January 31, 2020

Haldiram Snacks Private Limited: Rating reaffirmed

Summary of rating action

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Non-Convertible Debenture
100.0 100.0 [ICRA]AA (Stable); reaffirmed
Programme
Total 100.0 100.0
*Instrument details are provided in Annexure-1

Rationale
The rating reaffirmation takes into account the healthy growth in Haldiram Snacks Private Limited’s (HSPL) operating
income (OI) supported by the brand’s strong market position in the packaged foods industry, especially in the traditional
namkeen segment, and a well-entrenched distribution network across northern India. The company’s strategy of
acquiring regional brands is expected to improve penetration with an expanded product portfolio and further augment
its revenue growth going forward. The rating continues to take comfort from HSPL’s strong financial profile reflected by
healthy operating margins and strong internal accrual generation. Further, with modest working capital intensity and
expansion of the company’s captive manufacturing capability being primarily internally funded, HSPL’s debt protection
metrics continue to be robust as reflected by Total Debt/OPBIDTA of 0.74 times, NCA/Total Debt of 125% and DSCR of
7.04 times in FY2019. Its credit metrics are expected to remain comfortable over the medium term, backed by healthy
cash accrual generation on a growing revenue base and limited borrowing requirements.

The rating, however, continues to be constrained by HSPL’s exposure to stiff competition from branded packaged food
player (both large multinationals and medium-sized domestic players) as well as local sweets/namkeen manufacturers.
The competition is more intense in segments like extruded snacks/ chips and new products like vermicelli, where
Haldiram has a moderate market foothold and remains a follower brand. The rating also takes into account the fact that
the company’s margins are vulnerable to raw material price volatility and the exposure to quality-related risks, given its
presence in the foods business.

Given that the Group has been focussing on inorganic expansion since FY2016 and has acquired various regional brands,
its ability to achieve adequate and sustainable returns on these investments is yet to be demonstrated. Further, ICRA
notes the presence of intra-Group investment and advances apart from operational linkages with Group entities.
Moreover, the management has shown interest in purchase of non-core assets evident from participation in bidding for
distressed companies. Thus, any large funding support to Group entities or outflow towards non-core assets could
adversely impact HSPL’s financial profile and would remain a key monitorable. Going forward, the company’s ability to
maintain growth and healthy returns across a diversified and good quality product portfolio resulting in sustained robust
debt protection metrics will remain the key rating sensitivities.

Key rating drivers and their description

Credit strengths
Strong recognition of Haldiram’s brand in North India’s packaged snacks business through a well-entrenched network
and sizeable captive manufacturing base – The Haldiram’s brand is well recognised in the packaged snacks industry. It
enjoys good brand recognition and customer acceptance in northern India on the back of its wide range of products and

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established brand name in the traditional sweets/namkeen segment. Further, the entire Haldiram Delhi Group sells its
products through a network of distributors/super-distributors spread across northern India (comprising around 40 super-
distributors and more than 800 distributors) indicating a well-entrenched network. The company’s foray into new regions
through acquisition of smaller brands should support the network expansion. The Group has sizeable captive
manufacturing capabilities, mainly in HSPL, which have been expanding and supporting the brand’s growth.

Healthy growth in FY2019 supported led by growing sales of flagship products and traction in new products – HSPL’s
revenue growth revived to 17% in FY2019 after moderating to 7% in FY2018. The muted revenue growth in FY2018 was
pursuant to operational disruptions on account of a fire incident in one of the manufacturing facilities. The revenue
growth in FY2019 was, however, led by traditional namkeens, the company’s flagship segment. In addition, products like
vermicelli, macaroni, rusk, etc. also gained traction and depicted a healthy growth, though on a smaller base. During the
current fiscal and going forward, the company is expected to register early double-digit growth led by strong volumes of
its established products and increasing penetration in new regions.

Healthy profitability and internal accrual generation - HSPL’s operating margins were healthy at 17.3% in FY2019,
despite moderation from 21.4% in FY2018, mainly owing to higher director remuneration and consulting expenses.
Nevertheless, HSPL’s return metrics continued to be strong with ROCE of 42.9% in FY2019. The company’s PAT in FY2019
was significantly higher than the previous year owing to extraordinary income booked in relation to insurance claim
approval of Rs. 106 crore, the majority of which was received in the current fiscal. ICRA expects the company to achieve
strong operating profit expansion supported by its operational efficiency, resulting to strong cash accruals in the medium
term.

