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Credit Analysis & Research Limited 1 REI Agro Limited Rangs Facilies Amount (Rs. crore) Rangs 1 Remarks Long term Bank Facilies 351.4 ‘CARE D’ Revised from ‘CARE BB+’ (Double B Plus) Long/Short term Bank Facilies 4,250.0 ‘CARE D’/‘CARE D’ Revised from ‘CARE BB+’/‘CARE A4+’ (Double B Plus)/(A Four Plus) Short term Bank Facilies 10.0 ‘CARE D’ Revised from ‘CARE A4+’ (A Four Plus) Total Facilies 4,611.4 Instruments Outstanding NCDs 554.5 ‘CARE D’ Revised from ‘CARE BB+’ (Double B Plus) Short-term Debt (incl. commercial paper)* Withdrawn *carved out of working capital limits of the company Rang Raonale The aforesaid revision in rangs of Rei Agro Ltd (RAL) takes into account the ongoing delays in debt servicing by the company. The cash flow posion of the company has been severely impacted by lower than expected cash accruals from operaons and increase in working capital requirements to finance the high inventory and debtor level. This has resulted in the inability of the company to meet its debt obligaons on me. Background RAL, promoted by two brothers, Shri Sanjay Jhunjhunwala and Shri Sandip Jhunjhunwala of Kolkata, is engaged in processing of Basma rice (installed capacity of 118 tph). It is also involved in trading in commodies and wind power generaon. In FY13, the company generated sales of Rs.5,089 crore, of which basma rice constutes the major poron (77.2%), followed by trading (22.3%) and wind (0.5%). Credit Risk Assessment Stretched operang cycle and decline in profitability leading to delays in debt servicing The operang cycle of RAL increased from 398 days in FY12 to 442 days in FY13 mainly on account of high inventory period. In FY14, the average collecon period increased significantly. The working capital requirements also increased accordingly. The high interest cost on working capital borrowings and significant amount of debt repayment along with a decline in profitability resulted in stretched liquidity. This led to instances of delay in servicing of debt obligaons. Furthermore, the company has impending FCCB repayment of USD 104.65 million in November 2014. Significant decline in profitability in 9MFY14 During 9MFY14, RAL’s operang income grew by 6.15% vis-à-vis 9MFY13 mainly driven by higher realizaon (led by higher paddy costs). However, PBILDT margin contracted to 13.44% in 9MFY14 vis-à-vis 17.85% in 9MFY13 due to inability of the company to fully pass on an increase in paddy costs. PAT declined sharply from Rs.143.28 crore in 9MFY13 to Rs.11.35 crore in 9MFY14 due to lower PBILDT, higher interest expense and sharp increase in mark-to-market forex loss on revaluaon of outstanding FCCBs. Gross Cash Accruals (GCA) declined from Rs.191.57 crore in 9MFY13 to Rs.61.94 crore in 9MFY14. Risk associated with implementaon of debt-laden ongoing projects RAL is currently engaged in seng up 3 projects at an aggregate cost of Rs.1,135.5 crore to be financed at a debt equity rao of 2.7:1. It is enhancing its basma rice processing capacity by 35 tph at a cost of Rs.669.2 crore and seng up a warehousing & packaging facility at a cost of Rs.328.8 crore. It has also acquired a land adjacent to its exisng operaonal Bawal unit 2 facilies at a cost of Rs.137.3 crore as a long-term strategy for future expansion. RAL spent majority of the project cost ll January 2014 and the projects are expected to commence operaon by the end of FY15. However, cash flow has been adversely impacted due to commencement of repayment of term loans availed to finance the ongoing expansion projects which are yet to contribute to revenue. 1 Complete definions of the rangs assigned are available at www.carerangs.com and other CARE publicaons

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Credit Analysis & Research Limited1

REI Agro LimitedRatings

Facilities Amount (Rs. crore) Ratings1 RemarksLong term Bank Facilities 351.4 ‘CARE D’ Revised from ‘CARE BB+’ (Double B Plus)

Long/Short term Bank Facilities 4,250.0 ‘CARE D’/‘CARE D’Revised from ‘CARE BB+’/‘CARE A4+’ (Double

B Plus)/(A Four Plus)

Short term Bank Facilities 10.0 ‘CARE D’Revised from ‘CARE A4+’

(A Four Plus)Total Facilities 4,611.4InstrumentsOutstanding NCDs 554.5 ‘CARE D’ Revised from ‘CARE BB+’ (Double B Plus)Short-term Debt (incl. commercial paper)*

Withdrawn

*carved out of working capital limits of the company

Rating RationaleThe aforesaid revision in ratings of Rei Agro Ltd (RAL) takes into account the ongoing delays in debt servicing by the company. The cash flow position of the company has been severely impacted by lower than expected cash accruals from operations and increase in working capital requirements to finance the high inventory and debtor level. This has resulted in the inability of the company to meet its debt obligations on time.

