December 07, 2017

AOV Exports Private Limited

Summary of rated instruments
Instrument^ Rated amount Rating Action
(in Rs. crore)
Long-term Fund-based – Term loans 3.34 [ICRA]BBB(Stable); revised from
[ICRA]BBB+ (Stable)
Short-term Fund-based 95.41 [ICRA]A3+; revised from [ICRA]A2+
Short-term Non-fund Based 1.25 [ICRA]A3+; revised from [ICRA]A2+
Total 100.00
^Instrument details are provided in Annexure-1

Rating action
ICRA has revised the long-term rating to [ICRA]BBB (pronounced ICRA triple B) from [ICRA]BBB+
(pronounced ICRA triple B plus) and short-term rating to [ICRA]A3+ (pronounced ICRA A three plus)
from [ICRA]A2+ (pronounced ICRA A two plus) on the Rs. 100.00-crore bank limits of AOV Exports
Private Limited (AOV). The outlook on the long-term rating is Stable.

Rationale
ICRA’s rating downgrade takes into account a 21% decline in the company’s operating income (OI) in
FY2017 on account of a decrease in the utilisation of its meat-processing capacity. This in turn was due to
issues in the supply chain on account of demonetisation. Furthermore, the working capital requirements of
the company have increased sharply, partly due to the ongoing capital expenditure at the second
manufacturing unit coupled with further increase in investments/advances to Group companies in
FY2017. The funding requirements for capex and advances have been met through incremental working
capital borrowings, leading to deterioration in current ratio and adverse impact on liquidity. However the
company has recovered some loans and advances from its Group companies in the current year and ICRA
expects that there will be a further recovery by end of FY2018. The company has availed term loan for
the capital expenditure. However, the working capital borrowings remain elevated. The ratings continue
to take into account the intense competition and fragmented nature of the industry, susceptibility of the
business to changes in regulations related to foreign trade and exposure to foreign exchange rate volatility
as most of the revenues are achieved by exports. These factors have been exerting pressure on the
company’s profitability margins over the last few years.

The ratings, however, take into consideration the established track record of the company in the buffalo
meat industry, the integrated nature of its processing facility and its location in Uttar Pradesh, which
provides easy access to raw materials. AOV is in the process of setting up a new facility to expand its
meat processing capacities. However, commissioning of the same is expected to drive the future revenue
growth.

Going forward, AOV’s ability to facilitate revenue growth and profitability despite competitive pressures,
and effectively operationalise its new processing facility within estimated costs and timeline will be the
key rating sensitivities. Any major increase in investments in Group companies will be a key rating
monitorable.
Key rating drivers

Credit strengths

 Established track record in the meat processing industry – The promoters have extensive
experience in the meat processing business. As a part of the forward integration initiative, the
promoters are involved in the business of manufacturing pet foods using the by-products from the
buffalo meat processing plant.

 Fully integrated facility that meets the requirements of importing countries - AOV has a fully
integrated meat processing facility at Unnao, UP with an installed capacity of processing 112.5 TPD
of buffalo meat. This provides AOV a competitive edge for export markets.

 Presence in Uttar Pradesh provides easy access to key raw material - Most of the players in the
industry have facilities in Uttar Pradesh, given the high number of cattle markets organised in this
region. Also, active participation by farmers from neighbouring states ensures accessibility and
availability of raw material (buffalo).

Credit weaknesses
 Weakened debt-coverage indicators – AOV’s OI declined by 21% in FY2017 on account of a
decline in the utilisation of its meat processing capacity. The company’s operating profit declined
44% YoY in FY2017, resulting in weak debt-coverage indicators

 Stretched liquidity position; debt levels likely to increase due to ongoing capex – The company’s
dependence on working capital borrowings increased in FY2017 due to the ongoing capital
expenditure on the company’s second manufacturing unit and an increase in investments/advances to
Group companies in FY2017. The funding requirements for capex and advances have been met
through incremental working capital borrowings, leading to deterioration in current ratio and adverse
impact on liquidity.

 Highly competitive and fragmented industry – AOV operates in a highly competitive industry with
a large number of big players. This limits the company’s pricing flexibility and also exerts pressure
on its operating profit margins.

 Exposure to foreign exchange risk and trade policies of importing countries – The company is at
present exporting processed meat to countries in the Middle East (the UAE, Saudi Arabia, Kuwait,
etc.), Vietnam, Thailand, Hong Kong, to name a few. Given that most of the revenue is contributed by
exports, AOV is exposed to foreign currency risk on its exports receivables.

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

Links to applicable criteria

Corporate Credit Rating Methodology
About the company
AOV is involved in the business of processing and exporting frozen buffalo meat. The business was
earlier carried out in a partnership with Mr. O.P. Arora and Mr. N.K. Bhambhri as the partners. The
partnership firm was converted into a private limited company in 2010 with Mr. Afzal Siddiqui as the
third promoter/director. AOV’s manufacturing facility is located in Unnao with an installed capacity of ~
35,100 MTPA. In addition to AOV, the promoter group is involved in other businesses like real estate,
manufacturing of pumps and related products/pet foods, foreign currency trading, metal galvanising etc.

Key financial indicators (Audited)

Unit FY2016 FY2017

Operating Income (OI) Rs. crore 704.71 557.02

Profit after tax (PAT) Rs. crore 8.84 3.88
OPBDITA/OI % 1.77% 1.26%
ROCE % 8.94% 5.87%

Total debt/ Tangible net worth Times 0.63 0.96

Total debt/ OPBDITA Times 4.70 13.18
Interest Coverage Times 4.65 2.07
NWC/ OI % 5% 6%
OI: Operating Income; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest,
Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net-Worth + Deferred Tax Liability -
Capital Work - in Progress);
NWC: Net Working Capital

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for the last three years
Table
S.No Name of Current Rating (2018) Chronology of Rating History for the past
Instrument 3 years
Type Rated Month- Month-year Month-year Month-year
(long amount year & & Rating in & Rating in & Rating in
term/ (Rs. Rating FY2017 FY2016 FY2015
short crore)
term)
December November September -
2017 2016 2015
1
Fund-based Long [ICRA]BBB [ICRA]BBB+ [ICRA]BBB+ -
3.34
– Term Term (Stable) (Stable) (Stable)
loans
2
Fund-based Short 95.41 [ICRA]A3+ [ICRA]A2+ [ICRA]A2+ -
Term
3 Non-fund Short -
Based Term 1.25 [ICRA]A3+ [ICRA]A2+ [ICRA]A2+

Note on complexity levels 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 Rate Maturity Amount Current Rating
Issuance/ Rated and Outlook
Sanction (Rs. crore)

Term Loan 2014 - 2018 3.34 [ICRA]BBB

(Stable)
95.41
Fund-based - - - [ICRA]A3+

Non-fund - - - 1.25 [ICRA]A3+

Based
Source: AOV Exports Private Limited
 Contact Details
Analyst Contacts
Sabyasachi Majumdar Amit Arora
+0124-4545 304 +0124-4545 318
sabyasachi@icraindia.com amita@icraindia.com

Manish Ballabh Shubham Goyal

+0124-4545 812 +0124- 4545 386
manish.ballabh@icraindia.com shubham.goyal@icraindia.com

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

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