Aachi Masala Foods Private Limited

September 28, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]BBB+ (Stable);
Fund-based -Term Loans 60.30 59.50
Reaffirmed
[ICRA]BBB+ (Stable);
Fund-based - Working Capital Facilities 150.00 156.00
Reaffirmed
Non-fund Based-Working Capital
6.00 0.80 [ICRA]A2; Reaffirmed
Facilities
Total 216.30 216.30
*Instrument details are provided in Annexure-1

Rating action
ICRA has reaffirmed the long -term rating of [ICRA]BBB+ (pronounced ICRA triple B plus) to the Rs. 59.50 crore1 (revised
from Rs. 60.30 crore) term loan facilities and Rs. 156.00 crore (revised from Rs. 150.00 crore) fund based facilities of
Aachi Masala Foods Private Limited. ICRA has also reaffirmed the short-term rating of [ICRA]A2 (pronounced ICRA A two)
to the Rs. 0.80-crore (revised from Rs. 6.00 crore) of non-fund based facilities of Aachi Masala Foods Private Limited
(AMFPL or the company)2. The outlook on the long-term rating is Stable.

Rationale
While arriving at the ratings, ICRA has considered the consolidated financial profile of AMFPL and Nazareth Foods Private
Limited (NFPL). The combined entity is referred to as the Aachi Group.

The ratings continue to factor the extensive experience of promoters in the consumer goods business spanning over two
decades and strong brand pull. The integrated group structure covering the entire value chain, its well-entrenched
distribution network and established market position in South India along with the expanding national footprint in non-
south markets supported by focussed marketing campaigns further underpin the ratings.

The ratings however are constrained by the relatively low margins affected by rising competition, moderate debt
indicators and stretched liquidity position owing to the working capital-intensive nature of operations, reflected by the
near full utilisation of working capital limits. The debt indicators are also affected by the ongoing large debt-funded
capex towards construction of cold chain storage facility and the proposed warehouse construction; this shall keep the
capitalisation and coverage indicators at current levels in the next one year. While the capex is aimed at reducing costs
and improving margins, timely completion and visible impact of cost savings will be key credit monitorables.

1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

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Outlook: Stable
ICRA believes that Aachi group will continue to benefit from the extensive experience of the promoters and the strong
brand position. The outlook maybe revised to Positive with improvement in financial risk profile led by strong growth in
cash accruals and improvement in liquidity position and debt coverage metrics. The outlook maybe revised to Negative if
the liquidity position worsens or weakening of debt coverage indicators in the near term.

Key rating drivers

Credit strengths
Vast promoter experience and strong brand equity – ‘Aachi’ Group has established itself as a dominant brand of masala
powders, instant ready mixes, pickles, spices, whole wheat flour, oil, clarified butter, etc. mainly in the South Indian
market. Aided by the rich experience of the promoter, Mr. Padmasingh Isaac, and the strong brand recognition, Aachi
Group’s revenues have grown by a 10% compounded annual growth rate over the last five years ending FY2018. Going
forward, the established brand image and expanding pan-India footprint is likely to support the revenue profile.

Integrated group structure and well-entrenched distribution network support stable sales volumes – AMFPL markets
the products manufactured by the various group concerns including NFPL. The integrated nature of operations across the
value chain supports the overall financial profile of the Group and has helped in establishing a well-entrenched
distribution network. The Group’s diversified product range at affordable prices coupled with the wide distribution
network has supported the stable sales volume and widespread product acceptance across geographies.

Expanding market presence with focussed marketing campaigns to aid revenue growth - With ~80% of the revenues
from the Tamil Nadu region, the company has been expanding its pan-India presence with greater focus in the North and
East Indian markets through aggressive marketing and advertisement campaigns. The increasing brand recognition in the
new markets is likely to boost revenues going forward.

Credit challenges
Low net margins affected by increasing competition and interest costs– Aachi Group’s net margins have remained low
over the years due to the stiff competition from organised and unorganised players owing to limited entry barriers.
While the strong brand image had supported the rise in sales volumes, the group’s advertisement expenditure as
percentage of operating income (OI) also increased from 4.5% in FY2017 to 5.4% in FY2018. The Group has also
capitalised expenditure on long-term advertisement contracts to the extent of ~Rs. 35 crore during FY2018 (~Rs. 31 crore
in FY2017) which will be amortised over a period of 5 years. The margins are also affected by the higher interest costs,
given the large ongoing capex and higher working capital intensity. While the expansion into new markets and cost
savings from the on-going capex are likely to aid profitability, the margins are likely to remain low at existing levels due
to the pricing pressures from increasing competition and higher interest cost in the medium term.

