May 24, 2017

Iscon Balaji Foods Private Limited

Summary of rated instruments

Instrument* Rated Amount Rating Action

(in crore)
Fund Based Limits 58.18 [ICRA]BBB (Stable); assigned/outstanding
(earlier 10.00)
Non-fund Based Limits 3.65 [ICRA]A3+; assigned
Total 61.83

*Instrument Details are provided in Annexure-1

Rating action
ICRA has assigned long term rating of [ICRA]BBB (pronounced ICRA triple B) 1 for enhanced amount of
Rs. 58.18 crore2 (earlier Rs. 10.00 crore) fund based facilities of Iscon Balaji Foods Private Limited
(IBFPL). ICRA has also assigned short-term rating of [ICRA]A3+ (pronounced as ICRA A three plus) for
Rs. 3.65 crore non-fund based limits IBFPL. The outlook on the long-term rating is Stable.

Rationale

The assigned rating takes into account the support from promoters, who have an established track record
and experience in potato snacks industry by virtue of their association with group concerns and strong
relationship with reputed clients. The rating also positively factors in the periodical capacity additions and
the increase in capacity utilisation level, leading to considerable growth in the operating income from
FY2014 to FY2016, along with healthy margins. The rating also factors in the proximity of the processing
unit to major potato-growing regions of Gujarat and the favourable demand outlook for processed foods
products driven by growing population, consumerism, spending and retail penetration.

The assigned rating is, however, constrained by the high customer concentration risk as a single customer
contributes a major portion (~38% in FY2016) of the total sales; however, the healthy credit profile of the
customer mitigates the counter-party credit risk to a certain extent. The rating is further constrained by the
capital-intensive operations, which leads to high gearing levels and moderate coverage indicators, along
with the nascent stage of frozen french fries segment. The rating also reflects the high working capital
intensity due to the seasonal procurement and the vulnerability of operations to agro climatic risks that
affect availability and price of agro-based raw materials. The company operates in a fragmented industry
and faces competition from various organised and unorganised players.

The company’s ability to scale up operations, establish its french fries in the market, maintain profit
margins, improve debt coverage indicators while managing working capital requirement efficiently would
be the key monitorable.
Key rating drivers

Credit strengths
 Promoters have an established track record and prior experience in potato-related business through
their group concerns
 Reputed clientele, largely comprising players catering to ready-to-eat snacks market; repeat orders
indicative of established relationships
 Healthy growth in the operating income over FY2014-FY2016 along with healthy operating margins
 Favourable demand outlook for processed foods products driven by growing population,
consumerism, spending and retail penetration
 Proximity of the processing unit to major potato-growing regions of Gujarat

Credit weaknesses
 Capital intensive operations that require timely addition and upgradation, resulting in high gearing
levels and moderate coverage indicators
 High customer concentration, ~40% of the total sales in the last three fiscals was made to a single
customer
 High working capital intensity for maintaining a large raw material inventory to support continuous
production
 Business operations remain exposed to adequate availability of potato (major raw material), given the
agro climatic risks and seasonality associated with it
 Presence of established player in the frozen french fries industry may create pressure on prices and
profitability

Description of key rating drivers:

Iscon Balaji Foods Private Limited (IBFPL) is owned and managed by promoters of JP Iscon Ltd., Balaji
Wafers Pvt Ltd. (BWPL) and Bharat Textiles. In order to leverage BWPL’s expertise in potato-related
products, IBFPL was established. Potato flakes are sold in the domestic market to reputed snacks
manufacturer across India and repeat orders bear testimony to its established relationship with its
customers. Nonetheless, the client concentration risk remained high with top 10 clients contributing ~96%
of the sales in FY2015, which reduced to ~88% in FY2016. IBFPL is involved in capital-intensive
operations requiring timely addition and up gradation of machineries, which leads to high gearing levels
of 2.1 times as on March 2016-end and moderate coverage indicators as reflected in the interest coverage
at 5.1 times and Net cash accruals/debt at 22% for FY2016.

IBFPL has diversified its operations by setting up an integrated cold chain for frozen french fries in
Kheda, Gujarat and the operations are at nascent stage. Though the company faces limited competition
but the segment has presence of large established player. Further, for potato flakes, the company operates
in a fragmented industry and faces competition from various organised and unorganised players.

