7/19/24, 4:46 PM Rating Rationale

Rating Rationale
February 03, 2023 | Mumbai

Gujarat Co-Operative Milk Marketing Federation Limited

Rating reaffirmed at 'CRISIL AAA / Stable'

Rating Action
Total Bank Loan Facilities Rated Rs.2200 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any
ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale
CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable’ rating on the long-term bank facilities of Gujarat Co-operative Milk
Marketing Federation Ltd (GCMMF). GCMMF continues to leverage its established brands, Amul and Sagar, and command
market leadership across a host of dairy and related products.

Revenue grew by 18% in fiscal 2022, driven by volume growth across liquid milk (~8%) and value-added products such as
ghee, ice-cream, and butter etc (~19%) and realisation growth. Revenue growth is expected to remain strong at ~15% in
fiscal 2023, driven by hike in retail milk prices in August and October 2022. The operating margin moderated in fiscal 2022
owing to increase in input costs (packaging, transportation and power); nevertheless, its impact will be limited because of
the financial flexibility enjoyed by the federation owing to the two-step price mechanism and its ability to pass on incremental
operating and financing costs to member district unions.

GCMMF is incurring capital expenditure (capex) of Rs 500 crore to set up a milk processing plant, with capacity of 20 lakh
litre per day (LLPD) that is expected to be completed by fiscal 2025 end. The plant will also produce value-added milk
products such as ghee, butter, skimmed milk powder (SMP), besides the liquid milk packaging and ultra-high treated (UHT)
milk. It will increase GCMMF standalone capacity from 50 LLPD to 70 LLPD. The federation is also incurring a capex worth
Rs 200-250 crore towards setting up a polyfilm plant, expected to be completed in fiscal 2024. GCMMF plans to avail debt
of up to Rs 500 crore for funding both these plants.

Financial risk profile of GCMMF continues to remain strong supported by expected steady cash accrual of Rs 180-200 crore
per fiscal over the next few years, which will be sufficient to cover debt obligation and partly fund capex over the medium
term. Furthermore, unencumbered cash balance and sufficient availability of the unutilised fund-based lines provide financial
flexibility.

The rating continues to reflect GCMMF’s dominant market position in the Indian dairy industry, driven by strong brand,
diverse product portfolio and robust distribution network. The rating also factors in adequate financial risk profile of the
federation because of strong financial flexibility and adequate debt protection metrics. These strengths are partially offset by
exposure to government regulations, epidemic and environmental factors that influence agriculture-related sectors, and
risks related to milk supply owing to volatility in global milk powder prices.
Analytical Approach
The rating is arrived at on a standalone basis, with GCMMF’s debt adjusted for the debt of district cooperative milk unions
guaranteed by, or routed through, the federation. CRISIL Ratings also factors in the financial flexibility that the federation
enjoys owing to the two-step price payment mechanism.
Key Rating Drivers & Detailed Description
Strengths:
Dominant position in the dairy industry
The federation remains the largest dairy product marketing organisation in India, with superior brand equity, wide product
portfolio, well-spread distribution network and aggressive marketing strategy. GCMMF is the market leader in pouch milk,
butter, milk powders, cheese, ice cream and UHT milk segments.

Strong control over procurement price

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The federation is part of a cooperative structure, wherein farmers are owners and suppliers to district cooperative milk
unions that supply milk and milk products to GCMMF for marketing. It follows a two-step price payment mechanism, with the
final price during the year reflecting strong control over the effective price paid to unions.

Adequate financial risk profile

Networth was moderate at Rs 683 crore as on March 31, 2022, owing to the business model followed, wherein the
provisional procurement price is paid periodically and the balance is distributed during the year. Furthermore, debt was Rs
2,649 crore (including loans guaranteed by the federation); gearing was 3.9 times as on March 31, 2022, and is expected at
~3.4 times as on March 31, 2023. However, the federation has strong financial flexibility, driven by control over the effective
price paid to the district cooperative milk unions and healthy liquidity to meet its financial obligation. GCMMF is expected to
maintain adequate financial risk profile over the medium term, supported by steady cash accrual and adequate debt
protection metrics.

Weaknesses
Susceptibility to changes in government regulations and environmental conditions
GCMMF, like all dairy players, is susceptible to government regulations—such as ban on SMP exports in the past and
removal of export incentives. Furthermore, it is susceptible to failure in milk production because of external factors such as
cattle diseases, cattle feed availability etc.

