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Safal Sale Management

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                                      MOTHER DAIRY FRUITS & VEGETABLES PVT. LIMITED
Rating Assigned
    Facilities                                                   Amount (Rs. cr)               Ratings1                  Remarks
    Long-term Bank Facilities                                          122.00               ‘CARE AA+’                   Re-affirmed
                                                                (reduced from 250.00)     (Double A Plus)
    Short-term Bank Facilities                                         888.00                 ‘PR1+’                     Re-affirmed
                                                               (enhanced from 650.00)      (PR One Plus)
    Total Facilities                                                  1,010.00

Rating Rationale
The ratings continue to factor in strong support and comfort extended in the form of financial, managerial and technical support
from National Dairy Development Board (NDDB), established brand presence in Delhi-NCR, broad product portfolio,
integrated manufacturing and processing operations and well-spread marketing and distribution networks. The ratings are,
however, constrained by volatility in prices of raw material and its sensitivity to changes in government policies and
environmental conditions, seasonal requirement of funds resulting in high working capital utilization, low profitability margins
and competition from other established players in the organized and un-organized sectors.
Going forward, efficient working capital management and mitigation of raw material procurement risk (fall in milk yield, other
supply chain issues) will remain the key rating sensitivities.
Background
Mother Dairy Fruit and Vegetable Private Ltd (MDFVL), a wholly-owned subsidiary of National Dairy Development Board
(NDDB), was incorporated in March 2000 as a Public Ltd company. Subsequently, MDFVL was converted to Private Ltd w.e.f
November 2003.
MDFVL’s is an ISO 9001:2008 (QMS), ISO 22000: 2005 (FSMS) and ISO 14001: 2004 (EMS) certified organization. The
company also has certificate of approval from export inspection council of India.
The National dairy development board was set up with the objective of improving the dairy prospects of dairying and
empowering milk producers across the villages in the country.
NDDB is the 100% holding/promoter company providing support to MDFVL in the form of financial support (grants and term
debt for expansion-cum-diversification and subsidy projects), technical and managerial support.
Operations
The product profile of MDFVL consists of milk & dairy products under brand name ‘Mother Dairy’ (like liquid milk, curd, ice
cream, cheese and butter, lassi, flavoured milk, dairy whitener etc), Horticulture products under brand name ‘Safal’ (like fresh
fruits and vegetables, fruit pulp, concentrates and fruit juices) and Edible oil under the brand name of Dhara.
MDFVL purchases a significant part of its requirement of liquid milk from Dairy Cooperatives at district level through its
affiliated dairy cooperative societies (DCS) in villages twice a day and also through its own procurement network under New
Generation Cooperatives (NGCs). The milk is processed by the various district level plants and supplied to MDFVL at its
different plants in and around Delhi and NCR daily in milk tankers.
MDFVL handles 32 LLPD (Lakh Litres Per Day) of milk out of which approximately 16 LLPD is procured and packaged at the
company’s various milk processing units in and around Delhi & NCR and remaining 16 LLPD is outsourced to various
contractors who package it for MDFVL under quality norms of MDFVL.
In accordance with the trend in the dairy industry, MDFVL also has higher working capital utilization during winter months
(November-February), as the inventory levels are high.
MDFVL has maintained the trend of generating majority of sales (approximately 99%) through sales of Bulk Vended Milk, Poly
Pack Milk, Ice Cream, Milk Products, Frozen Fruits and Vegetables in the domestic markets. The company continues to generate

