July 05, 2017

Vaighai Agro Products Limited

Instruments* Amount Rated Rating Action
(Rs. crore)
Long-term Term Loan 8.32 [ICRA]BBB- (Stable) upgraded
(revised from 9.15) from [ICRA]BB+ (Positive)
Long-term Fund-based Facility 21.00 [ICRA]BBB- (Stable) upgraded
from [ICRA]BB+ (Positive)
Unallocated facility 0.27 [ICRA]BBB- (Stable) upgraded
(revised from 0.24) from [ICRA]BB+ (Positive)
Short-term Fund-based Facility 2.50 [ICRA]A3 upgraded from
[ICRA]A4+
Short-term Fund-based Facility (5.00) [ICRA]A3 upgraded from
Sublimit (revised from (4.00)) [ICRA]A4+
Short-term Non-fund based 16.00 [ICRA]A3 upgraded from
Facility (revised from 11.00) [ICRA]A4+
Total 48.09

*Instrument details are provided in Annexure-1

Rating action

ICRA has upgraded the long-term rating from [ICRA]BB+ to [ICRA]BBB- (pronounced ICRA triple B
minus)1 for the Rs. 8.32-crore (revised from Rs. 9.15 crore) term-loan facility, the Rs. 21.00-crore fund-
based facility and the Rs. 0.27-crore (revised from Rs. 0.24 crore) unallocated facility of Vaighai Agro
Products Limited (VAPL/the company)2. ICRA has also upgraded the short-term rating from [ICRA]A4+
to [ICRA]A3(pronounced ICRA A three) for Rs. 2.50-crore fund-based facility, Rs. 5.00-crore (revised
from Rs. 4.00 crore) fund-based interchangeable limit and Rs. 16.00-crore (revised from Rs. 11.00-crore)
non-fund based facility of VAPL. The outlook on long-term rating is revised from Positive to Stable.

Rationale

The rating upgrade reflects the improvement in the company’s capacity utilisation owing to further
geographical diversification of its suppliers over the last 16 months, which supported better availability of
rice bran. Also, the ratings draw comfort from product diversification, including sunflower oil and copra
oil. Further, relatively improved price realisations and better absorption of costs with an increase in the
scale of operations have led to an improvement in the company’s profitability and debt-protection metrics
during FY2017. The ratings continue take into consideration VAPL’s strong position as one of the largest
processors of rice bran in India and the significant experience of the promoters in the industry.
However, the ratings continue to factor in the relatively low value addition in the solvent
extraction business as well as intense competition in the highly-fragmented industry and the
linkage of prices to international edible oil prices that limit the company’s pricing flexibility. The ratings
also factor in its customer concentration in Tamil Nadu and the susceptibility of revenues to unfavourable
forex fluctuations, although hedging mitigates the risk to some extent. Going forward, the company’s
ability to further improve its capacity utilisation, enhance its scale of operations and operating

1
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications
2
100 lakh = 1 crore = 10 million
margins as well as maintain its working capital intensity will remain the key factors to improve its overall
credit profile.

Key rating drivers

Credit strengths

 VAPL’s strong position in the rice-bran processing industry; benefits of scale economies arising
from a decent scale of operations; addition of sunflower oil and copra oil to portfolio in FY2017
improved capacity utilisation
 Financial profile characterised by comfortable capital structure and low working capital intensity
 Long standing relationship with suppliers, and procurement from other states currently mitigate
concerns about raw-material availability to an extent
 Healthy customer profile comprising players like S. K. M. Animal Feeds and Farms (India)
Private Limited; history of low churn rate and continuous addition of new customers
Credit weaknesses

 Thin profit margins owing to relatively low value addition and intense competition in the highly-
fragmented edible oil industry characterised by low product differentiation
 Limited pricing flexibility with rice bran oil due to the availability of cheaper substitutes like
palm oil and linkage with international edible oil prices
 Customer concentration in Tamil Nadu
 Susceptibility to unfavourable forex fluctuations, although hedging of net exposure through
forwards contracts mitigates the risks to an extent

Description of key rating drivers

VAPL, which was incorporated in February 2010, is primarily involved in the processing of rice bran oil
and de-oiled rice bran. The company is also involved in the extraction of oil from sunflower and copra. It
also trades in coco peat and starch. The company witnessed a revenue growth of 19.4% from Rs. 310.9
crore in FY2016 to Rs. 371.1 crore in FY2017, driven by an increase in sales volumes and better
realisation for de-oiled cakes. Its margins also improved due to better absorption of power costs, other
manufacturing costs and administrative costs in FY2017. Relatively better monsoons in FY2016 led to an
improvement in the rice bran availability. Notably, apart from Tamil Nadu, the company has started
procuring rice bran from other states such as Kerala, Karnataka, Andhra Pradesh, Chhattisgarh and few
other North Indian states. The capacity utilisation also improved on account of oil extraction from
sunflower and copra, which commenced in FY2017. The company has infused Rs. 5.0 crore in the form
of zero-coupon compulsorily convertible debentures (expected to be converted in another five years) to
fund the capital expenditure undertaken in FY2017 for additional oil storage, more warehouse and
extractor modification. With no major capital expenditure likely in the near term, the capital and coverage
indicators are expected to improve going forward.

