Press Release

G. D. Foods Manufacturing India Private Limited

May 31,2023

Facilities/Instruments Amount (₹ crore) Rating1 Rating Action

96.38
Long Term Bank Facilities CARE BBB; Stable Reaffirmed
(Enhanced from 90.00)

Short Term Bank Facilities 2.50 CARE A3+ Assigned

Short Term Bank Facilities 3.00 CARE A3+ Reaffirmed

Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

The ratings assigned to the bank facilities of G. D. Foods Manufacturing India Private Limited (GDFMIPL) continue to derive
strength from the experienced promoters & management team, established brand name and market position coupled with
diversified product line along with continuous addition in products. Furthermore, the rating also continues to draw strength from
effective sourcing strategy through contract farming, moderate financial risk profile (albeit declining profitability margin during
FY23) and capital structure.
However, the rating strengths are partially offset by elongated working capital cycle, high capex in the recent past leading to
increase in debt and weaking of capital structure, susceptibility to fluctuations in raw material prices and competition from other
established players.

Rating sensitivities: Factors likely to lead to rating actions.

Positive factors
• Scaling up of operations, with operating income growing to more than Rs. 400 crores coupled with PBILDT margin
around 10%.
• Improvement in the overall gearing ratio to below 1.30x.

Negative factors
• Decline in PBILDT margin below 5% on a sustained basis.
• Deterioration in the capital structure owing to high reliance on working capital borrowing as marked by overall gearing
ratio of above 1.75.00x.

Analytical approach: Standalone

Outlook: Stable
The continuation of “Stable” outlook to the bank facilities of GDFMIPL takes into account continuing capabilities of the
management due to its long track record of operations to mitigate the inherent risk related to fluctuations in raw material prices
and competitive nature of operations.

Detailed description of the key rating drivers:

Key strengths
Experienced Promoters & Management team.
The promoters have almost four-decade long experience in the food product segments and have well established relationships
with suppliers and customers. Mr. Brij Mohan Seth, Chairman is a graduate from Delhi University and Holding Diploma in Industrial
Management. He inducted himself in business of catering services in 1980 from where he was motivated to start his own
manufacturing unit of food products. He is the founder member of the organization and presently responsible for the overall
direction, strategy, and management of the organization. Mr. Nitin Seth, an MBA graduate from Symbiosis having more than 20
years of experience in the business of food products. He currently manages and heads the overall sales, marketing, and operations
of the company. Ms. Chand Seth, a Postgraduate in Economics has additional diploma in food preservation and she is actively
engaged with the company and takes care of finance and recipe development. The promoters are supported by strong
management team having rich experience in the various verticals.

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Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications

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Established brand name and market position.