Robust debt coverage indicators supported by modest working capital cycle and limited dependence on debt for
funding the sizeable capex – Although HSPL has been incurring sizeable capex over the years (Rs. 200 crore in FY2018, Rs.
385 crore in FY2019), its dependence on borrowing has remained low owing to healthy cash flow generation and
inherently low working capital requirements. In FY2019, the company utilised higher working capital limits to fund its
working capital cycle (as it funded its capex, investments in long-term funds and acquisitions with its internal accruals).
Even though the debt levels rose moderately, HSPL’s healthy net worth resulted in low leverage as reflected by gearing of
0.26 times as on March 31, 2019 (0.20 times as on March 31, 2018). This, coupled with healthy profitability, resulted in
robust coverage indicators as reflected by interest coverage of 28.28 times (51.5 times in FY2018), Total Debt/OPBDITA of
0.74 times (0.42 times) , NCA/Total Debt of 125% (175% in FY2018) and DSCR of 7.04 times (24.4 times in FY2018). In the
near term, the company is expected to fund its ongoing capex of ~Rs. 400 crore annually, through internal accruals.
However, funding support to acquired entities and higher borrowing requirements cannot be ruled out. Nevertheless,
HSPL’s debt coverage metrics are expected to be comfortable in the medium term.

Credit challenges

Competition from local manufacturers and established players – Despite having a well-established brand, HSPL is not
insulated from competition from local manufacturers of sweets and snacks, and established participants like Pepsi Co.
India, ITC Limited, Balaji Wafers Private Limited, Prataap Snacks Private Limited, among others. Moreover, HSPL is yet to
establish itself in segments like extruded snacks and new products and hence, remains exposed to product acceptance
risk.

Exposure to raw material price volatility – HSPL’s profitability remains exposed to adverse movement in the prices of key
raw material like pulses, oil, potato, etc., which form a large proportion of its input cost. Given the price sensitivity of its
products, the company’s ability to pass on large price increases to consumers is also limited.

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Quality risks – Given the company’s operations in the food industry, risks regarding quality and reputation remain high.

Ability to generate adequate returns on recent acquisitions remains to be seen, bidding for non-core assets a concern -
The Group has been focussing on inorganic expansion since FY2016 and has acquired various regional brands. In FY2016,
it acquired Indore-based Aakash Namkeen followed by acquisition of controlling stake stakes in regional players like
Babaji Snacks, Pragati Snacks, Ankita Agro and Food Processing and Atop Food Products in FY2019-20. Apart from a total
of ~Rs. 130 crore invested towards inorganic growth initiatives in the current fiscal, HSPL has invested in Group
companies and other long-term investments (including land for future growth requirements). This apart, ICRA notes the
presence of intra-Group advances apart from the operational linkages with Group entities. Moreover, the management
has shown interest in purchase of non-core assets, as evident from participation in bidding for distressed companies.
Thus, apart from HSPL’s ability to generate adequate returns on above investments, any large funding support to Group
entities or outflow towards non-core assets that may entail higher borrowings could adversely impact HSPL’s financial
profile.

Liquidity position: Strong

The liquidity profile remains strong as HSPL’s business is inherently low working capital intensive and has healthy cash
flow generation. The company’s fund flow from operations have been consistently positive over FY2015–FY2019.
However, the free cashflows turned negative in FY2019, mainly on account of significant capex outflows towards
maintenance and expansion of the company’s manufacturing capabilities. HSPL did not avail additional long-term debt to
fund the same and utilised its internal accruals. Moreover, it expanded its investment portfolio during the last fiscal year.
As on March 31, 2019, the company had cash and bank balances of Rs. 116 crore.

In FY2020, apart from the continuing sizeable capex, the company has made investments towards a large land parcel
besides acquiring brands of two small-sized regional snack manufacturers. However, in the backdrop of continued strong
growth and accruals, ICRA expects the company’s free cashflows to turn positive supported by realisation of sizeable
insurance claims during the year. Further, the company has significant unutilised working capital/overdraft limits,
indicating its financial flexibility.

