ICRA : reaffirms ratings of B+ (Stable)/A4 on bank facilities of The Malt (Co.) India Private Limited

June 09, 2017

The Malt (Co.) India Private Limited

Summary of rated instruments

nstrument*	Rated Amount (in crore)	Rating Action
Long-term - fund-based limits	19.75	[ICRA]B+ (Stable); re-affirmed
Short-term - Non-fund based limits	2.60	[ICRA]A4 ; re-affirmed
Unallocated limits	2.65	[ICRA]A4 ; re-affirmed
Total	25.00

*Instrument details are provided in Annexure-1

Rating action

ICRA has reaffirmed its long-term rating of [ICRA] B+ (pronounced ICRA B plus)1on the Rs. 19.75- crore2long-term fund-based bank facilities of The Malt (Co.) India Private Limited (MCIPL). ICRA has also reaffirmed its short-term rating of [ICRA] A4 (pronounced ICRA A four) on the Rs. 2.60-crore2short-term non-fund based bank facilities of MCIPL. It has also reaffirmed its rating of [ICRA] A4 on the Rs. 2.65-crore2unallocated limits of MCIPL. The outlook on the long-term rating is 'Stable'.

Rationale

ICRA's ratings take into account the continuous losses suffered by the company because of high fixed overhead costs due to ageing plant and machineries. The ratings also factor in the marginal increase in the company's operating income in FY2017 on a provisional basis, the moderate coverage indicators and the established presence of the Malt group in the malt production business.

The ratings, however, are constrained by the company's modest scale of operations resulting in limited pricing and bargaining power; the sector and customer concentration risk to which the company is exposed to (though this risk is largely mitigated by over four decades of relationship with its customers); and the exposure to agro-climatic risk as the raw material (barley) is an agricultural produce. The ratings, however, favourably factor in the long track record of the company in the malt production business; the favourable demand growth prospects over the medium to long term; the established and long standing relationships with major health food producers, and the limited industry competition as the major capacities are vested with only two producers (the Malt group and Barmalt Maltings (India) Private Limited).

Going forward, the ability of the company to ramp up its scale of operations in a profitable manner and manage its liquidity position will be the key rating sensitivity.

1 For complete rating scale and definitions, please refer to ICRA's websitewww.icra.in or other ICRA Rating Publications

2 100 lakh = 1 crore = 10 million

Key rating drivers Credit strengths

• Three-decade long experience of the promoters in the industry

• Duopolistic nature of the industry provides comfortable position

• Easy availability of raw material due to group synergy

• Long-term relationship with wide customer base, including big industry players such as GlaxoSmithKline and Cadbury's

  Credit weaknesses

• The growth trajectory has remained stagnant over the years with minimal growth in the top line.

• Continued losses at net level due to high overhead costs

• Exposure to raw material price volatility as well as to agro climatic risk as the raw material (barley) is an agricultural produce

Description of key rating drivers:

The Malt (Co.) India Private Limited continues to enjoy a comfortable position in the malt industry by virtue of the extensive experience of its promoters. The easy availability of raw materials has resulted in an established customer base, which has further helped the company to get regular orders.

The company, however, has suffered losses at the net level over the last few years primarily because of high overhead cost due to old plant and machineries. The company further remains exposed to agro- climatic risk as the raw material (barley) is an agricultural produce. The company also faces sector concentration risk (100% exposure to the health drink-based industry); though, this risk is largely mitigated by the over four decades old relationship of the group with its customers.

Analytical approach:

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

Links to applicable criteria:

Corporate Credit Rating Methodology

http://www.icra.in/Files/Articles/Rating%20Meth%20Mar%202017.pdf

About the company:

MCIPL was established in 1970 by Mr. P.K. Jain to produce barley malt and malt extract. The malt extract is sold in two forms, liquid extract and malt extract powder. The company commenced operations at its facility at Khandsa (Gurgaon) and subsequently established two more units at Pataudi (Gurgaon) and Kashipur (Uttrakhand) in 2002 and 2010, respectively. With effect from April 2013, the company was demerged with the transfer of Pataudi and Kashipur units to the newly formed company PMV Maltings Private Limited. MCIPL retained the Khandsa unit, which has an installed capacity of 25,000 metric tonnes per annum (MTPA) of Malt and 25,000 MTPA of liquid malt extract and 500 MTPA of Malt extract powder.

In FY2016, the company reported a net loss of Rs. 5.18 crore on an operating income of Rs. 62.88 crore, as compared to a net loss of Rs. 4.11 crore on an operating income of Rs. 76.26 crore in the previous year. On a provisional basis, the company reported an operating income of Rs. 73.93 crore in FY2017.

Status of non-cooperation with previous CRA: Not applicable Any other information: Not applicable Rating history for last three years: Table:

S. No.	Instrument	Current Rating (FY2018)			Chronology of Rating History for the past 3 years
		Type	Amount Rated (Rs. Crore)	Date & Rating	Date & Rating in FY2017	Date & Rating in FY2016	Date & Rating in FY2015
June 2017	NA	December 2015	NA
1	Cash Credit	Long term	15.00	[ICRA]B+ (Stable)	NA	[ICRA]B+	NA
2	Term Loan	Long term	4.75	[ICRA]B+ (Stable)	NA	[ICRA]B+	NA
3	Unallocated limits	Short term	2.65	[ICRA]A4	NA	[ICRA]A4	NA
4	Non-fund based limit	Short term	2.60	[ICRA]A4	NA	[ICRA]A4	NA

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 websitewww.icra.in

Annexure-1

Instrument Details

Instrument	Date of Issuance / Sanction	Coupon Rate	Maturity Date	Amount Rated (Rs. crore)	Current Rating and Outlook
Cash Credit	-	-	-	15.00	[ICRA]B+ (Stable)
Term Loan	2015	2020	4.75	[ICRA]B+ (Stable)
Unallocated limits	-	-	-	2.65	[ICRA]A4
Non-fund based limit	-	-	-	2.60	[ICRA]A4

Source: The Malt (Co.) India Private Limited