Analytical approach

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

Links to applicable criteria

Corporate Credit Ratings: A Note on Rating Methodology

About the company

Incorporated in February 2010 and headquartered in Madurai (Tamil Nadu), VAPL is involved in the
processing of crude rice bran oil (RBO) and de-oiled rice bran (DRB) through the solvent-extraction
process. The company procures rice bran (which is its primary raw material) from ~600 rice mills in
Tamil Nadu in addition to its subsidiary, Vaighai Lanka Private Limited, Sri Lanka. It has three
manufacturing facilities in Namakkal, Madurai and Tirunelveli, with an aggregate installed capacity of
3,20,000 MTPA to process rice bran to produce RBO and a by-product, DRB. The company does not
refine rice bran. The produced RBO is either sold to refineries for further processing or to poultry farms,
while DRB is sold entirely to poultry farms. A major portion of VAPL’s sales is derived from Tamil
Nadu, while the remaining is from Andhra Pradesh, Kerala, Karnataka, Maharashtra, Madhya Pradesh
and Pondicherry. Recently, the company started extracting oil from sunflower and copra to utilise the
excess capacity. VAPL also trades in starch and coco, mainly in the overseas markets.

The company recorded an operating income of Rs. 310.9 crore with a net profit of Rs. 0.7 crore in
FY2016. According to unaudited financial statements, it recorded an operating income of
Rs. 371.1 crore with net profit of Rs. 4.0 crore in FY2017.

Status of non-cooperation with previous CRA: Not applicable.

Any other information: Not applicable.

 Rating history for last three years

Table

Name of Chronology of Rating History for the past 3 years

Current Rating (FY2018)
Instrument
S. Type Amount Date & Month - year & Rating Month - Month - year
No. Rated rating in FY2017 year & & Rating in
(Rs. Rating in FY2015
crore) FY2016
48.09 July 2017 December September August October 2014
2016 2016 2015
Long 8.32 [ICRA]BBB-
[ICRA]BB+ [ICRA]BB+ [ICRA]BB+ [ICRA]BBB-
1 Term Loan Term (Stable)
(Positive) (Stable) (Stable) (Stable)
upgraded
Long 21.00 [ICRA]BBB-
Fund-based [ICRA]BB+ [ICRA]BB+ [ICRA]BB+ [ICRA]BBB-
2 Term (Stable)
Facility (Positive) (Stable) (Stable) (Stable)
upgraded
Long 0.27 [ICRA]BBB-
Unallocated [ICRA]BB+ [ICRA]BB+ [ICRA]BB+ [ICRA]BBB-
3 Term (Stable)
Facility (Positive) (Stable) (Stable) (Stable)
upgraded
Fund-based Short 2.50 [ICRA]A3
4 [ICRA]A4+ [ICRA]A4+ [ICRA]A4+ [ICRA]A3
Facility Term upgraded
Fund-based Short (5.00)
[ICRA]A3
5 Facility – Term [ICRA]A4+ [ICRA]A4+ [ICRA]A4+ [ICRA]A3
upgraded
Sublimit
Non-fund Short 16.00
[ICRA]A3
6 Based Term [ICRA]A4+ [ICRA]A4+ [ICRA]A4+ [ICRA]A3
upgraded
Facility

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
Annexure-1
Instrument Details

Instrument Date of Coupon Maturity Amount Current Rating and

Issuance/ Rate Rated (Rs. Outlook
Sanction crore)
Term Loan 30/03/2013 - 30/06/2017 0.15 [ICRA]BBB- (Stable)
Term Loan 30/03/2013 - 30/11/2017 1.67 [ICRA]BBB- (Stable)
Term Loan 10/11/2016 - 31/12/2021 6.50 [ICRA]BBB- (Stable)
Fund-based 21.00
- - - [ICRA]BBB- (Stable)
Facility
Unallocated 0.27
- - - [ICRA]BBB- (Stable)
Facility
Fund-based 2.50
- - - [ICRA]A3
Facility
Fund-based (5.00)
Facility – - - - [ICRA]A3
Sublimit
Non-fund Based 16.00
- - - [ICRA]A3
Limit
Source: VAPL
 Contact Details
Analyst Contacts

Mr. K Ravichandran Mr. Srinivasan R

+91 44 4596 4301 +91 44 4596 4315
ravichandran@icraindia.com r.srinivasan@icraindia.com

Ms. Dharanija R Ms. Ankita Sheth

+91 44 4297 4311 +91 80 4922 5513
dharanija.r@icraindia.com ankita.sheth@icraindia.com

Relationship Contact

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

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