Indian Agro and Food Industries Limited

July 31, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument Rating Action
(Rs. crore) (Rs. crore)
Proposed commercial paper [ICRA]A1+; upgraded from
50.00 50.00
programme # [ICRA]A1
Proposed non-convertible debenture
25.00 - [ICRA]A (Stable); withdrawn
programme
Proposed non-convertible debenture
- 100.00 [ICRA]A+ (Stable); assigned
programme
Fund-based-Term Loans 110.05 110.05 [ICRA]A+ (Stable); outstanding
Fund-based-Working capital facilities 200.0 200.00 [ICRA]A+ (Stable); outstanding
Non-fund-based limits (12.00) (12.00)* [ICRA]A1+; outstanding
Total 385.05 460.05
#to be carved out of the existing working capital limit

*sub-limit of cash credit

Rating action
ICRA has upgraded the short-term rating assigned to the Rs. 50.0-crore1 proposed commercial paper programme of
Indian Agro and Food Industries Limited (IAFL)2 to [ICRA]A1+ (pronounced ICRA A one plus) from [ICRA]A1 (pronounced
ICRA A one). ICRA has withdrawn the long-term rating of [ICRA]A (Stable) outstanding on the Rs. 50.00-crore proposed
non-convertible debenture programme as there is no amount outstanding against the rated instrument. ICRA has also
assigned a rating of [ICRA]A+ along with a Stable outlook to the Rs. 100.0-crore proposed non-convertible debenture
programme. ICRA also has outstanding long-term rating of [ICRA]A+ (pronounced ICRA A plus) (stable) for the Rs. 110.05-
crore term loan facilities, and Rs. 200.00-crore working-capital facilities and outstanding short-term rating of [ICRA]A1+
(pronounced ICRA A one plus) for the Rs. 12.00-crore non-fund based limits.

Rationale
While arriving at IAFL’s ratings, ICRA has taken a consolidated view of the credit profiles of Indian Agro and Food
Industries Limited (IAFL) and Abis Exports (India) Private Limited (AEIPL) (referred to as the IB Group/ Group) given the
operational and financial linkages among the two companies and a common management shared by them.

The upgrade in the ratings takes into account the robust growth in revenues and profitability of IAFL in FY2018,
supported by an increase in sales volumes and softening of feed costs, respectively. ICRA also notes that the capex
planned by IAFL in the near term is not significant compared to its current balance sheet size and is thus not likely to
have any adverse impact on the company’s gearing. However, sustaining the margins at FY2018 levels would remain a
challenge, given the vulnerability of the margins to movement in feed prices and broiler realisation.

1
100 lakh = 1 crore = 10 million

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

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The ratings continue to draw comfort from the long experience and dominant market position of the IB Group in the
animal feed and poultry business. ICRA notes that IAFL’s operations are well integrated with presence across various
stages of the value chain including grandparent farming, breeder farming, hatchery, broiler farming, layer farming and
chicken processing. IAFL’s strategic partnership with Aviagen India for procurement of grandparent day old chick has
helped IB to integrate its operations further and is also able to source grandparent day old chicks at a cost lower than the
market price, thereby supporting the operating profitability of the company. Moreover, sourcing of poultry feed from its
Group company ensures better control over poultry feed costs quality as well as availability of feed.
ICRA, however, notes that IAFL like other entities in the poultry and related businesses, is exposed to the inherent
industry risk of disease outbreaks (bird flu). However, the company has adopted various bio-security measures over the
years, which mitigate the risk to some extent.

Outlook: Stable
ICRA believes that IAFL will continue to benefit from the extensive experience of its promoters in the poultry business.
The outlook may be revised to Positive if there is a substantial improvement in the financial profile of the company. The
outlook may be revised to Negative if there is a significant deterioration in the profitability and cash accruals of the
company owing to adverse movement in raw material prices and/or broiler realisation.

