Fitch Ratings has today assigned Amir Chand Jagdish Kumar (Exports) Limited (ACJKL) a National Long-term rating of 'BBB-(ind)' (BBB minus(ind)). Fitch has also assigned 'BBB-(ind)' (BBB minus(ind))/'F3(ind)' ratings to its fund based limits of INR1,870m and 'BBB-(ind)' (BBB minus(ind))/'F3(ind)' ratings to the non-fund based limits of INR20m. The Outlook is Stable.
The ratings factor in the company's vast experience in rice trading/processing, its consistent position as one of top five exporters of basmati rice from India, consistent growth in the revenues and profit over FY04-FY08. The ratings also take into consideration the focus of the company on high quality basmati rice with good mix of exports and domestic customers.
ACJKL's ratings are constrained by the commoditised nature of its business with high working capital requirements, resulting in high financial leverage (Total adjusted debt/ operating EBITDA). The industry is also susceptible to fluctuating raw material prices, government regulatory policies and inclement weather (in particular, monsoons). ACJKL has low brand recall in most parts of the country for its flagship brand Aeroplane basmati rice, and faces competition from other bigger rice processors from India and Pakistan. ACJKL also faces customer and country concentration, though this is a wider industry phenomenon.
Significant improvement in operating profitability, along with a reduction in financial leverage would be the positive rating driver. Deterioration in financial leverage due to any large debt-funded capex, increased working capital requirements, significant fall in profitability or adverse government policy for the export of rice, which may impact the company's financials, would be negative rating triggers.
ACJKL's core business comprises of trading and manufacturing basmati rice, which accounted for 80% of revenues during the financial year ended March 2008 (FY08), while non-basmati rice accounted for around 16% of total revenues. Despite not being the focus area for ACJKL, trading in non-basmati rice helps ACJKL protect its customers from approaching other rice processors. As at FY08, the company exported 70% of its production, while domestic customers contributed 30% of the output. For FY08, ACJKL recorded revenues up 65% yoy to INR4379m, operating EBITDAR profitability 7.3% (FY07: 7.1%), financial leverage 5.9x (FY07: 6.5x) and net income INR65.5m (FY07: INR38.4m).
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
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