Background RAL, promoted by two brothers, Shri Sanjay Jhunjhunwala and Shri Sandip Jhunjhunwala of Kolkata, is engaged in processing of Basmati rice (installed capacity of 118 tph). It is also involved in trading in commodities and wind power generation. In FY13, the company generated sales of Rs.5,089 crore, of which basmati rice constitutes the major portion (77.2%), followed by trading (22.3%) and wind (0.5%).

Credit Risk AssessmentStretched operating cycle and decline in profitability leading to delays in debt servicing The operating cycle of RAL increased from 398 days in FY12 to 442 days in FY13 mainly on account of high inventory period. In FY14, the average collection period increased significantly. The working capital requirements also increased accordingly. The high interest cost on working capital borrowings and significant amount of debt repayment along with a decline in profitability resulted in stretched liquidity. This led to instances of delay in servicing of debt obligations. Furthermore, the company has impending FCCB repayment of USD 104.65 million in November 2014.

Significant decline in profitability in 9MFY14 During 9MFY14, RAL’s operating income grew by 6.15% vis-à-vis 9MFY13 mainly driven by higher realization (led by higher paddy costs). However, PBILDT margin contracted to 13.44% in 9MFY14 vis-à-vis 17.85% in 9MFY13 due to inability of the company to fully pass on an increase in paddy costs. PAT declined sharply from Rs.143.28 crore in 9MFY13 to Rs.11.35 crore in 9MFY14 due to lower PBILDT, higher interest expense and sharp increase in mark-to-market forex loss on revaluation of outstanding FCCBs. Gross Cash Accruals (GCA) declined from Rs.191.57 crore in 9MFY13 to Rs.61.94 crore in 9MFY14.

Risk associated with implementation of debt-laden ongoing projectsRAL is currently engaged in setting up 3 projects at an aggregate cost of Rs.1,135.5 crore to be financed at a debt equity ratio of 2.7:1. It is enhancing its basmati rice processing capacity by 35 tph at a cost of Rs.669.2 crore and setting up a warehousing & packaging facility at a cost of Rs.328.8 crore. It has also acquired a land adjacent to its existing operational Bawal unit 2 facilities at a cost of Rs.137.3 crore as a long-term strategy for future expansion. RAL spent majority of the project cost till January 2014 and the projects are expected to commence operation by the end of FY15. However, cash flow has been adversely impacted due to commencement of repayment of term loans availed to finance the ongoing expansion projects which are yet to contribute to revenue.1Complete definitions of the ratings assigned are available at www.careratings.com and other CARE publications

Credit Analysis & Research Limited2

High exposure to group companiesRAL’s aggregate exposure to group/associate companies as on March 31, 2013 was Rs.1,508.0 crore (vis-a-vis Rs.382.1 crore as on March 31, 2012), accounting for 54.6% of its networth as on March 31, 2013 (14.7% of its networth as on March 31, 2012). This was due to significant increase in corporate guarantee extended by RAL in favor of its overseas subsidiaries to facilitate the tie up of the working capital limits to support growth in their early phase of operation. On consolidated basis, RAL reported a PAT of Rs.473.46 crore in 9MFY14 (as against Rs.416.73 crore in 9MFY13) on total operating income of Rs.9,093.53 crore in 9MFY14 (as against Rs.6,575.13 crore in 9MFY13). However, receivables at consolidated levels increased significantly from Rs.2,345 crore as on March 31, 2013 to Rs.4,420 crore as on September 30, 2013.

Financial Performance(Rs. Cr)

For the period ended / as at March 31, 2011(12m, A)

2012(12m, A)

2013(12m, A)

Working ResultsNet Sales 3,722.6 4,223.9 5,088.7 Total operating income 3,724.4 4,225.5 5,089.1PBILDT 772.3 835.0 921.9Depreciation 22.1 38.8 64.1Interest & finance charge 331.4 496.3 580.1PBT 422.2 283.1 259.7PAT (after defd. tax) 282.4 226.2 211.0Gross Cash Accruals (GCA) 304.6 265.0 275.1Financial PositionEquity Share Capital 95.8 95.8 95.8Tangible networth 2,441.2 2,606.6 2,760.0Total debt 4,148.0 5,153.0 5,681.2Total Capital Employed 6,589.2 7,759.5 8,441.2 Key RatiosGrowthGrowth in Total income (%) 0.90 14.07 19.95 Growth in PAT (after defd. tax) (%) 79.70 (19.90) (6.73)ProfitabilityPBILDT margin (%) 20.74 19.76 18.12 PAT margin (%) 7.58 5.32 4.14 Operating ROCE (%) 13.49 12.35 11.95 RONW (%) 16.48 10.37 7.84 SolvencyLong term debt equity ratio 0.34 0.56 0.55 Overall gearing ratio 1.70 2.02 2.17 Interest coverage 2.33 1.68 1.59 Long term debt/ GCA 2.76 5.47 5.54 Total debt/GCA 13.62 19.82 21.78 LiquidityCurrent ratio 1.60 1.50 1.31 Quick ratio 0.60 0.60 0.44 TurnoverAverage collection period (days) 95 104 92 Average creditors period (days) 4 9 25 Average inventory period (days) 447 302 375 Working capital cycle (days) 537 398 442

