ICRA : revises long-term rating to B+(Stable) for bank facilities of Natraj Industries, rated amount enhanced

June 07, 2017

Natraj Industries

Summary of rated instruments

Instrument*	Rated Amount (in crore)	Rating Action
Cash Credit	13.00 (enhanced from 12.00)	[ICRA]B+ (Stable) upgraded from [ICRA]B
Total	13.00

*Instrument details are provided in Annexure-1

Rating action

ICRA has revised the long-term rating to [ICRA]B+ (pronounced ICRA B plus) from [ICRA]B (pronounced ICRA B) for the Rs. 13.00-crore long-term fund-based facilities of Natraj Industries (NI)1. The outlook on the long-term rating is 'Stable'.

Rationale

The rating upgrade takes into account the sustained growth in the operating income during the last three years, mainly driven by growth in trading sales. The rating also takes into account the promoter's vast experience of more than two decades in the trading business and its diversified product portfolio.

The rating, however, remains constrained by NI's high financial risk profile characterised by limited profitability margins on account of the low value additive nature of the firm's operations, its leveraged capital structure on account of high working capital requirements and weak coverage indicators. The ratings also take into account the vulnerability of the firm's profitability to fluctuations in commodities prices and the highly fragmented nature of the industry with a large number of organised and unorganised units resulting in high competitive intensity. ICRA also notes that NI is a partnership and any withdrawals from the capital account would affect its credit profile and the continuity of operations.

Natraj Industries' revenues are expected to grow at a moderate level in FY2018. ICRA expects NI's profitability to remain low and vulnerable to the raw material price fluctuations. The firm's ability to improve its overall financial profile while managing the working capital requirement effectively and improving its capital structure will remain the key rating sensitivities.

Key rating drivers Credit strengths

• Growth in the operating income during the last three years

• Promoter's vast experience of more than two decades in the trading business

• Diversified product profile

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

Credit weaknesses

• High financial risk profile characterised by limited profitability margins, leveraged capital structure and weak coverage indicators

• Profitability margins remain exposed to fluctuations in commodity prices

• Highly fragmented industry with large numbers of organised and unorganised units resulting in intense competition for the firm

• Risks inherent to a partnership firm, with respect to capital withdrawals and its potential impact on the credit profile as well as on the continuity of the organisation

Description of key rating drivers:

Natraj Industries is currently involved in the trading of agro commodities and processing of groundnuts. Trading operations continue to be the major contributor to the firm's revenues contributing ~85% and

~74% in FY2016 and FY2017 respectively (~88% in FY2015). NI's major product revenues in FY2016 were derived from groundnut processing and trading (~60% of operating income), followed by cumin seeds (~19% of operating income) and castor seeds (~15% of total revenues) and balance from other products (as against castor seeds trading forming majority of revenues i.e, ~53% in FY2015). The diversity in its revenue streams results in limited product concentration, thereby partly mitigating the risk associated with the seasonality of crop and changing consumption patterns of any particular product. The firm has a concentrated customer base with top five clients accounting for 62% in FY2016 and ~56% of the total sales revenue in FY2017. However, the customer base has differed from year to year owing to the diversity in the firm's revenues, resulting in lower concentration risk. As the firm's products are seasonal in nature, it remains exposed to adverse fluctuations in the raw material prices on its inventory holding. Further, the firm's operations are largely dependent on climatic conditions, government regulations, the demand-supply scenario and other external factors. It also faces tough competition from a large number of trading players due to the low entry barriers in the business of trading.

Analytical approach: For arriving at the ratings, ICRA has taken into account the debt-servicing track record of NI, its business risk profile, financial risk drivers and the management profile. Links to applicable criteria

Corporate Credit Ratings: A Note onMethodology

About the company:

Established in 1995 as a partnership firm by the Patel family of Junagadh, Natraj Industries trades in agro commodities, processes groundnuts and crushes oilseeds. The trading portfolio of the firm includes groundnuts, its seeds and oil, castor seeds and oil, groundnut seeds and oil, wheat, cotton etc. .Currently, the crushing facility is not operational.

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

S.N o	Name of Instrument	Current Rating (2018)			Chronology of Rating History for the past 3 years
		Type	Rated amount (Rs. Crores)	Month &year Rating in 2018	Month & year Rating in 2017	Month & year Rating in 2016	Month- year & Rating in 2015
				June 2017	-	March 2016	December 2014
1	Cash Credit	Long term	13.00	[ICRA]B+ (Stable)	-	[ICRA]B	[ICRA]B

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

Name of the instrument	Date of issuance/ Sanction	Coupon rate	Maturity Date	Size of the issue (Rs. Cr)	Current Rating and Outlook
Cash Credit	-	-	-	13.00	[ICRA]B+ (Stable)

Source: Bank's Sanction letter