CRISIL has upgraded its ratings on the bank facilities of Heritage Foods Limited (HFL; a part of the Heritage group) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Positive/CRISIL A2+’.
Key Rating Drivers & Detailed Description
Established market position
HFL is one of the largest private dairies in South India with significant market share in Andhra Pradesh, Telangana, Karnataka and Tamil Nadu. HFL also has a wide product portfolio of over 22 products and a strong distribution network of 1,380 own parlors under the brand, Heritage, and wide availability of products in 1.2 lakh retail stores. Benefits derived from the promoter’s experience of over 25 years and healthy relations with customers and suppliers should continue to support the business.
Prudent working capital management
Gross current assets were 35 days on March 31, 2017, driven by inventory of 25 days and receivables of 2 days.
Comfortable financial risk profile
Networth and gearing were healthy at Rs 343 crore and 0.82 time, respectively, as on March 31, 2018; the TOL/TNW ratio was also comfortable at 1.44 times. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 7.04 times and 0.29 time, respectively, in fiscal 2018.
High geographic concentration in revenue
HFL derives over 75-80% of revenue from South India indicating high geographical concentration risk in the revenue profile.
Susceptibility to changes in government regulations, intensifying competition and epidemic-related factors
Raw material prices in the dairy industry remain susceptible to change in government policies and environmental conditions. Dairies are also vulnerable to risks of failure in milk production due to external factors, such as incidents of epidemics affecting cattle. Moreover, intense competition may continue to constrain scalability, pricing power, and profitability.