Rationale
The ratings reaffirmation factors in the extensive experience of Kerala Nut Food Co.’s (KNFC) partners in the cashew processing industry and established relationship with its customer base, which would continue to support its steady business growth. The firm caters to customers in the domestic and export markets, comprising traders and food processors, with which the firm has a long association and gets repeat orders. The ratings continue to derive comfort from the established brand position of KNFC in the cashew processing segment, along with KNFC’s established distribution network in the surrounding areas of Karnataka. Further, the firm’s established track record of procurement from the African regions continues to be a key credit positive. The ratings also derive comfort from the adequate liquidity of the firm, which is supported by moderate working capital utilisation and nil repayment obligations. The ratings continue to remain impacted by the firm’s weakened financial profile, as reflected by a decline in revenues and losses incurred in FY2024 and the firm’s vulnerability to volatility in raw cashew nut (RCN) and cashew kernel prices. The ratings also consider the continuous deterioration in KNFC’s debt protection metrics in FY2024 owing to losses suffered in FY2024 as well, which though are likely to improve in FY2025. While the firm is gradually increasing its domestic sales, given the unfavourable export demand, the firm’s revenues in FY2025 are likely to improve significantly with recovery in profitability, as per ICRA’s estimates. The ratings also factor in the intense competition from Vietnam in the export market and from numerous processors in the domestic market, which affects the firm’s pricing flexibility. Further, any adverse regulatory or quality-related risks could also impact the firm’s business, as witnessed in the past. The ratings also consider the inherent risks associated with partnership firms, including the risk of capital withdrawals, as witnessed in the past. The Stable outlook on the long-term rating reflects ICRA’s opinion that KNFC will continue to benefit from its established market position and customer base developed over the years, through which the firm has been able to generate regular orders.
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