Credit Analysis & Research Limited3

Adjustments made:-• Preference share capital of Rs.40.0 cr (redemption of which has been extended to June 30, 2022 from June 30, 2015) has

been considered as a part of networth for this analysis.• Banks have provided loans amounting to Rs.349.98 crore as on Mar 31, 2013 (Rs. 353.67 crore as on Mar 31, 2012) to paddy

suppliers based on RAL’s undertaking. The loans will be repaid by RAL on receipt of raw material from the suppliers. While the company has accounted the same as creditors in their accounts, it has been considered as working capital borrowing for this analysis.

Analyst ContactName: Mr. Saurav ChatterjeeTel # 033-4018 1600Mobile # 98307 14920Email: [email protected]

(This follows our brief rational for entity published on 16 May 2014)

Disclaimer: CARE’s 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 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.

Credit Analysis & Research Limited4

CONTACTHead Office Mumbai

Mr. D.R. Dogra Mr. Rajesh MokashiManaging Director Dy. Managing DirectorMobile: +91-98204 16002 Mobile: +91-98204 16001E-mail: [email protected] E-mail: [email protected]

Ms. Meenal Sikchi Mr. Ankur SachdevaVice President - Bank Loan & Instrument Rating Vice President - Bank Loan & Financial ServicesMobile: +91-9819009839 Mobile: +91-9819698985E-mail: [email protected] E-mail: [email protected]

CREDIT ANALYSIS & RESEARCH LIMITEDCorporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai - 400 022Tel: +91-22-6754 3456 | Fax: +91-22-6754 3457 | E-mail: [email protected]

Other Office:503, Kaledonia, Sahar Road, Near Andheri Railway Station, Andheri (E), Mumbai - 400 069Tel: +91-22-6144 3456 | Fax: +91-22-6144 3556

AHMEDABADMr. Mehul Pandya32, Titanium, Prahaladnagar Corporate Road,Satellite, Ahmedabad - 380 015Cell: +91-98242 56265Tel: +91-79-4026 5656E-mail: [email protected]

BENGALURUMr. Dinesh SharmaUnit No. 1101-1102, 11th Floor, Prestige Meridian II,No. 30, M.G. Road, Bangalore - 560 001.Cell: +91-99000 41975Tel: +91-80-4115 0445, 4165 4529E-mail: [email protected]

CHANDIGARHMr. Sajan Goyal2nd Floor, S.C.O. 196-197, Sector 34-A,Chandigarh - 160 022.Cell: +91 99888 05650Tel: +91-172-5171 100 / 09Email: [email protected]

CHENNAIMr. V Pradeep KumarUnit No. O-509/C, Spencer Plaza, 5th Floor,No. 769, Anna Salai, Chennai - 600 002.Cell: +91 98407 54521Tel: +91-44-2849 7812 / 0811Email: [email protected]

HYDERABAD Mr. Saikat Roy401, Ashoka Scintilla, 3-6-502, Himayat Nagar,Hyderabad - 500 029.Tel: +91-40-4010 2030E-mail: [email protected]

JAIPURMr. Rahul Jain304, Pashupati Akshat Heights, Plot No. D-91,Madho Singh Road, Near Collectorate Circle,Bani Park, Jaipur - 302 016.Cell: +91 – 93149 21496Tel: +91-141-402 0213 / 14E-mail: [email protected]

KOLKATAMs. Priti Agarwal3rd Floor, Prasad Chambers, (Shagun Mall Bldg.)10A, Shakespeare Sarani, Kolkata - 700 071.Cell: +91-98319 67110Tel: +91-33- 4018 1600E-mail: [email protected]

NEW DELHIMs. Swati Agrawal13th Floor, E-1 Block, Videocon Tower,Jhandewalan Extension, New Delhi - 110 055.Cell: +91-98117 45677Tel: +91-11-4533 3200E-mail: [email protected]

PUNEMr. Rahul Patni9th Floor, Pride Kumar Senate,Plot No. 970, Bhamburda, Senapati Bapat Road,Shivaji Nagar, Pune - 411 015.Cell: +91-78754 33355Tel: +91-20- 4000 9000E-mail:[email protected]

CIN - L67190MH1993PLC071691