October 16, 2024

Aachi Masala Foods Private Limited: Rating downgraded to [ICRA]BBB (Stable); rated
amount enhanced
Summary of rating action
Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]BBB (Stable); downgraded
Long-term Fund-based - Term loan 113.77 83.63
from [ICRA]BBB+ (Stable)
[ICRA]BBB (Stable); downgraded
Long-term Fund-based - Working capital 195.20 253.00 from [ICRA]BBB+ (Stable) / assigned
for enhanced amount
[ICRA]BBB (Stable); downgraded
Long-term - Unallocated 7.32 68.37 from [ICRA]BBB+ (Stable) / assigned
for enhanced amount
Total 316.29 405.00
*Instrument details are provided in Annexure-I

Rationale
While arriving at the ratings, ICRA has considered the consolidated financial profile of Aachi Masala Foods Private Limited
(‘AMFPL’), Nazareth Foods Private Limited (‘NFPL’), Aachi Spices and Foods Private Limited (‘ASFPL’) and Aachi Special Foods
Private Limited (‘Aachi Special’), collectively referred to as the Aachi Group (‘the Group’).
The rating action follows the deterioration in Aachi Group’s debt metrics in FY2024 against ICRA’s expectations and likely
sustenance of the same in FY2025. Its interest coverage was 2.2x in FY20241 amidst sharp rise in finance cost on the back of
increased working capital dependence during the year. Other metrics like Total debt/OPBDITA and DSCR also were moderate
at 3.6 times and 1.3 times respectively as on March 31, 2024, weaker than ICRA’s earlier expectations. While the Group’s
revenues grew by 17.1% YoY to Rs. 1,914.1 crore in FY2024, its operating margins broadly remained rangebound (9.7% in
FY2024 as against 9.4% in FY2023). The margin expansion was constrained by relatively high advertising and sales promotion
expenses and payouts to promoters. Also, the group’s working capital utilisation against the sanctioned limits continues to
remain high, thus minimising the buffer on liquidity against ICRA’s expectations.
The rating, however, continues to draw comfort from the strong and established presence of the ‘Aachi’ brand in its key
markets, especially Tamil Nadu, and extensive experience of the promoters in the business spanning over two decades. The
rating also favourably considers the Group’s integrated structure covering the entire value chain from raw material
procurement to end sales and its well-entrenched distribution network in South India. ICRA also notes that the Group has
received Rs. 15.4 crore in FY2024 (PY: Rs. 9.6 crore) as subsidy from its investments done during FY2021-Q1 FY2024 as part of
the Government’s Production Linked Incentive (PLI) scheme for the food processing industry.
The rating also considers the relatively high working capital intensity, its geographic concentration and stiff competition in the
industry, which restricts its pricing power. The Group procures raw materials in bulk to gain price advantages during the
stocking season (February to June). While the company has modified its procurement policy by entering into forward contracts
with the large-scale farmers and dealers, its ability to optimise the working capital cycle will be critical for improvement in
cashflow position. Aachi Group continues to derive most of its revenues (~95%) from the southern states, especially Tamil
Nadu (73% of revenues in FY2024). The company has been carrying out focused marketing campaigns in other regional
markets, aided by the launch of new, ready-to-cook and ready-to-eat variants. While the Group has been expanding its
presence beyond South India, the extent of the contribution from the same remains minimal, and its ability to achieve material

1 Unaudited

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 diversification remains to be seen. The Group’s earnings are also exposed to high fragmentation and competition in the
industry, and consequent pricing pressure from both organised and unorganised players.
The stable outlook on the long term rating reflects ICRA’s expectation that the company will be able to sustain its credit profile,
supported by its strong brand equity, anticipated improvement in accruals and absence of debt-funded capex plans over the
medium term.

Key rating drivers and their description

Credit strengths
Strong brand equity and extensive experience of promoter – The Aachi Group has established itself as a one of the dominant
players in the processing and marketing of powdered spices, instant mixes, pickles, spices, whole wheat flour, oil, clarified
butter, etc, mainly in the South Indian market. Aided by the extensive experience of its promoter, Mr. Padmasingh Isaac, stable
demand and the strong brand loyalty, the Group’s revenues grew at a compounded annual growth rate (CAGR) of 15% over
the last five years ending in FY2024.
Integrated group structure and well-entrenched distribution network – The Group’s operations are integrated, supporting its
business profile. Aachi Special is the raw material procurement arm of the Group. It procures raw materials like chillies,
coriander, pepper, turmeric, cardamom, etc, and preserves them in cold storage facilities for onward supply to AMFPL, NFPL
and ASFPL. AMFPL markets the products manufactured by the Group, including NFPL and ASFPL. It also has a manufacturing
division to cater to the rising demand for its products. The integrated nature of operations across the value chain supported
by a well-entrenched distribution network has supported supply chain efficiency and sales growth. AMFPL has a strong
distribution network of seven supreme/large distributors, 3,500 direct distributors and it has presence in over 12 lakh retail
outlets. This, along with the Group’s diversified and affordable product range, has supported its stable sales volume and
widespread product acceptance across geographies.

