RATING RATIONALE

27 Apr 2021
Milkfood Ltd.

Brickwork Ratings downgrades the ratings for the Bank Loan Facilities of ₹ 73.23 Crs of
Milkfood Ltd.

Particulars:
Amount (₹ Cr) Rating*

Facility** Tenure Previous

Previous Present Present
(Mar 2020)
BWR BBB-
Fund Based BWR BBB
64.88 67.73 Long Term Stable
Stable
Downgrade
BWR A3
Non-fund Based 5.50 5.50 Short Term BWR A3+
Downgrade

Total 70.38 73.23 Rupees Seventy Three Crores & Twenty Three Lakhs Only
*Please refer to BWR website www.brickworkratings.com/ for definition of the ratings
**Details of Bank facilities is provided in Annexure-I
^ Press Release for delay in Annual Review of ratings was published on 12 Mar 2021

RATING ACTION
BWR has downgraded the ratings for Milkfood Ltd.’s (MFL or the company) bank loan facilities
owing to declining revenues in FY21 resulting from muted demand from its bulk customers
during the COVID pandemic, causing a drop in its profitability margins in 9MFY21 which is
expected to moderate its debt service coverage in FY21, besides the liquidity stretch which is
expected to remain in the short to medium term.
However, the ratings continue to be strengthened by the company’s long operational track record
and well accepted brand ‘Milkfood’, established marketing channels and sustained demand for
the health products such as ghee in the Indian market. The company’s gearing ratios continued
to remain comfortable due to its adequate net worth.
OUTLOOK: STABLE
BWR believes that the business risk profile of Milkfood Ltd. will be maintained over the
medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium
term. The rating outlook may be revised to 'Positive' in case the revenues and profit show
sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down
and profit margins show lower than expected figures.

www.brickworkratings.com Page 1 of 7
Credit Strengths:
● Comfortable Networth & Leverage Ratios: The company has estimated a net worth of
~ Rs 70 Crs, TOL/TNW ratio of ~2.26x and a comfortable Debt-Equity ratio of 1.01x in
FY21. Due to higher non-cash expenses of depreciation, ISCR is estimated to remain
comfortable at 3.01x (FY21-Est.) despite an expected increase in interest expenses during
the year. ISCR and DSCR stood at 2.96x and 1.52x respectively in FY20. The company
is estimating a higher EBITDA margin of ~6.4% in FY21, which is higher than the past
three years' average of ~5%. However, as there is an estimated decline of ~28% in yearly
revenues, the improvement in margins is less likely and will be validated only when the
actual figures are made publicly available in FY21.

● Brand Value & Recognition: MFL enjoys high brand visibility amongst its customers
and has a history of more than four decades in the dairy industry. The company derives
almost all of its revenues by selling ‘Desi Ghee’ under the brand ‘Milkfood’. The
company enjoys association with retail chains such as Big Bazar, Walmart, Reliance
Fresh, Nestle, GSK & Cadbury. On the supply side, the company has a robust
relationship with its suppliers & contractors providing the Fat/SNF to Milkfood which
processes it into ghee.
● Sustained demand for health products in the FMCG market: Demand for ghee and
milk products in Indian households is increasing because of increased health awareness
amongst the masses. The spurt in demand augurs well for companies like MFL which
have established distribution networks across north Indian states.
Credit Weakness:
● Low Profit Margins and uncertain demand scenario during COVID: The company’s
profitability took a hit as the sales declined by ~40% and profit by ~77% during 9MFY21
as compared to the same period in previous year. Although the company is estimating
some improvement in revenues and profitability in Q4FY21, the recent spike in COVID
cases throughout the country has led to curbs on social gatherings in many states which is
expected to restrict its recovery especially in the bulk segment business..
● High competition from large numbers of organised & unorganised players: The milk
product industry is marred with high competition from large numbers of organised &
unorganised players. Moreover, procurement of raw material (milk/SMP/fat) is exposed
to seasonality, perishability & procurement related challenges. However, unavailability of
quality products and consumer shift to branded products provides competitive advantage
to organised players like MFL.
● Stretched liquidity: The company had repaid more than Rs 13.5 Crs of long term debt
during FY21 while the accruals for 9MFY21 has remained low at ~Rs 8 Crs. Resultantly,
the DSCR may decline to modest levels, if the estimated profitability for FY21 is not
achieved. Also, the company had recently deposited ~ Rs 12.5 Crs against the demand

