Capital Foods Limited
RATING HISTORY
Rs. 120 million fund based limits
Rs. 110 million term loans
Rs. 30 million non fund based limits
ICRA has assigned LBB+
(pronounced as L double B plus)
rating to Rs. 120 million fund based
bank limits and Rs. 110 million term
loans of Capital Foods Limited
(CFL)†. The rating carries stable
outlook. ICRA has also assigned A4+
(pronounced as A four plus) rating to
Rs. 30 million non fund based bank
limits of CFL†.
Credit Strengths:
Experienced promoters with almost
two decades of experience in the
food products business
Presence in the niche segment of
Chinese food products a potential
revenue driver in the near future
In-house manufacturing operations
coupled with wide range of quality
products to help the company tap
the increasing demand for
processed food products
Sound distribution network and
pan India presence places the
company in a favourable position
to compete with its peers
Credit Challenges:
Processed foods industry
characterised by severe
competition with dominant
presence of organised sector
Vulnerability to raw material price
fluctuations (mainly commodities)
exposes the company to margin
pressures
† For complete rating scale and
definitions, please refer to ICRA’s website
www.icra.in or other ICRA Rating
Publications
Amount Maturity Rating Outstanding
Outstanding Date
as on January
2010
- - January 2010
- - LBB+ (stable)
- - LBB+ (stable
- - A4+
Relatively large debt funded capex
has led to adverse capital structure
Low net margins on account of
high interest costs
The ratings are constrained by CFL’s
low operating margins resulting from
the highly competitive nature of the
processed foods industry,
susceptibility of margins to adverse
fluctuation in the raw (mainly
commodities) material prices,
stretched net profitability resulting in
low cash accruals, weak debt
coverage indicators and high gearing.
However, the ratings derive comfort
from the experience of CFL’s
promoters, its presence in the niche
Chinese noodles & processed foods
segment, wide range of product
profile aided by strong in-house
manufacturing operations and pan
India presence enabled by organised
distribution network. While rating this
entity, ICRA has consolidated M/s.
Capital Foods Exportts Pvt. Ltd.
(CFEPL), the holding company of
CFL.
CFL manufactures and markets
ethnic packaged food products under
the brands of Ching’s Secret
(Chinese cuisine), Smith & Jones
(Continental cuisine), Mama Maria
(Italian cuisine), Raji (Indian ready to
cook) and Kaeng Thai (Thai Cuisine).
CFL’s product profile can be broadly
classified into five segments – sauces
& chutney, noodles, soups, ready to
eat and others. Over the years, CFL
has widened its product portfolio to
more than 50 products for the
domestic and overseas markets.
Previous Ratings
-
-
-
-
However, the processed food
business is highly competitive with
presence of several unorganized and
few well established organized
players. Additionally, though the
company has an established supplier
base for its raw material (mainly
commodities) requirements, its
margins are still exposed to the
volatility of the commodity prices. In
FY08, an increase in the raw material
prices (Raw Material/Operating
Income ratio increased from 47% in
FY07 to 54% in FY08) led to fall in
the operating margins to 3.8% as
compared to 4.4% in the previous
year.
Till FY08, the company was into
trading operations of hakka noodles,
wherein the company sourced the
product from one of its directly
controlled third party manufacturing
unit. In view of growing demand for
this product, in FY09, the company
set up its own manufacturing
operations in Vapi to manufacture
both hakka as well as instant
noodles. Currently, the size of the
Indian noodles market is estimated at
around Rs. 11,000 million with an
annual growth rate of ~15%.The
Indian instant noodles market is
largely dominated by Maggi from
Nestle with a market share of around
90%. CFL’s instant noodles under the
brands Ching’s Secret (Chinese
flavours) and Smith & Jones
(traditional flavours) directly compete
with the large established brands like
Maggi from Nestle, Top Ramen from
Indo Nissin Foods Ltd. and several
other private label manufacturers. As
of FY09, CFL’s market share in the
instant noodles market is estimated
to be around 1%. So far, CFL’s
strategy to enter into the untapped
Chinese flavoured instant noodles
and sauces market has yielded
positive results for the company.
However, the industry has very low
entry barriers of technology and
capital requirements thus resulting in
constant entry of new players and
intensifying competition. Going
forward, the competition in the instant
noodles space is expected to
intensify with several new brands on
the verge of entering the market,
prominent amongst them being Glaxo
Smithkline’s ‘Foodles’.