The company is a prominent player in the food products segment, selling sauces, pickles, jams, and instant mixes under the
brand ‘Tops’. The products are mostly marketed in northern and eastern Indian markets with majority revenue from Delhi-NCR
region. The company has established network of 130+ super stockiest/direct distributors having PAN India presence (although
majorly concentrated in Northern India) who in turn supply exclusively company’s product along with chain of 1400+ distributors
followed by 1.5 lacs retails outlets and e-retail platforms. Approximately 90% of the revenue is generated through its network of
super stockiest. The company has own sales force of around 400+ personnel covering almost 1500 towns across various States.
In addition to that, company also sells directly to Govt. agencies, Modern Trade outlets and hotel/restaurant/café (HORECA)
customers such as Central Police Canteen, Canteen Store Department (Army), Kendriya Bhandar, BPCL, IRCTC etc. and Private
Institutes like Big Bazar, Reliance Fresh, Spencer’s, Reliance Fresh, D Mart, Grofers, Big Basket etc. Company generally offers
credit period of 30 to 45 days to institutional customers. The company’s products are also available in almost all e-retail shops in
India.
Diversified product line along with continuous addition in products.
The company started with manufacturing of Noodles under the brand name “Tops”. Subsequently, the company established its
manufacturing units in different locations and started manufacturing several other products like pickles, Jams, Tomato Ketchup,
Sauces, Vinegar, Instant Mixes, Custard Powder, Jellies, Vermicelli, Cornflakes, etc. However, company’s major product is sauces
which comprises 45.78% of total revenue in FY23(PY: 47.43%) followed by Pickles which comprises 23.08% in FY23(PY: 21.03%).
During FY23, the company has invested in advertising campaigns via print, television, and social media and currently brand is
promoted by well-known celebrity Ms. Kareena Kapoor. Owing to which and coupled with deep penetration in existing market
leading to increase in number of outlet, revenue from operations has been improved by almost 27.60% during FY23 as compared
to FY22, although this has impacted profitability of the company during FY23 as company has expended Rs. 18.03 crores on
advertisement during FY23 as compared to Rs. 12.48 crores during FY22. Since it’s an initial year of promotions major impact of
same will come in current financial year and so on.
Effective sourcing strategy through contract farming
Major products of company include sauces and pickles which collectively comprises 68.86% of entire revenue from operation
during FY23 same was improved from 68.46% during FY22. For procurement of several vegetables mainly tomato & green chilli
which are major raw material for sauces and pickles the company has tied up with farmers for contract farming. Although, farmers
are not completely bound to supply their products to company as they can sell in open market if they can realise better pricing.
The company has long term relationship with farmers mainly in Punjab and enters yearly contracts and prices are negotiated
based on input cost plus profit margin. Almost 80% of entire requirement of Tomato’s are procured through contract farming,
however, there has been increase in raw material prices which company was unable to fully pass on its buyers owing to highly
competitive nature of operations leading to declining profitability margin during FY23. Although, tomato prices are rationalising
this year and profitability is likely improve going forward. Further, to ensure the crop is similar by all the farmers GDFMIPL provides
their own seeds/ saplings. Also, company provide training to farmers on regular interval for improving the crop yields and
betterment of farming techniques. Company directly procures other vegetables and fruits from mandis, stockiest, large
wholesalers through company representatives, the chemicals used for preservation and processing of products etc. are procured
from large wholesalers, stockiest mainly from North India. Rice, wheat, flour etc. used for vermicelli and noodles are procured
directly from manufacturing company or from stockiest.
Moderate financial risk profile
GDFMIPL’s scale of operations has grown by 27.60% to Rs. 346.69 crore during FY23 (Provisional, refer to the period of April 01
to March 31) as compared with Rs. 271.69 crore during FY22 (Audited, refer to the period of April 01 to March 31), majorly due
to deeper market penetration and focus on retail outlet expansion which was aided by advertising campaign run by the company
as company has expended Rs. 18.03 crores during FY23 as compared to Rs 12.48 crores during FY22.
The profitability margins of the company continue to remain moderate with slight deterioration during FY23 as reflected by PBILDT
margin and profit after tax (PAT) margin of 6.71% (PY: 7.87%) and 1.45% (PY: 2.40%), respectively. The deterioration in
profitability was majorly due to aggressive advertisement and since it’s an initial stage of advertising full impact of same is yet to
be seen followed by increase in input cost by almost ~2.50% which company was unable to fully pass on its buyers owing to
highly competitive nature of operations. Input cost has increased majorly due to rise in price of tomato during the FY23 and
company has procured tomato paste from the market to meet its demand at higher prices. However, company is planning to
consolidate its units in Rajasthan itself with the view to reduce operational costs which will eventually improve profitability going
forward and same is already initiated by the company followed by inhouse bottling plant implement during current financial year
which will save freight charges and profit markup of bottle suppliers. Although, due to absolute decline in PBILDT, interest
coverage indicator has deteriorated as reflected by interest coverage ratio of 3.10x in FY23 from 3.93x in FY22.

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Moderate Capital Structure.

