ICRA Nepal has assigned a long-term rating of [ICRANP] LBB to the long term loan of NPR 54.7 million and a short-term rating of [ICRANP] A4 to the short-term loan of NPR 700.3 million of Gharana Foods Private Limited (GFPL).
The rating assignment factors the long track record of operations (since 2008) with extensive experience of the promoters in the agro-food industry and stable demand outlook for wheat items; mainly so because wheat products form a part of the staple diet and are a major source of raw material for fast-moving consumer goods (FMCG) and fast food sector across the country. Amid increased growth of revenue, the incremental business also remained supported by the capacity expansion, addition of new product lines (Chakki Aata and Dalia) and increment in storage capacity by 5000MT. The rating also derives comfort from the availability of extensive packaging options for its products ranging from 1kg to 50kg, which remains a positive in targeting both the Business-to-Business (B2B) and Business-to-Customer (B2C) segment. The ratings also factor in GFPL’s long-standing relations with its diversified client base, which has resulted in incremental business over the years and is also likely to support the future revenue growth.
The rating is, however, constrained by the highly leveraged financial structure of GFPL with an increasing gearing ratio in the last two years ending FY 2019; resulting in stretched liquidity position, low coverage indicators and low net profitability amid high finance cost. The high gearing (~3.9x) is due to high working capital intensity of the business (NWC/OI of 48%in FY 2019) and capital expenditure for capacity upgradation without injecting additional equity. Nonetheless, the working capital intensity remains improved in the last two years ending FY 2019 with improved debtor days in the same period. The rating is also constraint by the highly competitive nature of the industry, which limits the pricing flexibility of the industry participants, including GFPL. Moreover, the company’s operations and profitability are also susceptible to availability and pricing of raw material that remains affected by the monsoon and the climatic conditions as well as changes in governmental level policy, both in India and Nepal. Similarly, the company’s revenue growth and profitability are exposed to external factors such as low entry barriers and high industry fragmentation (with many organized and unorganized players).
Incorporated in March 2008, Gharana Foods Private Limited (GFPL) is a manufacturing unit that produces maida, aata, chakki aata, suji, bran and greet from wheat grains under the brand name of Gharana. The company has been established by a group of three Goenka family members back in 2008. The total installed capacity is around 200MT per day and the utilization is around 46% for FY 2019. Wheat, the primary raw material, is procured mainly from India for most of its requirement ~61% (FY 2019) and the rest is procured from the suppliers in the local market. The factory plant is situated at Siddhartha nagar Municipality of Rupandehi District, Province No –5, Nepal.
Source: ICRA Ratings Nepal