Key rating drivers

Credit strengths
Robust growth in turnover and profitability in FY2018 – The operating income of IAFL witnessed a healthy growth in
FY2018 at Rs. 1,722.84 crore against Rs. 1,249.85 crore in FY2017, supported primarily by an increase in broiler sales
volumes by around 41%. The operating profitability of IAFL also improved to 13.23% in FY2018 (provisional) from 9.36%
in FY2017 because of decline in the poultry feed prices owing to softening of soybean and maize prices for a major part
of FY2018. This coupled with a stable broiler realisation led to an increase in the company’s profitability in FY2018.
Nonetheless, ICRA notes that sustaining the profitability at the same level would be a challenge going forward, given the
vulnerability of the margins to movement in raw materials prices and broiler realisation.

Long experience and dominant market position of the Indian Broiler (IB) Group in the animal feed and poultry
business – IAFL is a part of the Indian Broiler Group, which has a dominant presence in the animal feed and poultry
business. The Group started operations in 1985 with 100 birds and has expanded and diversified its operations over the
years. The Group is present across various avenues of poultry and related business, viz. grandparent farming, parent
breeder farming, hatching, broiler farming, chicken processing, layer farming, soya and rice bran extraction, soya
refining, poultry feed, fish feed, pet feed, shrimp feed and dairy. ICRA believes that the integrated operations of the
company help it to have a greater control over the cost as well as the quality of production.

Tie-up with Aviagen India for sourcing of grandparent stock at a favourable rate helps in reducing the overall cost –
IAFL has entered into a strategic partnership with Aviagen India for purchase of ROSS variety of grandparent day old
chick from the latter. With this agreement, the company has been able to integrate its operations further and is able to
source grandparent day old chicks at a cost lower than the market price, thereby supporting the operating profitability of
the company.

Sourcing of poultry feed from a Group company helps IAFL to have a better control over poultry feed prices, maintain
quality and reduce the risk of raw material availability – Poultry feed is one of the key raw materials required. IAFL
procures a major portion of its feed requirement from its group company, Abis Exports (India) Private Limited, thereby
ensuring better control over poultry feed costs, as well as ensuring the quality as well as availability of feed.

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Credit challenges

Profitability vulnerable to movement in feed prices – Major raw materials required for the poultry feed are maize and
soya de-oiled cake (DOC), prices of which remain volatile on the back of fluctuations in domestic production due to
dependency on agro-climatic condition, international prices, and demand from the poultry sector, which is susceptible to
seasonality. While quality and availability of feed are assured to an extent as the same are sourced mainly from a group
company, profitability of the company, like other entities in the poultry business, continues to remain vulnerable to the
movement in feed prices.

Margin susceptible to highly volatile broiler realisations due to seasonal nature of demand of poultry products in India
In the past, the Indian poultry industry has been periodically affected by unfavourable broiler realisation, which is a
consequence of the seasonal nature of demand of poultry products in India, coupled with supply situation in the market.
During FY2010-11, the industry posted healthy profits due to favourable broiler realisations and subdued raw material
prices. Subsequently, the industry went through a downturn for the next five years (FY2012-16) owing to weak broiler
realisation, stemming from oversupply and increase in raw material costs. This trend in the profitability of the industry
exposes the company to earnings risk during the period of industry downturn.

Inherent risk of disease outbreaks in the animal husbandry business - IAFL, like other entities in the poultry and related
businesses, is exposed to the inherent industry risk of disease outbreaks (bird flu). However, ICRA notes various bio-
security measures adopted by the company over the years, which mitigate the risk to some extent.