The capital structure of the company continues to remain moderate, although it has been slightly deteriorated during FY23 as
reflected by the long-term debt to equity ratio and overall gearing ratio of 0.91x(PY: 0.78x) and 1.65x(1.30x), respectively, as of
March 31, 2023. The deterioration was majorly due to debt funded capex done during FY23 followed by higher working capital
utilisation owing to growing scale of operations. However, going forward company don’t have major debt funded capex plan any
change in capex plan may impact gearing adversely and will be key rating sensitivity going forward. Company has also applied
and received approval for “Pradhan Mantri Kisan Sampada Yojana” for which they are planning to invest Rs 15 crores in next 18
months to 24 months. Company will get subsidy of Rs 5 crores for this plan and remaining Rs 10 crores will be expended through
mix of term loan and internal accruals.

Key weaknesses
Elongated Working Capital Cycle
Operating Cycle of company remains elongated and in similar lines at 96 days as at March 31,2023 against 100 days as at March
31,2022. Elongation in operating cycle was majorly on account of higher inventory days of 126 days during FY23 (PY: 124 days).
Higher inventory is mainly due to seasonal nature of vegetables and fruits therefore company has to procure and maintain specific
level of raw material for the entire year to ensure smooth operations. Furthermore, since vegetables are of perishable in nature
they are processed and converted in paste form with the view to preserve them for longer period. Accordingly, majority of portion
of inventories are in the form of work in progress. Company don’t allow higher credit period to its buyers, and they realise
payments within 15 days on an average. However, company receives unsecured deposits from distributors as a security and
company provides credit to the extent of security deposit from respective distributors. Unsecured Security deposits from
distributors outstanding as at March 31,2023 was Rs. 10.48 crores (PY Rs 11.70 crores).
Susceptibility to fluctuations in raw material prices.
The major raw materials for GDFMIPL consist of tomato and red chillies, mangoes and preservatives required in their major
products like sauces and pickles which comprises 68.86% of total revenue from operations for FY23. The prices of these raw
materials are fluctuating because of the seasonal availability of tomato and chillies coupled with other factors like irregularity of
climatic condition to unpredictable yields, etc. Although, they have effective sourcing strategy through contract farming and well
managed purchase team to control fluctuation in raw material prices but during FY23, the company was not able to pass on the
full increase in raw material price to consumer leading to declining profitability margins. Going forward, company plans to reduce
the cost through in house bottle manufacturing unit and consolidation of its plant at Rajasthan only which will save operational
cost. However, in the event of further deterioration in the margins, leading to decline in profitability and GCA, will have an adverse
impact on the company liquidity position, given that it has high debt repayment in the coming years.
Competition from the other established players
The company faces competition from the other players with well established brands and companies. These include Hindustan
Unilever Ltd (Kissan), Nestle India Ltd (Maggi), Del Monte Pvt Ltd and Heinz India Pvt Ltd especially in the retail market. These
are global MNCs having well-known brands with higher PAN-India market penetration coupled with wide variety of products.

Liquidity: Adequate
The company has earned Gross Cash Accruals (GCA) of Rs. 14.11 crores during FY23 and is projecting to generate GCA of around
Rs ~21 crores & Rs ~27 crores in FY24 & FY25 respectively as against scheduled repayment obligations of Rs. 12.03 crores and
Rs. 13.45 crores for FY24 & FY25 respectively. The current and quick ratio stood at a moderate level of 1.14x and 0.19x, as on
March 31, 2023, as compared with 1.21x and 0.33x as on March 31, 2022. Since, company has higher inventory holding which
requires major working capital requirement quick ratio remains below unity. Furthermore, the operating cycle continues to remain
moderate at 96 days during FY23 as against 100 days during FY22. The average working capital utilisation of the company
remains comparatively moderate and stood at 80.36% during the 12 months of FY23.

