Bakers Private Limited (ABPL), a 100% subsidiary of ABL, which manufactures and sells the brands of ABL by paying a royalty to the company. Bansal Biscuits Private Limited (BBPL), a 100% subsidiary of ABL, is also setting up a biscuit manufacturing facility of 47700 MTPA in Bihar. Anmol Industries Limited, a group company of ABL, is engaged in the manufacturing of rusks and cakes with an installed capacity of 1300 MTPA and has been merged with ABL with effect from April 1, 2010.

Recent Results
During 2009-10, ABL recorded a profit after tax of Rs. 5.2 crore on the back of an operating income (OI) of Rs.199.9 crore. In the financial year 2010-11, the company posted an OI (provisional) and profit before tax (provisional) of Rs. 252.9 crore and Rs. 11.67 crore respectively. May 2011

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ICRA Credit Perspective

Anmol Biscuits Limited

Annexure I: Rating History

Instrument Amount Rated In Rs. Crore 16.75 12.50 1.84 Amount Outstanding as on 31st December, 2010 In Rs. Crore 11.4* 6.15 NA As in May 2011 LA- (Stable) LA- (Stable) LA- (Stable) Rating As in March 2010 LA- (Stable) LA- (Stable) LA- (Stable)

Term Loan Fund Based Limits Non-Fund Based Limits

*Term Loan not fully drawn as on 31st December, 2010

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ICRA Credit Perspective

Anmol Biscuits Limited

ICRA Limited
An Associate of Moody's Investors Service
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