www.brickworkratings.com Page 2 of 7
 raised by the GST department for some alleged transactions involving inadmissible Input
Tax Credit; however any charges are yet to be established.
ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA
The ratings of Milkfood Ltd. are arrived at on a standalone basis after independent evaluation of
its financial risk profile. For arriving at its ratings, BWR has applied its rating methodology as
detailed in the rating criteria detailed below (hyperlinks provided at the end of this rationale)
RATING SENSITIVITIES
Positive: Rating may be upgraded if the company is able to restore its revenues and profitability
at previous levels of FY19 while also improving its liquidity position in the medium to long
term.
Negative: Ratings may be downgraded if the company’s revenues and profitability continues to
decline further or there is any further liquidity stretch in the company.
LIQUIDITY POSITION: STRETCHED
Stretched liquidity indicated by tightly matched cash accruals of ~Rs. 14 Crs in FY21
(estimated) vis-a-vis debt repayments of Rs 13.56 Crs during the year. The company has recently
availed Rs 12.26 Crs of GECL loan to cater to its contingency requirements of working capital.
The utilisation of cash credit limits has also remained high at ~95% for the past 9 months. The
fact that the company’s turnover has declined significantly in FY21 and there still remains
uncertainty with regards to sales normalising in FY22, the debt repayments of Rs 10-11 Crs in
FY22 may remain tightly matched with the cash accruals in FY22.
COMPANY PROFILE
MFL, incorporated in 1973 and promoted by the Jaiswal family, is engaged in manufacturing of
pure ghee, skimmed and whole milk powder, dairy whitener, casein, and whey powder. Pure
ghee is marketed under the ‘Milkfood’ brand in the domestic markets. MFL’s manufacturing
plants are located at Patiala (Punjab) and Moradabad (Uttar Pradesh). Majority of the revenues
are derived from ghee
KEY FINANCIAL INDICATORS
Key Parameters Units FY 20 FY 19
Result Type Audited Audited
Total Operating Income Rs Crore 551.41 530.59
OPBDIT Rs Crore 24.59 27.94
PAT Rs Crore 8.39 10.24
Tangible Net worth (TNW) Rs Crore 63.83 55.02
Total Debt/TNW Times 1.19 1.07
Current Ratio Times 1.05 1.08

www.brickworkratings.com Page 3 of 7
 KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED: NONE

NON-COOPERATION WITH PREVIOUS RATING AGENCY IF ANY: NONE

RATING HISTORY FOR LAST THREE YEARS (INCLUDING

WITHDRAWN/SUSPENDED)

Facility/
Current Rating  Rating History
Instrument
(Amounts in Rs Crs)

27 Apr 2021 09 Mar 2020 22 Feb 2019 21 Feb 2018

Amoun Amou Facilit Amou

Type Facility Rating Facility Rating Rating Facility Amount Rating
t nt y nt
BWR BWR BWR BWR
Bank Loan FB 67.73 BBB- FB 64.88 BBB FB 61.14 BBB FB 74.50 BBB-
Rating (Stable) (Stable) (Stable) Stable
Long
Term
BWR BWR BWR
NFB 5.50 NFB 5.50 NFB 5.50 NFB 3.50 BWR A3
A3 A3+ A3+

COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf

Hyperlink/Reference to applicable Criteria

● General Criteria
● Approach to Financial Ratios
● Manufacturing Companies

Analytical Contacts

Sumit Saharan Ashwini Mital

Primary Analyst [Director – Ratings]
Board: +91-172-5032295 Ext: 104 Board: +91-172-5032295 Ext: 102
[Email Address: sumit.s@brickworkratings.com] [Email Address: ashwini.m@brickworkratings.com]

1-860-425-2742 media@brickworkratings.com

www.brickworkratings.com Page 4 of 7
 Milkfood Ltd.

ANNEXURE I
Details of Bank Facilities rated by BWR

Sl. No. Type of Facilities Long Term Short Term Total

(₹ Cr) (₹ Cr) (₹ Cr)

1 Cash Credit 44.00 - 44.00

2 Term Loan 0.48 - 0.48

3 GECL- Term Loan 9.25 - 9.25

4 LC/BG - 3.50
3.50
5 Cash Credit 6.00 -
6.00
6 Term Loans 5.00 -
5.00
7 GECL- Term Loan 3.00 - 3.00

8 BG - 2.00 2.00

TOTAL 67.73 5.50 73.23

Total Rupees Seventy Three Crores and Twenty Three Lakhs only.

www.brickworkratings.com Page 5 of 7
For print and digital media The Rating Rationale is sent to you for the sole purpose of dissemination through your
print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change
the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone
has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print
or electronic or digital media.

About Brickwork Ratings

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and
accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible /
partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual
bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt
instruments, Security Receipts, Securitisation Products, Municipal Bonds, etc. BWR has rated over 11,400 medium
and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions,
Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a
leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru
and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai
and New Delhi along with representatives in 150+ locations.
DISCLAIMER : Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI]
registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank
Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments
and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and
other structured / credit enhanced debt instruments, Security Receipts, Securitisation Products, Municipal Bonds,
etc. [hereafter referred to as “Instruments”]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate
Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR
that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other
reliable sources, which in BWR’s best judgement are considered reliable. The Rating Rationale / Rating Report &
other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or
primary basis for any investment decision within the meaning of any law or regulation (including the laws and
regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the
user and BWR.
The ratings assigned by BWR are only an expression of BWR’s opinion on the entity / instrument and should not in
any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.
BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any
jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgement
obtained from the user’s financial advisors. BWR shall not be liable to any losses incurred by the users of these
Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the
ratings at any time without assigning reasons for the same.
BWR’s ratings reflect BWR’s opinion on the day the ratings are published and are not reflective of factual
circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public
notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.
Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or
agents (collectively, “BWR Party”) guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR
Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the
results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all
express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness

www.brickworkratings.com Page 6 of 7
for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect,
incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or
losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of
any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages.
However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its
affiliates do not act as a fiduciary.
BWR keeps certain activities of its business units separate from each other in order to preserve the independence and
objectivity of the respective activity. As a result, certain business units of BWR may have information that is not
available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality
of certain non-public information received in connection with each analytical process.
BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities
etc., or from obligors. BWR’s public ratings and analysis are made available on its web site,
www.brickworkratings.com. More detailed information may be provided for a fee. BWR’s rating criteria are also
generally made available without charge on BWR’s website.
This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories,
communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.
BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of
India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as
amended from time to time.

www.brickworkratings.com Page 7 of 7