November 14, 2017

ALM Industries Limited Revised

Summary of rated instruments
Instruments* Amount Rated Rating Action
(Rs. crore)
Short-term fund-based limits* 110.00 [ICRA]A3 /re-affirmed
(enhanced from 96.00)
*Instrument details are provided in Annexure-1

Rating action
ICRA has re-affirmed its short term rating of [ICRA] A3 (pronounced ICRA A three) on the Rs. 110.00
crore (enhanced from Rs. 96.00-crore) short-term fund-based limits of ALM Industries Limited (ALM)1.

Rationale
The rating re-affirmation takes into account the decline in ALM’s operating income in FY2017 on
account of the decrease in export volumes. ICRA notes that the company’s operating margins remained
subdued due to the highly fragmented nature of the meat processing industry. ICRA’s rating also takes
into account the short-term impact of the demonetisation on the company as a majority of the raw
material requirements were met through cash payments as evident by the creditor’s days of one to two
days historically. However, the company has taken adequate steps towards addressing the same, which
would mitigate the adverse impact on the top-line in the medium term.

ICRA’s rating continues to favourably factor in the long operating history of the company and experience
of the promoters in the buffalo meat processing industry; the favourable location of the company in terms
of raw material availability; the moderate working capital intensity and the favourable demand outlook
for buffalo meat in the key importing countries. The rating, however, continues to be constrained by the
highly competitive and fragmented nature of the meat processing industry, which exerts pressure on the
profitability margins of the company. It is also constrained by the risks inherent to the buffalo meat export
business, including social, political and disease out-break risks and the vulnerability of profitability to
fluctuations in foreign exchange rates, given that exports account for ~90% of ALM’s total revenues.

Going forward, the company’s ability to scale-up its operations, while improving its profitability, will
remain the key rating sensitivities.

Key rating drivers

Credit strengths

 Sufficiently long experience of the promoters in the meat processing business: The company
continues to enjoy a comfortable position in the buffalo meat processing industry by virtue of the long
experience of its promoters in the industry.

 Favourable location of the manufacturing facilities, which would facilitate the availability of
raw materials: The company’s plant is located at Saharanpur in Uttar Pradesh, which facilities easy
availability of raw material with its manufacturing facility being in the agricultural belt of the
country.

1 For complete rating scale and definitions please refer to ICRA's Website www.icra.in or other ICRA Rating Publications
.
 Debt primarily comprises short-term borrowings in the form of EPC with an interest rate
linked to the London Interbank Offered Rate: The company’s capital structure continues to
remain comfortable with regular infusion of funds in the form of equity and preference share capital;
while the debt profile of the company primarily consists of working capital borrowings with no long-
term liabilities, with the interest rate linked to LIBOR, resulting in low interest payment obligations.

Credit weaknesses

 Inherent business risks due to the sensitive nature of the business: The intensely competitive meat
processing industry along with the risk inherited by the processed products, which may be exposed to
disease outbreaks and the socially sensitive nature of the industry and political risks poses a threat to
the growth of the industry.

 Commoditised nature of business and unorganised market for raw material sourcing keeps the
profitability of the industry under check: The company’s profitability continues to remain under
pressure due to the fragmented nature and unorganised structure of the meat processing industry,
which continues to pose a major threat to the growth of the industry.

 Vulnerability of profitability to any adverse currency movements - As the majority of the

company’s contribution to the top-line are from exports, thus exposing the company’s margins to
adverse fluctuations in the currency movements.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated
below.

Links to applicable criteria:

Corporate Credit Rating Methodology

About the company:

Incorporated in 1996, ALM is involved in the export of buffalo meat. The company is owned and
managed by Mr. Haji Fazlur Rehman and his brothers. The company has its own slaughter house at
Saharanpur in Uttar Pradesh, with a meat freezing capacity of 39,600 metric tonnes per annum (MTPA).
The company’s plant is approved by the Agriculture and Processed Food Export Development Authority
(APEDA).

In FY2017, the company reported a net profit of Rs. 1.02 crore on an operating income of Rs. 414.33
crore, as compared to a net profit of Rs. 4.19 crore on an operating income of Rs. 605.27 crore in the
previous year.
Key financial indicators:
FY2016 FY2017
Audited Audited
Operating Income (Rs. crore) 605.27 414.33
PAT (Rs. crore) 4.19 1.02
OPBDIT/ OI (%) 2.70% 1.89%
RoCE (%) 6.75% 2.82%

Total Debt/ TNW (times) 1.26 1.42

Total Debt/ OPBDIT (times) 6.88 16.34
Interest Coverage (times) 2.14 1.80
NWC/ OI (%) 14% 26%
OI: Operating Income; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest,
Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net-Worth + Deferred Tax Liability -
Capital Work - in Progress);
NWC: Net Working Capital

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for last three years

Table:
S. Instrument Current Rating (FY2018) Chronology of Rating History for the past 3
No. years

Type Amount Amount Date & Date & Date & Rating in Date &
Rated Outstanding Rating Rating in FY2016 Rating in
(Rs. (Rs Crore) FY2017 FY2015
crore)
November January January November October
2017 2017 2016 2015 2014
1 Export Short 110.00 110.0 [ICRA]A3 [ICRA]A3
packing Term [ICRA]A3 [ICRA]A3 [ICRA]A3
credit

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly
Complex". The classification of instruments according to their complexity levels is available on the
website www.icra.in
Annexure-1
Instrument Details
ISIN No Instrument Date of Coupon Maturity Amount Current Rating and
Issuance / Rate Date Rated Outlook
Sanction (Rs. crore)
Short-term - - - 110.00 [ICRA]A3
Fund based
facility-EPC
Source: ALM Industries Limited
 Contact Details
Analyst Contacts
Sabyasachi Majumdar Vipin Jindal
+0124-4545 304 +0124-4545 355
sabyasachi@icraindia.com vipin.jindal@icraindia.com

Manish Ballabh Gaurav Gupta

+0124-4545 812 +0124- 4545 814
manish.ballabh@icraindia.com gaurav.gupta@icraindia.com

Relationship Contact
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

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