                                                            
1
    Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 



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remaining 1% by export of fruit pulp, juices and concentrates to USA, Canada, European Countries, Middle East, Korea, Russia,
Srilanka, Singapore and Japan.
MDFVL has well-established sales and distribution network comprising distribution channel of around 14,000 retail outlets,
including 1,300 exclusive outlets spread across Delhi, NCR, Western UP, Haryana, Mumbai and Hyderabad.
MDFVL has increased the installed capacity of Poly Pack Milk at Pilkhuwa Dairy in UP which has started commercial production
with effect from 1st October, 2009. The company has incurred total expenditure of Rs.65.73 cr on this project funded by way of
Term loan of Rs. 54.3 cr from NDDB and the rest by internal accruals.
Financial Analysis
Over the past years (FY08-10), there has been growth in the total income at a Compounded Annual Growth Rate (CAGR) of
20%. The increase in sales has been on account of improved sales realization, increased demand for its existing products, increase
in the number of outlets (enhancing its market reach in domestic markets) and launch of new products.
The PBILDT margins of MDFVL have been continuously below 2% for the last three years on account of high raw material cost
(forming 85% of the total expenses), low value addition in products and MDFVL’s ‘not for profit’ objective (restricting
MDFVL’s sales realizations).
The overall gearing of MDFVL as on March 31, 2010 was 3.73 times on account of higher working capital borrowing from the
banks due to peak period requirement during the period from November-April.
MDFVL has low collection period for FY10 at around five days on account of low credit extended to its retailers and delivery
against payment for its 1,300 exclusive outlets. The inventory days are high on account of ready finished goods inventory as on
the year end to take care of the lean period.
During 9M-FY11, MDFVL achieved total income of Rs.2,933 cr out of which 67% is contributed by milk and dairy products,
11.76% is contributed by probiotic curd, 8.3% is contributed by Dhara edible oil and the rest by horticulture operations.
Industry Review
India is the world's largest milk producer with approximately, 112 million tonnes of milk production in FY10 as compared to
108.4 million tonnes in FY09.
This growth in milk production has been due to demand-side development and supply-side promotions in the form of increased
demand for value-added products by consumers and extensive dairy development programmes respectively.
The Indian processed dairy industry has grown and diversified enormously in last few years. To ensure the proper development
and growth of the industry the government has instituted various regulations like Milk and Milk Products Order, Standard on
weights and measures, Directorate of marketing and inspection, Bureau of Industrial standards etc. In order to control inflation
the government has been intervening by banning the exports of dairy products.
The milk production, supply and marketing in India is highly decentralized. The co-operative sector played a critical role in
channelling this milk production in the rural areas besides providing quality and value added dairy products to the urban and
semi-urban consumers resulting into economic prosperity for rural farmers.
Major strengths of the Indian dairy industry include favourable demand outlook, low price elasticity, high flexibility in terms of
product mix and abundant availability of raw milk. The major weaknesses of the dairy industry include perishable nature of the
product, improper logistics and distribution plus the increasing competition from the un-organised sector. While new product
innovations and the export markets present favourable opportunities to the sector, sale of milk in loose form from the
unorganized sector poses a major threat to the organized dairy sector.
Key investment opportunities both for catering to the domestic market as well as for exports, exist in many areas of food
processing in India. Milk and milk products, meat and poultry, fruits and vegetables are some of the areas with reasonable
potential for growth.
Prospects
MDFVL maintains a leading position in milk and dairy products in the key markets on account of its established processing and
manufacturing capacity, integrated nature of operations and well-spread distribution network. Increase in domestic demand for
milk products and export potential for fruit pulp and other agro products augur well for the prospects of the company.