High working capital intensity – Aachi Group’s working capital intensity increased from 28.8% in FY2017 to 32.3% in
FY2018 due to the realignment of AMFPL’s credit terms to its group concerns in line with other distributors. The Group’s
average working capital utilisation stood at ~94% of the sanctioned limits thus impacting the liquidity position. This is
because of the high utilisation during the stocking season wherein the Group procures raw materials in bulk to gain price
advantage. Going forward, the company’s ability to improve the working capital cycle and thereby the liquidity position
will be a key monitorable.

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Moderate capitalisation and coverage indicators – Aachi Group’s debt levels increased by 32.4% in FY2018 mainly due
to the debt funded capex and increase in working capital requirements. Total Debt by Operating Profit ratio increased
from 2.4 times in FY2017 to 3 times in FY2018. The higher interest cost also lead to drop in interest coverage from 3.1
times in FY2017 to 2.7 times in FY2018. Aachi Group had installed two windmills for captive power consumption in
FY2018. While the series of capex plans are expected to support the margins by way of cost savings, the higher debt
levels are expected to keep the debt indicators at current levels in the near term.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. While
arriving at the ratings, ICRA has considered the consolidated financial profile of AMFPL and Nazareth Foods Private
Limited (NFPL). The combined entity is referred to as the Aachi Group.

Links to applicable criteria:

Corporate Credit Rating Methodology

About the company:

AMFPL is a family run business established by Mr. Padmasingh Isaac in December 2006. The company initially started as
the marketing division of NFPL, which produces masala powders. The company also has a manufacturing facility at
Gummudipoondi (Tamil Nadu) with an installed capacity of 140 tonnes / day to process chilli powder, coriander powder
and mixed spices. AMFPL sells masala products, instant ready mixes, pickles, spices, turmeric powder, whole wheat flour,
oil, clarified butter, water bottles etc.

As per the unaudited results for FY2018, the Aachi Group reported net profit of Rs. 28.2 crore on an operating income of
Rs. 1,110.1 crore, as compared to a net profit of Rs. 35.7 crore on an operating income of Rs. 1,152.3 crore in the
previous year.

Key financial indicators (Group)

FY2017 (Audited) FY2018 (Provisional)
Operating Income (Rs. crore) 1,152.3 1,110.1
PAT (Rs. crore) 35.7 28.2
OPBDIT/OI (%) 8.3% 9.1%
RoCE (%) 17.6% 15.4%

Total Debt/TNW (times) 1.0 1.2

Total Debt/OPBDIT (times) 2.4 3.0
Interest coverage (times) 3.1 2.7

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years:
Chronology of Rating History for the
Current Rating (FY2019) Past 3 Years
Date & Date & Date &
Date & Rating in Rating in Rating in
Amount Amount Rating FY2018 FY2017 FY2016
Rated Outstanding September March
Instrument Type (Rs. crore) (Rs. crore) 2018 June 2017 April 2016 2015
1 Term Loan 1 Long 29.50 29.50 [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB
Term (Stable) (Stable) (Stable) (Stable)
2 Term Loan 2 Long 30.00 30.00 [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB
Term (Stable) (Stable) (Stable) (Stable)
3 Cash Credit / Bill Long 156.00 - [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB
discounting Term (Stable) (Stable) (Stable) (Stable)
4 Non-fund based Short 0.80 - [ICRA]A2 [ICRA]A2 [ICRA]A2 [ICRA]A3+
facilities Term

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

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Annexure-1: Instrument Details
Date of Amount
Issuance / Maturity Rated Current Rating
ISIN No Instrument Name Sanction Coupon Rate Date (Rs. crore) and Outlook
[ICRA]BBB+
NA Term Loan 1 Sep-2012 11.75% FY2020 29.50
(Stable)
[ICRA]BBB+
NA Term Loan 2 Jun-2016 ~11% FY2020 30.00
(Stable)
Cash Credit / bill [ICRA]BBB+
NA NA NA NA 156.00
discounting (Stable)
NA Non-fund based facilities NA NA NA 0.80 [ICRA]A2
Source: Aachi Masala Foods Private Limited

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ANALYST CONTACTS
Subrata Ray K Srikumar
+91 22 6114 3408 +91 44 4596 4318
subrata@icraindia.com ksrikumar@icraindia.com

Hemamalini S C
+91 44 4596 4311
hemamalini.chandrasekaran@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

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Ms. Naznin Prodhani
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communications@icraindia.com

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info@icraindia.com

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