Credit challenges

Moderation in financial profile – While the Group’s revenues grew by 17.1% YoY to Rs. 1,914.1 crore in FY2024, its operating
margins broadly remained rangebound (9.7% in FY2024 as against 9.4% in FY2023). The expansion in margins was constrained
by relatively high advertising and sales promotion expenses and payouts to promoters. The company’s coverage indicators
moderated in FY2024 with interest coverage of 2.2 times in FY2024, amidst sharp rise in finance cost on the back of increased
working capital dependence during the year. Other debt metrics like Total debt/OPBDITA and DSCR also remained moderate
at 3.6 times and 1.3 times respectively as on March 31, 2024, weaker than ICRA’s earlier expectations. Also, the group’s working
capital utilisation against the sanctioned limits continues to remain high, thus minimising the buffer on liquidity against ICRA’s
expectations.
High working capital intensity – The Group’s working capital intensity remained high at 46.9% in FY2024 (PY: 49.0%). The
Group procures raw materials in bulk to gain price advantages during the stocking season (February to June). While the
company has modified its procurement policy by entering into forward contracts with the large-scale farmers and dealers, its
ability to optimise the working capital cycle will be critical for overall improvement in cashflow position.
High geographic concentration risk and stiff competition – The Aachi Group continues to derive most of its revenues (~95%)
from the southern states, especially Tamil Nadu (73% of revenues in FY2024). The company has been carrying out focused
marketing campaigns in other regional markets, aided by the launch of new, ready-to-cook and ready-to-eat variants. While
the Group has been expanding its presence beyond South India, the extent of the contribution from the same remains minimal
and its ability to achieve the meaningful diversification remains to be seen. The Group’s earnings are exposed to high
fragmentation and competition in the industry. Accordingly, the Group witnesses pricing pressure from both organised and
unorganised players.

Liquidity position: Adequate

The Aachi Group’s liquidity position is expected to remain adequate supported by expected improvement in cash flow from
operations. The working capital utilisation remains high in excess of 90% of sanctioned limit on a standalone basis, the average

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 utilisation at the Group level stood at 77% in the last 12 months ended in June 2024. Further, the Group has minimal free cash
and bank balances of Rs. 2.1 crore, of which AMFPL has Rs. 0.2 crore as on June 30, 2024. Against these sources of cash, the
Group has consolidated principal repayment obligations of ~Rs. 22.0 crore in H2 FY2025, Rs. 35.6 crore in FY2026 and Rs. 26.4
crore in FY2027 on its existing loans. ICRA expects the same to be serviced comfortably from its cash flow for operations even
as liquid cash balances are minimal. The company has no major capex plans in pipeline and the company will continue to
undertake only maintenance capex, which is expected to be funded through internal accruals.

Rating sensitivities
Positive factors – Sustained and significant growth in earnings and better working capital management, leading to improved
debt metrics and liquidity position could lead to an upgrade. Specific credit metrics that could lead to an upgrade of ratings
include interest coverage of more than 3.5 times on a sustained basis.

Negative factors – Negative pressure on the rating will emanate with sustained and sharp deterioration in earnings and / or
stretch in working capital cycle impacting the debt metrics and liquidity profile. Specific credit metrics that could lead to a
downgrade of ratings include TOL / TNW exceeding 1.9x on a sustained basis.

Analytical approach

Analytical Approach Comments

Applicable rating
Corporate Credit Rating Methodology
methodologies

Parent/Group support Not Applicable

The ratings are based on the consolidated financial profile of Aachi Masala Foods Private Limited, Nazareth
Foods Private Limited (rated [ICRA]BBB (Stable)), Aachi Spices and Foods Private Limited (rated [ICRA]BB+
(Stable) / [ICRA]A4+) and Aachi Special Foods Private Limited (rated [ICRA]BB+ (Stable) / [ICRA]A4+).
Consolidation/Standalone
All entities share strong strategic and operational inter-linkages between themselves. The companies have
different ownership structures under the family and function as separate legal entities in the same
business sector.