The company has a sound
distribution network across India and
has been continuously making efforts
to strengthen it further. Currently,
CFL has a network of around 400
distributors, 60 super stockists and
35 to 40 thousand retailers. It has
also tied up with several modern
trade partners like Reliance Retail,
Food Bazar, D Mart, etc. In the last
three years, the company has backed
up its marketing efforts with an
aggressive electronic media
campaign for promoting its products.
Though all these efforts are likely to
yield good results for CFL in the near
future, strong distribution network and
heavy investments needed for brand
building remain key hurdle for small
players like CFL. Currently, though
CFL has a well organised distribution
network, it is weak vis-à-vis its
established counterparts, thus limiting
its reach to the potential customers.
Additionally, brand equity drives the
customer’s purchase decisions, and
is the key to gaining market share.
Thus, going forward, the company
would need to make substantial
investments in advertising and brand
promotion in order to garner market
share for its products.
In the last three years, the company’s
revenues have grown at a robust
CAGR of around 32.1% thanks to
constant introduction of new
products, especially in the pouring
sauces and noodles category,
increased demand for the noodles
business, as well as aggressive
advertising campaign initiated by the
company. During FY07 and FY08, in
addition to the high raw material
costs, the company also incurred
high selling costs (31% and 29% of
OI in FY07 and FY08 respectively)
owing to aggressive electronic media
campaign. This cumulatively led to
low operating margins during FY07
and FY08. However, in FY09,
company’s policy of amortising
relatively significant advertising
expenditure (~Rs. 54 million) over a
period of five years coupled with
decline in the raw material costs led
to rise in the operating margins to
9.8%. While low operating margins
exerted pressure on the net margins
in FY07 (2%) and FY08 (1.3%), high
interest costs (Net Interest & Finance
Expenses/OI: 4% in FY09 versus
0.6% in FY08) further stretched the
net profitability in FY09 (0.5%).
In the last couple of years, relatively
large debt funded capex to set up
noodles manufacturing facility and
low cash accruals (adjusted for
unamortized advertising expenditure)
has led to adverse capital structure
with gearing level reaching a high of
2x in FY09 vis-à-vis 1.4x in FY08.
The debt coverage indicators have
also deteriorated in the last two years
with the NCA/Total Debt ratio
hovering at a low of around 5-6%.
Working capital intensity has been
moderate in the recent past with Net
Working Capital/Operating Income of
18% and 19% in FY08 and FY09
respectively. However, relatively
large capex (Rs. 27.1 crore) in the
last three years has resulted in
negative free cash flows during the
same period.
Company Profile
Incorporated in 1995, Capital Foods
Limited (CFL) is engaged in the
business of manufacture and
marketing of ethnic food ingredients
and food items. The manufacturing
operations are carried out from plants
in Nashik (Maharashtra) and Vapi
(Gujarat). While the Nashik plant is
engaged in the manufacture of a wide
variety of processed foods viz.
tomato ketch up, garlic & ginger
pastes, sauces, chutneys, soups,
baked beans etc. in different variants,
the Vapi plant is dedicated to
manufacture instant and hakka
noodles. The company was promoted
by Mr. Ajay Gupta (current MD) and it
sells its products under the brand
names of ‘Ching’s Secret’, ‘Smith &
Jones’, ‘Mama Maria’, ‘Kaeng Thai’ &
‘Raji’.
The company is a subsidiary of M/s.
Capital Foods Exportts Pvt. Ltd.
(CFEPL). The holding company,
CFEPL, is also in the similar line of
processed foods industry as that of
CFL. It is a 100% Export Oriented
Unit and has its own production
facility at Kandla Special Economic
Zone in Gujarat.
For the first half ended September
2009, the company reported a Net
Profit of Rs. 19.7 million on an
operating income of Rs. 356.2 million.
January 2010
KEY FINANCIALS
2008-09 2007-08 2006-07
Net Sales Rs Million 642.4 521.3 274.3
Operating Income (OI) Rs Million 646.8 524.9 280.3
OPBDITA Rs Million 63.6 19.7 12.2
Profit After Tax (PAT) Rs Million 3.4 6.9 5.5
Net Cash Accruals Rs Million 13.6 10.5 8.0
Total Debt Rs Million 250.5 185.5 24.6
Tangible Net worth Rs Million 123.4 132.9 98.0
OPBDITA/OI % 9.8% 3.8% 4.4%
PAT/OI % 0.5% 1.3% 2.0%
ROCE {PBIT/Average (TD+TNW+DTL)} % 20.5% 11.1% 11.2%
Total Gearing Times 2.0 1.4 0.3
OPBDITA/Interest & Finance Charges Times 2.5 5.8 4.7
(GCF+ Interest)/Interest Times 1.4 -4.5 -14.1
NCA/Total Debt % 5% 6% 32%
Total Debt/OPBDITA Times 3.9 9.4 2.0
Debtor days Days 43 49 51
Inventory days Days 109 73 55
Creditor days Days 73 58 43
Note: Amounts in Rs. Millions
GCF – Gross Cash Flows

