ICRA Nepal has assigned a long-term rating of [ICRANP] LBB+ to the long-term loans of NPR 101.61 million and a short-term rating of [ICRANP] A4+ to the short-term loans of NPR 598.39 million of Global Agro Products Private Limited (GAPPL).
The assigned ratings factor in the healthy operational track record of the company with a consistent operating profit margin (OPBDITA/OI) despite having a moderate age of operation, moderate gearing level with continuous improvement in recent times and moderate coverage indicators of the company so far with an average ICR of around 3x and cumulative DSCR of 1.88x in the last three years ending FY2019. Likewise, the relatively lower financial burden amid lower working capital intensity (NWC/OI) of the company that remained aided by relatively higher payable days. The coverage indicators remained supported by an interest subsidy of 5% in working capital loans of up to 50 million, accorded to an agriculture based industry, lower working capital intensity and lower principal repayments towards long-term assets. The assigned ratings also factor in the positive demand outlook for the pellet industry over the medium term and prior experience of the major promoters in the related feed industry that provided the company with an acquainted and established clientele, resulting in a fair sales profile.
The ratings are, however, constrained by the inherent risks in poultry and related businesses in the form of volatile realisations, vulnerability of margins to fluctuations in raw material prices and forex, and disease outbreaks (bird flu), etc. that can sensitise the company’s revenue stream. Also, the stretched liquidity profile of the company, a result of the creation of capital assets from short-term loans in the past, thus lowering the current ratio to less than 1x, remain a concern. This is likely to improve going forward following the disbursal of a new mid-term loan to manage the same. The ratings are also constrained by the highly competitive nature of the industry, which limits the pricing flexibility of the industry participants, including GAPPL. Moreover, the company’s operations and profitability are also susceptible to the availability, pricing and forex fluctuation risk in raw material procurement that might remain affected by the agro-climatic conditions in Nepal, India and the US from where the raw materials are currently being procured. Similarly, the company’s revenue growth and profitability are exposed to external factors such as low entry barriers and high industry fragmentation (with many organised and unorganised players).
Incorporated in July 27, 2012, Global Agro Product Private Limited (GAPPL) is a manufacturing unit that manufactures pellet and mash feed for poultry and livestock. The company has two production lines - Pellet Feed line and Mash Feed line. The total production capacity of the pellet feed is 10MT per hour while the same is 5MT per hour for mash feed. The company is selling its products under the brand name Global, Amrit and Unnat. Major raw material, maize, is procured primarily from India while soya is purchased from the US. The company has been promoted by a group of 38 individual shareholders (of which eight hold a majority stake of ~52%). Major shareholders have prior experiences in the related feed industry. The factory plant is situated at Bharatpur, Chitwan, Bagmati province, Nepal.
Source: ICRA Ratings Nepal