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Rating Rationale

Purti Vanaspati Private Ltd


Rating
Facilities Amount (Rs. crore) Rating1 Remarks
Long-term Bank Facilities 10 CARE BBB- (Triple B Minus) Assigned
Short-term Bank Facilities 110 CARE A3 (A Three) Assigned
120 (Rupees one hundred
Total Bank Facilities
and twenty crore only)

Rating Rationale
The ratings assigned to the bank facilities of Purti Vanaspati Pvt Ltd take into account the long
experience of promoters in edible oil refining operations, diversified product portfolio,
established brand image in the state of West Bengal, strong distribution network and stable
operating performance during FY14 to FY16(refers to the period April 1 to March 31).
The ratings, however, are constrained by low profitability margin due to low value addition and
intense competition, profitability susceptible to volatility in raw-material prices and foreign
exchange, working capital intensive nature of operation as well as regulatory risk. The ratings
also factor in temporary suspension of work at factory site due to fire incident since Dec 2015,
which is expected to resume from July 2016 onwards.
Ability of the company to resume the operations within envisaged timelines, timely receipt of
insurance claim and efficient management of working capital are the key rating sensitivities.
Background
Purti Vanaspati Pvt Ltd (PVPL) was incorporated in August 2008 by Purti-Pansari group of
Kolkata. The company is engaged in refining and marketing of edible oil (palm,
soybean, sunflower, rice bran, etc.), vanaspati and its by-products. The companys plant
is located in the Hooghly district of West Bengal, with an effective installed capacity of
200 TPD (ton per day). The company sells its products under the brand name of Purti,
Pansari, Dollar, etc.

Credit Risk Assessment


Experienced promoters

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Complete definitions of the ratings assigned are available at www.careratings.com and other CARE publications

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PVPL is a part of the Purti-Pansari group of Kolkata, having business interest in real estate,
education, etc. Prior to incorporation of PVPL, the group was engaged in trading of
edible oil for more than three decades and edible oil refining operation from 2002
through a group company, named, Paceman Sales Promotion Pvt Ltd (PSPL). As PSPL
was an NBFC company (incorporated in Feb 1995), the promoter decided to demerge
the edible oil division in Aug 2008 and transfer it to a new entity i.e. PVPL. Mr. Kishore
Kumar Agarwal, CMD, looks after the day-to-day operations of the company supported
by his brothers and son.

Diversified product portfolio


PVPL has a diversified product portfolio which includes vanaspati, palm oil, soyabean oil,
rapeseed oil, sunflower oil, rice bran oil, til oil, mustard oil. PVPL operations are flexible
in nature as it can switch to different products as per the market scenario. The Indian
edible oil sector is a price sensitive market and thus demand shifts easily across the
varieties of edible oilwith change in their price level due to their easy substitutability.
Established brand image in the state of West Bengal and strong distribution network
PVPL sells its various products under the brand Purti and it has a strong presence in West
Bengal. According to the management, PVPL derives around 20% of its sale through
wholesale, 30% of sale to institutional customers and 50% of sale through retail. The
company derives around 90% of its sales from West Bengal and has a network of
around 230 distributors.
Stable operating performance during FY14-FY16
The operating performance of the company has remained stable in the past three years marked
by stable capacity utilization and gross cash accruals. PVPLs revenue remained flat in the range
of Rs.226 crore to Rs.238 crore during last three years (FY14 to FY16). PBILDT margin increased
marginally from 1.23% in FY14 to 1.51% in FY15, but it declined to 1.30% in FY16 (Prov.). The
decline in margins in FY16 is due to sourcing of finished products on outsourcing basis as a
result of temporary suspension of work at factory site on account of fire incidence in Dec
2015.The management expects the work to resume from July 2016 onwards and the insurance
claim related to the fire incident to be received by the end of June 2016. Lower PBILDT level
coupled with higher interest expenses (as a result of higher dependence on unsecured loans