The operating income increased from Rs. 14.2 crore in FY2014 to Rs. 51.7 crore in FY2016 owing to
periodical capacity enhancement emanating from additional demand for potato flakes. ICRA expects
IBFPL to continue to grow at moderate levels in near to medium term in potato flakes segment given the
favourable demand outlook for processed foods products, driven by growing population, consumerism,
spending and retail penetration.
The company enjoys location advantage since its processing units are situated in proximity to Deesa and
Vijapur, the two major potato-growing regions. IBFPL procures potatoes for flakes unit from local market
through farmers, dealers and traders. This exposes to the risk of regular availability of potatoes and
exposure of profitability to fluctuations in market prices of potatoes. Potatoes being a winter season crop,
it is available during the period of February to April each year. In order to support continuous production,
IBFPL carries high inventory which resulted in high working capital intensity as reflected by NWC/OI of
37% as on FY2016 end.

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

Links to applicable Criteria

Corporate Credit Rating –A Note on Methodology

About the Company:

Iscon Balaji Foods Private Limited (IBFPL or “the company”) is jointly owned by promoters of JP Iscon
Ltd. (Mr. Jayesh Kotak), Balaji Wafers Pvt. Ltd. (Mr. Pranay Virani) and Bharat Textiles (Mr. Bharat
Kotak and Mr. Neel Kotak). IBFPL was incorporated in January, 2012, and started production of
dehydrated potato flakes in July 2013 from its Anand (Gujarat) plant. It is managed by Mr. Neel Kotak,
an IIT Bombay alumni.It initially started with a capacity of 600kg/hour and subsequently expanded to
1200kg/hour in February 2015. IBFPL has diversified its operations by setting up an integrated cold chain
for frozen french fries and other vegetables in Kheda, Gujarat, the commercial production of which
commenced in October 2016.

IBFPL recorded a net profit of Rs. 9.8 crore on an operating income of Rs. 51.7 crore for FY2016 against
a net profit of Rs. 4.7 crore on an operating income of Rs. 48.2 crore in FY2015. For 6MFY2017, IBFPL
recorded sales of Rs. 32.2 crore with profit before tax of Rs. 5.1 crore.

Status of non-cooperation with previous CRA:

Brickworks has issued a press release on December 9, 2016 which mentions:

The rating was due for annual review in June 2016. Brickworks Ratings informs that Iscon Balaji Foods
Private Limited have not provided required information for carrying out a review of the Rating despite
close follow up, and hence the said rating is not reviewed.

Any other information: Not Applicable

Rating history for last three years:
Table:
S.No Name of Current Rating (FY2018) Chronology of Rating History for the past
Instrument 3 years
Type Amount Date & Date & Date & Date &
outstanding Rating Rating in Rating in Rating in
(Rs. FY2017 FY2016 FY2015
Crores)

May March - -
2017 2017
1 Working Long 20.00 [ICRA]BBB [ICRA]BBB - -
Capital Term (Stable) (Stable)
Limits
2 Term Long 38.18 [ICRA]BBB - - -
Loans Term (Stable)

3 Bank Short 2.32 [ICRA]A3+ - - -

Guarantee Term

4 Credit Short 1.33 [ICRA]A3+ - - -

Exposure Term
Limits

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
Details of Instrument

Name of the Date of Coupon rate Maturity Size of Current Rating and
instrument issuance Date the issue Outlook
(Rs. Cr)
Working - - - 20.00 [ICRA]BBB (Stable)
Capital Limits
Term Loans April, - April, 2021 38.18 [ICRA]BBB (Stable)
2016
Bank - - - 2.32 [ICRA]A3+
Guarantee
Credit - - - 1.33 [ICRA]A3+
Exposure
Limits
Name and Contact Details of the Rating Analyst(s):

Subrata Ray Suprio Banerjee

+91 22 2433 1086 +91 22 6114 3443
subrata@icraindia.com supriob@icraindia.com

Mayank Agrawal
+91 79 4027 1514
mayank.agrawal@icraindia.com

Ravish Mehta
+91 79 4027 1522
ravish.mehta@icraindia.com

Name and Contact Details of Relationship Contacts:

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

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