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Financial Performance
                                                                                                                                                      (Rs. Cr)
 For the period ended / as at Mar.31,                                                                    2008                   2009                    2010
                                                                                                     (12m, A)               (12m, A)               (12m, A)
 Working Results
 Net Sales                                                                                                 2723                   3557                   3916
 Total Operating income                                                                                    2776                   3567                   3928
 PBILDT                                                                                                      45                     29                     36
 Interest                                                                                                    40                     57                     45
 Depreciation                                                                                                24                     25                     32
 PBT                                                                                                          8                      4                      1
 PAT (after deferred tax)                                                                                     6                      3                      1
 Gross Cash Accruals                                                                                         29                     27                     33
 Financial Position
 Equity share capital                                                                                       150                    250                    250
 Net worth                                                                                                  273                    275                    275
 Total capital employed                                                                                    1284                   1215                   1302
 Key Ratios
 Growth
 Growth in Total income (%)                                                                                26.5                    28.5                   10.1
 Growth in PAT (after D. Tax) (%)                                                                        -117.7                   -55.8                  -57.2
 Profitability
 PBILDT/Total Op. income (%)                                                                               1.62                    0.81                   0.91
 PAT (after deferred tax) (%)                                                                              0.21                    0.07                   0.03
 ROCE (%)                                                                                                   5.2                     4.9                    3.6
 Average cost of borrowing (%)                                                                              5.5                     5.8                    4.6
 Solvency
 Long Term Debt Equity ratio (times)                                                                       1.44                    0.81                   0.68
 Overall gearing ratio(times)                                                                              3.71                    3.43                   3.73
 Interest coverage(times)                                                                                  0.53                    0.07                   0.09
 Total debt/Gross cash accruals                                                                            34.4                    35.0                   31.4
 Liquidity
 Current ratio(times)                                                                                        1.5                     1.2                   1.1
 Quick ratio(times)                                                                                          0.9                     0.6                   0.6
 Turnover
 Average collection period (days)                                                                              2                       4                     5
 Average creditors (days)                                                                                     14                      16                    19
 Average inventory (days)                                                                                     54                      54                    51
 Operating cycle (days)                                                                                       42                      42                    37

                                                                        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.




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CARE is headquartered in Mumbai, with Offices all over India. The office addresses and contact numbers are given below:

                                             HEAD OFFICE: MUMBAI
             Mr. D.R. Dogra                                               Mr. Rajesh Mokashi
             Managing Director                                            Dy. Managing Director
             Cell : +91-98204 16002                                       Cell : +91-98204 16001
             E-mail : dr.dogra@careratings.com                            E-mail: rajesh.mokashi@careratings.com

             Mr. P N Sathees Kumar                                        Mr. Ankur Sachdeva
             Executive Vice President – Marketing                         Vice President – Marketing (SME)
             Mobile: +91-9820416004                                       Mobile: +91-9819698985
             mail:sathees.kumar@careratings.com                           E-mail: ankur.sachdeva@careratings.com

                      4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway,
                          Sion (East), Mumbai 400 022 Tel.: (022) 67543456 Fax: (022) 67543457
                                              Website: www.careratings.com



                                                          OFFICES

      Mr.Mehul Pandya                                               Mr.Sundara Vathanan
      Regional Manager                                              Regional Manager
      32 TITANIUM                                                   Unit No. 8, I floor,
      Prahaladnagar Corporate Road,                                 Commander's Place No. 6, Raja Ram Mohan Roy Road,
      Satellite,                                                    Richmond Circle,
      Ahmedabad - 380 015.                                          Bangalore - 560 025.
      Tel: 079 4026 5656                                            Tel: 080 2211 7140
      Mobile: 98242 56265                                           Mobile: 98803 60878
      E-mail: mehul.pandya@careratings.com                          E-mail: sundara.vathanan@careratings.com

      Mr. Pradeep Kumar                                             Mr. Ashwini Jani
      Regional Manager                                              Regional Manager
      Unit No. O-509/C, Spencer Plaza,                              401, Ashoka Scintilla
      5th Floor, No. 769, Anna Salai,                               3-6-520, Himayat Nagar
      Chennai - 600 002.                                            Hyderabad - 500 029.
      Tel: 044 2849 7812/2849 0811                                  Tel: 040 40102030
      Mobile: 98407 54521                                           Mobile: 91600 74789
      E-mail: Pradeep.kumar@careratings.com                         E-mail: ashwini.jani@careratings.com

      Mr. Sukanta Nag                                               Ms.Swati Agrawal
      Regional Manager                                              Regional Manager
      3rd Floor, Prasad Chambers (Shagun Mall Building)             3rd floor, B-47, Inner Circle
      10A, Shakespeare Sarani                                       Near Plaza Cinema Connaught Place
      Kolkata - 700 071.                                            New Delhi – 110 001.
      Tel: 033 2283 1800/1803                                       Tel: 011 2331 8701/2371 6199
      Mobile: 98311 70075                                           Mobile: 98117 45677
      E-mail: sukanta.nag@careratings.com                           E-mail: swati.agrawal@careratings.com

				
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