Rating sensitivities
Positive triggers: The rating could be upgraded if the company demonstrates sharp improvement in scale across a
diversified product portfolio along with significant improvement in its operating profitability and return metrics on a
sustained basis. Further, a track record of reduction in Group and non-core investments will be also be considered for an
upgrade.

Negative triggers: Negative pressures on HSPL’s rating could arise if there is deterioration in its financial metrics,
including a substantial decline in profitability, muted revenue growth and any significant debt-funded capex/investments
along with support to the recently acquired entities. Specific metrics to be monitored would be HSPL’s leverage profile,
debt coverage metrics and liquidity position.

Analytical approach
Analytical Approach
Applicable Rating Methodologies
Parent/Group Support
Consolidation/Standalone
Comments
Corporate Credit Rating Methodology
Being the flagship company of the Group, HSPL may extend support to select
Group entities as witnessed in the past.
Standalone - the rating is based on the standalone financial profile of the
company

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About the company
Haldiram Snacks Private Limited (HSPL) is the flagship company of the privately held Haldiram Delhi Group. The Group
was promoted by Mr. Manohar Agarwal, who opened the first outlet for the sale of traditional Indian namkeen and
sweets in 1983 in Chandni Chowk, Delhi. The Group has an established distribution network across North India. HSPL has
manufacturing facilities in Sector 63, 65, 67 and 68 in Noida; the base kitchen in Sector 65, Noida; and a facility at Pant
Nagar, Uttaranchal.

Key financial indicators (audited)

FY2018 FY2019
Operating Income (Rs. crore) 2619.3 3072.9
PAT (Rs. crore) 250.8 346.2
OPBDITA/OI (%) 21.4% 17.3%
RoCE (%) 40.9% 42.9%

Total Debt/TNW (times) 0.20 0.26

Total Debt/OPBDITA (times) 0.41 0.74
Interest coverage (times) 51.52 28.28
Source: Haldiram Snacks Private Limited

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for past three years
Current Rating (FY2020) Chronology of Rating History for the Past 3 Years
Date & Date &
Amount Amount
Rating in Date & Rating in FY2019 Date & Rating in FY2018 Rating in
Rated Outstanding
Type FY2017 FY2017
(Rs. Sep 30,
crore) 2019 30-Nov 12-Sep 19-Jul 18-Oct
31-Jan 2020 14-Dec 2018 17-Oct 2018
Instrument 2017 2017 2017 2016
1 NCD Long 100.0 58.3 [ICRA]AA [ICRA]AA [ICRA]AA [ICRA]AA - -
Term (Stable) (Stable) (Stable); (Stable)
ISSUER NOT
COOPERATING
2 Commercial Short - - - - - [ICRA]A1+; [ICRA]A1+
Paper Term withdrawn
3 Term Loan Long - - - [ICRA]AA [ICRA]AA [ICRA]AA& [ICRA]AA [ICRA]AA
Term (Stable); (Stable) (Stable) (Stable)
withdrawn
4 Cash Credit Long - - - [ICRA]AA [ICRA]AA [ICRA]AA& [ICRA]AA [ICRA]AA
Term (Stable); (Stable) (Stable) (Stable)
withdrawn
5 Letter of Short - - - [ICRA]A1+; [ICRA]A1+ [ICRA]A1+& [ICRA]A1+ [ICRA]A1+
Credit & Term withdrawn
Bank
Guarantee
Amount in Rs. crore

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
Instrument Issuance / Coupon Maturity Rated Current Rating
ISIN No Name Sanction Rate Date (Rs. crore) and Outlook
INE603G07017 NCD 04-Dec-17 7.70% 04-Dec-20 100.0 [ICRA]AA (Stable)
Source: Haldiram Snacks Private Limited

Annexure-2: List of entities considered for consolidated analysis: Not applicable

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Analyst Contacts
Sabyasachi Majumdar Anupama Arora
+91 124 4545 304 +91 124 4545 303
sabyasachi@icraindia.com anupama@icraindia.com

Sheetal Sharad
+91 124 4545 374
Sheetal.sharad@icraindia.com

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

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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For more information, visit www.icra.in

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