About the company

Aachi Group has an established presence in the food products industry for over a decade with its various entities operating
throughout the industry value chain—from raw material procurement to end sales. The Group has five manufacturing facilities
in and around Chennai, with a total installed processing capacity of 280 metric tonnes per day (MTPD) for chilli powder,
coriander powder and mixed spices. AMFPL sells masala products, instant mixes, pickles, spices, turmeric powder, whole wheat
flour, oil, clarified butter, water bottles, etc, through its established dealership network.

Key financial indicators

Consolidated FY2023 (Audited) FY2024 (Unaudited)

Operating income (OI) 1,634.4 1,914.1
PAT 40.7 42.9
OPBDIT/OI % 9.4% 9.7%
PAT/OI % 2.5% 2.2%
Total outside liabilities/Tangible net worth (times) 1.7 1.7
Total debt/OPBDIT (times) 4.3 3.6
Interest coverage (times) 2.4 2.2
Amount in Rs crore; Source: Company; ICRA Research. The numbers are consolidated by ICRA by adjusting the inter-company transactions. Hence, the financial
ratios in this document may not be directly comparable with results reported by the company in some instances; PAT: Profit after Tax; OPBDIT: Operating Profit
before depreciation, interest, taxes and amortisation; total debt includes lease liabilities.

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 Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Current (FY2025) Chronology of rating history for the past 3 years
FY2025 FY2024 FY2023 FY2022
Amount
Oct 16,
Instrument Type Rated Date Rating Date Rating Date Rating
2024
(Rs. crore)
Long term-
Long [ICRA]BBB 06-OCT- [ICRA]BBB+ 05-DEC- [ICRA]BBB+ 26-APR- [ICRA]BBB+
cash credit- 253.00
Term (Stable) 2023 (Stable) 2022 (Stable) 2021 (Stable)
fund based
29-
[ICRA]BBB+
NOV-
(Negative)
2021
Long term- Long [ICRA]BBB 06-OCT- [ICRA]BBB+ 05-DEC- [ICRA]BBB+ 26-APR- [ICRA]BBB+
68.37
unallocated Term (Stable) 2023 (Stable) 2022 (Stable) 2021 (Stable)
Long term-
Long [ICRA]BBB 06-OCT- [ICRA]BBB+ 05-DEC- [ICRA]BBB+ 26-APR- [ICRA]BBB+
term loan- 83.63
Term (Stable) 2023 (Stable) 2022 (Stable) 2021 (Stable)
fund based
29-
[ICRA]BBB+
NOV-
(Negative)
2021

Complexity level of the rated instruments

Instrument Complexity Indicator

Long-term Fund-based – Term loan Simple
Long-term Fund-based – working capital Simple
Long-term – Unallocated Not Applicable

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Instrument Date of Amount Rated Current Rating and

ISIN Coupon Rate Maturity
Name Issuance (Rs. crore) Outlook
NA Term loan – I FY2020/FY2023 9.5-10.75% FY2028/FY2029 32.19
NA Term loan – II FY2022/FY2023 10.55-12.05% FY2026/FY2028 13.08
NA Term loan – III FY2023 10.40% FY2029 23.05
NA Term loan – IV FY2022 7.85% FY2027 2.64
NA Term loan – V FY2021 9.25% FY2027 1.75
NA Term loan – VI FY2022 9.25% FY2027 7.26
NA Term loan – VII FY2022 9.25% FY2027/FY2028 3.66 [ICRA]BBB (Stable)
NA Cash Credit – I NA NA NA 30.00
NA Cash Credit – II NA NA NA 40.00
NA Cash Credit – III NA NA NA 105.00
NA Cash Credit – IV NA NA NA 48.00
NA Cash Credit – V NA NA NA 30.00
NA Unallocated NA NA NA 68.37
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis

Consolidation
Company Name Ownership
Approach
Aachi Masala Foods Private Limited (rated entity) NA Full Consolidation
Nazareth Foods Private Limited NA Full Consolidation
Aachi Spices and Foods Private Limited NA Full Consolidation
Aachi Special Foods Private Limited NA Full Consolidation
Source: Company

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 ANALYST CONTACTS
Shamsher Dewan K Srikumar
+91 124 4545 328 +91 44 4596 4318
[email protected] [email protected]

Vinutaa S Sriraman Mohan

+91 44 4596 4305 +91 44 4596 4316
[email protected] [email protected]

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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