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from related parties) led to deterioration of interest coverage ratio from 1.60x in FY14 to 1.14x
in FY16.
Current ratio has increased from 0.83x in Mar 2014 to 1.13x in Mar 2016 due to increase in
inventory levels.
Moderate financial risk profile
PVPL did not rely on any long term debt as at the end of past three years. Overall gearing
deteriorated from 2.45x as on Mar 31, 2014 to 3.03x as on Mar 31, 2015 due to increase in
creditors for acceptance. However, it improved to 2.50x as on Mar31, 2016.In FY17, the
management estimates a total capital expenditure of around Rs.20-25 crore to replace the
equipments which got affected in fire and install additional machines for starting new product
lines (which would cost around Rs.7-8 crore). However, the financial risk profile is expected to
remain at moderate level in the near future as the entire capex amount is expected to be mainly
financed out of insurance claim amount and the promoters equity.
Low profitability margins due to low value addition and intense competition
The operating margins of edible oil refiners are generally low owing to low value addition
involved in the business and intense competition due to fragmented nature of industry.
Accordingly, PVPLs PBILDT margin remained low and hovered around 1.23% to 2.07% during the
last three years.
Profitability susceptible to volatility in raw-material prices and foreign exchange fluctuation
Raw-material (i.e. oilseed or crude edible oil) is the largest cost component of PVPL, accounting
for 98.1% of total cost of sales in FY16. As the cash conversion cycle from procurement of raw-
material to realization of sale proceeds of processed edible oil is estimated to be around five
month period, the companys profitability is susceptible to volatility in raw-material prices.
PVPL is exposed to foreign exchange fluctuation risk due to high dependency on imported raw-
materials and it does not have any formal hedging mechanism in place.
Working capital intensive nature of operations
Edible oil business is working capital intensive in nature due to requirement of holding high
inventory, given the seasonality in edible oilseeds production and lack/non-availability of
soybean/palm oilseeds in the domestic market. The company has a policy to hold inventory for
around two months. As the non-fund based working capital limit gets matured in six month
period whereas the cash conversion cycle is five month period, the company enjoys a negative
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working capital cycle to that extent.
High exposure to group companies
PVPL has a high exposure to its group companies in the form of loans and advances. As on
Mar.31, 2016, PVPL had net exposure aggregating Rs.7.59 crore to its group companies.
Regulatory risk
PVPL operations are exposed to regulatory risks in the form of unfavourable duty structure due
to increase in export duty on crude edible oilseed by major oilseed exporting countries with no
subsequent increase in import duty on refined oil by India. Malaysia and Indonesia together
account for around 90% of global palm oil shipments.
Prospects
The prospects of the company remain dependent upon its ability to resume operations within
envisaged timelines, timely receipt of insurance claim and efficient management of
working capital.
Financial Performance
(Rs. crore)
Particulars 31/03/14 31/03/15 31/03/16
A A Prov.
Working Results
Net Sales 224.73 236.65 225.86
Income from Continuing Operations 226.40 238.46 227.85
PBILDT 2.79 3.59 2.96
Interest expense 1.74 1.61 2.59
Depreciation 0.82 1.56 1.35
PBT 2.49 2.45 2.47
PAT After Deferred Tax 1.99 1.96 1.98
Gross Cash Accruals 2.82 3.52 3.33
Financial Position
Equity Share capital 8.04 8.04 8.04
T Net Worth 31.93 33.88 36.76
Total Capital employed 42.64 53.17 58.70
Key Ratios
Profitability (%)
PBILDT / Total OI 1.23 1.51 1.30
APAT / Total OI 0.88 0.82 0.87
ROCE 10.82 8.33 6.83
RONW 6.61 5.96 5.61
Solvency(times)
Long Term Debt Equity Ratio 0.00 0.00 0.00
Overall Gearing (Incl Acceptances) 2.45 3.03 2.50

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Particulars 31/03/14 31/03/15 31/03/16
A A Prov.
PBILDT Interest Coverage 1.60 2.23 1.14
PBIT Interest Coverage 1.13 1.26 0.62
Total Debt/GCA 27.74 29.16 26.89
Liquidity (times)
Current ratio 0.83 1.12 1.13
Quick ratio 0.44 0.65 0.73
Avg. Collection Period (days) 13 15 15
Avg. Inventory (days) 54 63 67
Avg. Creditors (days) 103 118 123
Op. cycle (days) -36 -40 -41

Details of Rated Facilities


1. Long-term facilities
1.A. Fund Based limits
(Rs. crore)
Sr. No. Name of Bank Fund Based Limits
Cash Credit Others Total fund-based
1 UCO Bank 5.0^ 0 5.0
2 Bank of India (BOI) 4.0 0 4.0
3 ICICI Bank 1.0 0 1.0
TOTAL 10.0 0 10.0
^ includes Bank Guarantee as a sub limit of up to Rs.5 crore

Total long-term facilities as at Apr 30, 2016 (1.A) = Rs.10 crore


2. Short-term facilities
2.A. Non- Fund Based limits
(Rs. crore)
Sr. No. Name of Bank Non Fund Based Limits
Letter of Credit Others Tenure as per sanction letter
1 Uco Bank 65.0 0
2 BOI 30.0 0 Up to one year
3 ICICI Bank 15.0 0
TOTAL 110.0 0

Total short-term facilities as at Apr 30, 2016 (2.A) = Rs.110 crore


Analyst Contact
Name: Utkarsh Nopany
Tel # 033 4018 1605
Mobile # 09836186474
Email: utkarsh.nopany@careratings.com
(This follows our brief rationale for entity published on 09 June, 2016)
Disclaimer
CAREs ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to
buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does

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not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the
results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee,
based on the amount and type of bank facilities/instruments.
In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial
strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the
partners/proprietor in addition to the financial performance and other relevant factors.