For further details please contact:

Analyst Contact:
Mr. Subrata Ray, (Tel. No. +91-22-30470027)
subrata@icraindia.com

Relationship Contact:
Mr. L. Shivakumar, (Tel. No. +91-22-30470005)
shivakumar@icraindia.com

© Copyright, 2010, ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. The ICRA
ratings are subject to a process of surveillance which may lead to a revision in ratings. Please visit our website
(www.icra.in) or contact any ICRA office for the latest information on ICRA ratings outstanding. All information
contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although
reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’
without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or
implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein
must be construed solely as statements of opinion and ICRA shall not be liable for any losses incurred by users from
any use of this publication or its contents
You can reach us at any of our offices:
Registered Office
ICRA Limited
1105, Kailash Building, 11th Floor, 26, Kasturba Gandhi Marg, New Delhi 110001
Tel: +91-11-23357940-50, Fax: +91-11-23357014

Corporate Office
Mr. Vivek Mathur
Mobile: 9871221122
Email: vivek@icraindia.com

Building No. 8, 2nd Floor, Tower A, DLF Cyber City, Phase II, Gurgaon 122002
Ph: +91-124-4545310 (D), 4545300 / 4545800 (B) Fax; +91-124-4545350

Mumbai Kolkata
Mr. L. Shivakumar Ms. Anuradha Ray
Mobile: 91-22-30470005/9821086490 Mobile: 91-33-22813158/9831086462
Email: shivakumar@icraindia.com Email: anuradha@icraindia.com

3rd Floor, Electric Mansion, Appasaheb Marathe Marg, A-10 & 11, 3rd Floor, FMC Fortuna, 234/ 3A, A.J.C. Bose
Prabhadevi, Mumbai - 400 025 Road, Kolkata-700020.
Ph : +91-22-2433 1046/ 1053/ 1062/ 1074/ 1086/ 1087 Tel: +91-33-2287 6617/ 8839/ 2280 0008
Fax : +91-22-2433 1390 Fax: +91-33-2287 0728
Chennai Bangalore
Mr. Jayanta Chatterjee Mr. Jayanta Chatterjee
Mobile: 9845022459 Mobile: 9845022459
Email: jayantac@icraindia.com Email: jayantac@icraindia.com

Email: Mr. K. Ravichandran 2nd Floor, Vayudhoot Chambers, Trinity Circle, 15-16
Mobile: 91-44-24340043/ 9940008808 M.G.Road, Bangalore-560001.
Email: ravichandran@icraindia.com Tel:91-80-25597401/ 4049 Fax:91-80-25594065

5th Floor, Karumuttu Centre, 498 Anna Salai, Nandanam,

Chennai-600035.
Tel: +91-44-2433 3293/ 94, 2434 0043/ 9659/ 8080, 2433
0724, Fax:91-44-24343663
Ahmedabad Pune
Mr. L. Shivakumar Mr. L. Shivakumar
Mobile: 9821086490 Mobile: 9821086490
Email: shivakumar@icraindia.com Email: shivakumar@icraindia.com

907 & 908 Sakar -II, Ellisbridge, 5A, 5th Floor, Symphony, S.No. 210, CTS 3202, Range Hills
Ahmedabad- 380006 Road, Shivajinagar,Pune-411 020
Tel: +91-79-26585494, 26582008,26585049, 26584924 Tel : (91 20) 2552 0194 -96; Fax : (91 20) 2553 9231
TeleFax:+91-79- 2648 4924
Hyderabad
Mr. M.S.K. Aditya
Mobile: 9963253777
Email: adityamsk@icraindia.com

301, CONCOURSE, 3rd Floor, No. 7-1-58, Ameerpet,

Hyderabad 500 016.
Tel: +91-40-2373 5061 /7251 Fax: +91-40- 2373 5152