Exposure to risks related to volatility in global milk powder prices

Susceptibility to risk of fluctuations in global milk powder prices may persist. Exposure to risks related to volatility in global
milk powder prices are inherent in the dairy industry. For instance, the global crash in SMP prices in fiscal 2018 led to
surplus procurement, which translated into large inventory and led to an increase in working capital debt. The Covid-19
pandemic-led lockdowns affected institutional demand for value-added products, thereby resulting in surplus milk
procurement and build-up of SMP inventory levels. Consequently, GCMMF's inventory levels and working capital borrowings
had peaked in fiscal 2022. As on October 2022, the SMP inventory has declined by ~32% from March 2022 levels with
increase in demand and global prices for SMP.
Liquidity: Superior
Liquidity position is superior as GCMMF is expected to generate cash accrual of more than Rs 180-200 crore per fiscal over
the medium term. Federation has bank lines of more than Rs 4,600 crore, which are utilised at 44% on average in the past
12 months, providing sufficient cushion to meet any exigencies. Unencumbered cash and bank balance including deposits
of about Rs 1128 crore as on March 31, 2022 and ~Rs 1100 crore at present, coupled with financial flexibility driven by
control over the effective price paid to farmers will support liquidity. The federation distributes excess funds to unions after
meeting working capital and capex requirement, which keeps debt manageable and provides flexibility.
Outlook Stable
CRISIL Ratings believes GCMMF will continue to benefit from its dominant market position in the dairy industry over the
medium term, supported by strong milk procurement capability and distribution network. The financial risk profile is also
likely to remain adequate, backed by high financial flexibility and steady cash accrual.
Rating Sensitivity factors
Downward factors
Deterioration in operating performance or sustained high inventory and working capital debt, resulting in interest
coverage ratio of less than 3 times
Significant increase in financial support to district cooperative milk unions
Significant and sustained disruption in raw milk procurement because of adverse environmental conditions, constraining
revenue
High pressure on cash flow due to increase in milk procurement prices
About the federation
Set up in 1973, GCMMF is India’s largest marketing organisation and exporter of dairy products. It procures milk from over
36 lakh member farmers. It has 18,554 active village dairy cooperative societies and is the apex marketing federation of 18
district cooperative milk unions in Gujarat. The federation markets and distributes products of its member unions under the
Amul and Sagar brands. The sales infrastructure, comprising numerous stock points, is supported by a network of more
than 10,000 distributors and 10 lakh retailers across India.
Key Financial Indicators
Particulars Unit FY22 FY21
Revenue Rs crore 46,637 39,331
Profit after tax (PAT) Rs crore 74 58
PAT margin % 0.16 0.15
Adjusted debt/adjusted networth Times 3.88 4.46
Interest coverage Times 21.48 13.40
Any other information: Not applicable

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Note on complexity levels of the rated instrument:

CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where
applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on
available information. The complexity level for instruments may be updated, where required, in the rating rationale
published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the
Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of Date of Coupon Maturity Issue size Complexity Rating
instrument allotment rate (%) date (Rs crore) level assigned with
outlook
Working capital CRISIL
NA NA NA NA 2140.0 NA
demand loan@ AAA/Stable
Term Loan CRISIL
NA NA NA 1-Jan-2025 60.0 NA
AAA/Stable
@Interchangeable with cash credit / inland / import letter of credit/bank guarantee

Annexure - Rating History for last 3 Years

Start of
Current 2023 (History) 2022 2021 2020
2020
Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount
CRISIL
Fund Based CRISIL CRISIL CRISIL A1+ /
Facilities LT 2200.0 AAA/Stable -- -- 08-11-21 AAA/Stable 30-09-20 AAA/Stable CRISIL
AAA/Stable
Non-Fund CRISIL
ST -- -- -- -- --
Based Facilities A1+
All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility Amount (Rs.Crore) Name of Lender Rating
Term Loan 60 Bank of India CRISIL AAA/Stable
Working Capital Demand
100 Bank of Baroda CRISIL AAA/Stable
Loan&
Working Capital Demand
100 ICICI Bank Limited CRISIL AAA/Stable
Loan&
Working Capital Demand
50 Mizuho Bank Limited CRISIL AAA/Stable
Loan&
Working Capital Demand
200 The Federal Bank Limited CRISIL AAA/Stable
Loan&
Working Capital Demand
100 YES Bank Limited CRISIL AAA/Stable
Loan&
Working Capital Demand
40 BNP Paribas Bank CRISIL AAA/Stable
Loan&
Working Capital Demand
100 Axis Bank Limited CRISIL AAA/Stable
Loan&
Working Capital Demand
100 Union Bank of India CRISIL AAA/Stable
Loan&
Working Capital Demand
100 Bank of India CRISIL AAA/Stable
Loan&

Working Capital Demand The Hongkong and

100 Shanghai Banking CRISIL AAA/Stable
Loan& Corporation Limited

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Working Capital Demand

500 HDFC Bank Limited CRISIL AAA/Stable
Loan&
Working Capital Demand
350 State Bank of India CRISIL AAA/Stable
Loan&
Working Capital Demand Kotak Mahindra Bank
200 CRISIL AAA/Stable
Loan& Limited
Working Capital Demand Sumitomo Mitsui Banking
100 CRISIL AAA/Stable
Loan& Corporation
This Annexure has been updated on 03-Feb-2023 in line with the lender-wise facility details as on 08-Nov-2021 received from the rated
entity
& - Interchangeable with Cash Credit / Inland / Import Letter of Credit/Bank Guarantee

Criteria Details

Links to related criteria

CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Bank Loan Ratings
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt

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