Analytical approach: While arriving at IAFL’s ratings, ICRA has taken a consolidated view of the credit profiles of Indian
Agro and Food Industries Limited (IAFL), and Abis Exports (India) Private Limited (AEIPL) (referred to as IB Group/ Group)
given the operational and financial linkages between the two companies and a common management shared by them.
Links to applicable criteria:

Corporate Credit Rating Methodology

ICRA’s Approach For Rating Commercial Papers

ICRA Policy on Withdrawal and Suspension of Credit Rating

About the company:

Indian Poultry was established as a partnership firm in 1985 by Mr. Sultan Ali and his family members in Rajnandgaon,
Chhattisgarh. In April 2009, the partners converted Indian Poultry into a public limited company following which it was
renamed as Indian Agro and Food Industries Limited (IAFL). IAFL took on lease the operations of its three group
companies, namely Abis Broiler Private Limited (with effect from April 1, 2012), Abis Poultry Private Limited and Aziz
Poultry Private Limited (w.e.f. October 1, 2012). The company is involved in grandparent farming, parent breeder
farming, broiler farming, incubation, layer farming and chicken processing.

Key financial indicators

FY2018
FY2017 (Audited)
(provisional)
Operating Income (Rs. crore) 1249.85 1722.84
PAT (Rs. crore) 40.84 113.92

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OPBDIT/ OI (%) 9.36% 13.23%
RoCE (%) 20.13% 40.62%

Total Debt/ TNW (times) 1.14 0.81

Total Debt/ OPBDIT (times) 2.14 1.19
Interest coverage (times) 4.51 11.33

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years:

Chronology of Rating History for the
Current Rating (FY2019) past 3 years
Amount Date & Date & Date &
Rated Amount Rating in Rating in Rating in
(Rs. Outstanding Date & Rating in FY2019 FY2018 FY2017 FY2016
Instrument Type crore) (Rs Crore) Jul-18 Jul-18 Apr-17 Apr-16 Apr-15
1 Fund-based Long- 110.05 110.05 [ICRA]A+ [ICRA]A+ [ICRA]A [ICRA]A [ICRA]A
limit – Term term (Stable) (Stable) (Stable) (Stable) (Stable)
Loan
2 Fund-based Long- 200.00 - [ICRA]A+ [ICRA]A+ [ICRA]A [ICRA]A [ICRA]A
limit – Cash term (Stable) (Stable) (Stable) (Stable) (Stable)
Credit
4 Non-fund Short- (12.00)* - [ICRA]A1+ [ICRA]A1+ [ICRA]A1 [ICRA]A1 [ICRA]A1
based limits term
5 Proposed Short- 50.00 - [ICRA]A1+ - [ICRA]A1 - -
commercial term
paper
programme
#
6 Proposed Long- 25.00 - [ICRA]A - [ICRA]A - -
non- term (Stable); (Stable)
convertible withdrawn
debenture
programme
7 Proposed Long- 100.00 - [ICRA]A+ - - - -
non- term (Stable);
convertible assigned
debenture
programme
#to be carved out of the existing working capital limit

*sub-limit of cash credit

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

Date of Amount
Instrument Issuance / Coupon Maturity Rated Current Rating and
ISIN No Name Sanction Rate/Commission Date (Rs. crore) Outlook

4
 Term Loans FY2017-
NA 8.75% FY2023 110.05 [ICRA]A+ (Stable)
FY2018
Working capital
NA - 8.50% NA 200.00 [ICRA]A+ (Stable)
limits
Non-fund based
NA limits (sub-limit - - NA (12.00) [ICRA]A1+
of cash credit)
Proposed
commercial
NA - - NA 50.00 [ICRA]A1+
paper
programme #
Proposed non-
convertible
NA - - NA 100.00 [ICRA]A+ (Stable)
debenture
programme
Source: Indian Agro and Food Industries Limited

#to be carved out of the existing working capital limit

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ANALYST CONTACTS
K. Ravichandran Sujoy Saha
+91 33 7150 1100 +91 33 7150 1184
ravichandran@icraindia.com sujoy.saha@icraindia.com

Sumit Jhunjhunwala Mansee Khanderia

+91 33 7150 1111 +91 33 7150 1180
sumit.jhunjhunwala@icraindia.com mansee.sheth@icraindia.com

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

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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ICRA Limited
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