Assumptions/Covenants: Not Applicable

Environment, social, and governance (ESG) risks: Not Applicable

Applicable criteria
Policy on default recognition
Financial Ratios – Non financial Sector
Liquidity Analysis of Non-financial sector entities
Rating Outlook and Credit Watch
Short Term Instruments
Manufacturing Companies
Policy on Withdrawal of Ratings

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About the company and industry

Industry classification
Macro-Economic Sector Industry Basic Industry
Indicator
Fast Moving Consumer Fast Moving Consumer Food Products Other Food Products
Goods Goods

G.D. Foods was set up in 1984 as a proprietorship firm by Mr B.M Seth, Chairman and was later incorporated as private limited
company in 1997. G.D. Foods Manufacturing India Private Limited is a prominent food processing company based at New Delhi.
The Company operates through its flagship brand ‘TOPS’ in various segments like tomato ketchup, sauces, pickles, jams, culinary
sauces, speciality sauces, snack sauces, instant mixes, corn flakes, noodles, vermicelli, vinegar, baking powder, custard powder,
corn flour & drinking chocolate.

Brief Financials (₹ crore) March 31, 2021 (A) March 31, 2022 (A) March 31, 2023 (UA)
Total operating income 250.88 271.69 346.69
PBILDT 23.37 21.39 23.27
PAT 7.70 6.52 5.04
Overall gearing (times) 1.47 1.30 1.61
Interest coverage (times) 3.34 3.93 3.10
A: Audited UA: Unaudited; Note: ‘the above results are latest financial results available’

Status of non-cooperation with previous CRA: Acute has downgraded the rating vide its Press Release dated May 22,2022,
to Acuite BB-/Acuite A4+ “Issuer Not Cooperating”.

Any other information: Not Applicable

Rating history for last three years: Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in
Annexure-3

Complexity level of various instruments rated: Annexure-4

Lender details: Annexure-5

Annexure-1: Details of instruments/facilities

Rating
Date of
Maturity Size of the Assigned
Name of the Issuance Coupon
ISIN Date (DD- Issue along with
Instrument (DD-MM- Rate (%)
MM-YYYY) (₹ crore) Rating
YYYY)
Outlook
Fund-based - CARE BBB;
- - - 49.00
LT-Cash Credit Stable
Fund-based - CARE BBB;
- - 30-06-2026 47.38
LT-Term Loan Stable
Fund-based -
ST-Working - - - 2.50 CARE A3+
Capital Limits
Non-fund-
based - ST- - - - 3.00 CARE A3+
BG/LC

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Annexure-2: Rating history for the last three years

Current Ratings Rating History
Date(s) Date(s) Date(s) Date(s)
Name of the and and and and
Amount
Sr. No. Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s)
Type Outstanding Rating
Facilities assigned assigned assigned assigned
(₹ crore)
in 2023- in 2022- in 2021- in 2020-
2024 2023 2022 2021
1)CARE
CARE BBB;
Fund-based - LT-
1 LT 47.38 BBB; - Stable - -
Term Loan
Stable (20-May-
22)
1)CARE
CARE BBB;
Fund-based - LT-
2 LT 49.00 BBB; - Stable - -
Cash Credit
Stable (20-May-
22)
1)CARE
Non-fund-based - CARE A3+
3 ST 3.00 - - -
ST-BG/LC A3+ (20-May-
22)
Fund-based - ST-
CARE
4 Working Capital ST 2.50
A3+
Limits
*Long term/Short term.

Annexure-3: Detailed explanation of covenants of the rated instruments/facilities: Not Applicable

Annexure-4: Complexity level of the various instruments rated

Sr. No. Name of the Instrument Complexity Level
1 Fund-based - LT-Cash Credit Simple
2 Fund-based - LT-Term Loan Simple
3 Fund-based - ST-Working Capital Limits Simple
4 Non-fund-based - ST-BG/LC Simple

Annexure-5: Lender details

To view the lender wise details of bank facilities please click here

Note on the complexity levels of the rated instruments: CARE Ratings has classified instruments rated by it on the basis
of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any
clarifications.

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About us:
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Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
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Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
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terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.

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