Fitch Ratings has assigned a moderate default risk rating to Kwality Dairy with a stable outlook on the back of the company's strong procurement and distribution networks, besides its client base.
"Fitch Ratings has assigned Kwality Dairy (India) a national long-term rating of 'BBB+(ind)' with stable outlook," the credit ratings agency said in a statement.
It further added: "The ratings reflect Kwality's well-established position in the dairy industry, with strong milk procurement and distribution networks and a strong clientele comprising several large FMCG companies and modern retail chains."
A 'BBB' national rating denotes a moderate default risk relative to other issuers or obligations in the same country.
Fitch has also assigned a 'BBB+' rating to Kwality's Rs 465 crore cash credit facility.
"The ratings draw comfort from the extensive experience of Kwality's promoters in the industry, the company's strong operational track record and an ability to improve its margins despite rising input costs in the past," it said.
Fitch said that demand for milk and related products is stable and is expected to increase with the increasing population.
"In addition, the gradual shift in consumer preferences toward branded milk products would enable higher growth for organised sector in the industry," it said.
"Fitch expects the company to continue to grow, although at a moderate pace, with improving margins, which would be aided by an increase in its margin-accretive retail sales, lowering of input costs from sourcing milk from its own milk-chilling centres and economies of scale," Fitch said.
In the first quarter of the current fiscal, Kwality reported a total income of Rs 483.56 crore, up 51% from Rs 320.08 crore in the same quarter a year ago.
The company has a processing capacity of 1.7 million litres per day across four plants in the country.