Aman Feed Limited (AFL) - Credit Rating Agency of Bangladesh

CRAB RatingsCorporateCredit Rating ReportAman Feed Limited (AFL)RatingLong Term : BBB 1Date of Rating : 06 January 2010Valid Till : 31 December 2010Analysts:Razib AhmedSenior Financial Analystrazib.ahmed@crab.com.bdNur Elahee MollaFinancial Analystnur_elahee@crab.com.bdMavin AhmedFinancial Analystmavin@crab.com.bdFinancial HighlightsBDT in Million2008-09 2007-08Revenue 1,041.60 458.84EBITDA 174.75 65.28Net Worth 205.25 53.26Gross Profit Margin 19.02% 16.23%Bank Loans/Assets 71.91% 86.11%EBITDA/Interest 2.73x 3.66xCurrent Ratio 1.20x 1.09xCreditors Days 05 01Debtors Days 49 49Inventory Days 142 24001. RATIONALECredit Rating Agency of Bangladesh Ltd(CRAB) has assigned ‘BBB 1 ’ (Triple B One)rating in the long term to Aman Feed Ltd(AFL) based on audited financials of 2009and other relevant information.Corporate entities rated ‘BBB 1 ’ in the longterm belong to ‘Adequate Capacity’ group.Such corporate entities have adequatecapacity to meet their financialcommitments but are more susceptible toadverse economic conditions or changingcircumstances and are also subject tomoderate credit risk.The rating reflects the Company’s strengthwith its intensifying earnings & profitability,installed hi-tech machineries, satisfactoryinterest coverage, diversified products,satisfactory working capital management,ISO 9001:2000 & HACCP certifiedproduction facility as well as group support.The rating also considers the experience andgoodwill of the promoters and satisfactoryreports of credit history from Banks. Therating however, is constrained by weakfinancial reporting, relatively high Cost ofGoods Sold, crisis of gas for generatingelectricity, moderate capacity utilization,debt based capital structure, etc.Aman Feed Ltd (AFL) was promoted byAman Group, which has several otherindustrial and trading concerns in differentsectors. The Company commenced itscommercial operation in September 2005 tomanufacture 38 types of feeds in 8categories including broiler, layer, pangus,tilapia, koi, fish, shrimp, and cattle for localsale. With German technology andmachinery, this mill maintains the quality ofthe products in line with European standardand installed capacity of yearly 86,400 MT.The mill is situated near the Ullapara railwaystation in Ullapara Upazilla of Sirajganj.

CRAB RatingsCorporateAFL’s revenue from sales experienced sharp growth in FY 2008-09. The revenue sourcesare 100% local sales of different types of poultry feed and fish meal through listed 67dealers. During FY 2008-09, AFL produced 42.16 million kg feed/meal, which was 21.27Million kg in FY 2007-08. Total sales of the Company increased to BDT 1,041.60 millionin FY 2008-09 by 127% from BDT 458.84 million.AFL’s Gross Profit Margin (19.02%) as well as Operating Profit Margin (16.01%)experienced in upward trend in FY 2008-09 due to decreasing CoGS. However, firm’sCoGS were relatively higher than other industry, showing almost 85% of total revenuefor last few years of operation. Net Profit Margin of the Company also shows upwardtrend but slowly because of increasing financial expenditure. Last year, Both ROA & ROEof the Company shows positive growth.The rating considers the debt based capital structure of AFL. Company’s debt to equityratio in FY 2008-09 was 2.86 times, which was 9.65 times in FY 2007-08, indicating thatthe firm recently increases its equity cushion to its creditors/lenders. Debt to asset ratioof the Company was 73.60% in FY 2008-09, which was 86.62% in FY 2007-08.AFL has satisfactory interest coverage ratio over the last few years of operation.However, the concern area is the ratios are in diminishing trends due to increasingfinancial expenses. Company’s Fund from Operation was 2.73 times of interest expensesin FY 2008-09, which was 3.66 times of interest expenses in FY 2007-08.Liquidity position of AFL was found to be tight in FY 2006-07 and FY 2007-08, but quiteimproved in recent year. Cash and Bank balance of the Company was very low at initialstage of the firm and now comes at stable position. Current ratio of the Company was atjustified level; current assets are on an average 1.12 times the current liabilities.However, the Company shows efficiency in working capital management.Working capital intensity of AFL is in decreasing trend because of decreasing inventorydays and debtor days, with increasing Days payable in FY 2008-09. The Company showssome improvement through decline in debtor days from 230 to 49 days as the Companyimproved its collection period and inventory days from 240 to 142 days signifying goodinventory management. Increasing trade creditor from BDT 2.05 million to BDT 13.50million in FY 2008-09 indicates that the Company now takes more time to settle itspayment to the creditor.AFL has been banking with two commercial banks, i.e., AB Bank Limited (KakrailBranch), and EXIM Bank Ltd (RAJUK Branch). AFL has been banking with above banksfor more than 3 years. Since the inception of business relationship with the subject,overall performance of AFL is reported to be satisfactory. According to reports fromthese two banks, repayment of interest/profit and principal form AFL has been timely.There is no record of any default by AFL or its sister companies. As per bank recordsduring last one year, financial relationship with AFL’s suppliers and customers was foundto be good with no records of dishonoring of cheques due to insufficient fund.The rating also considers the support from the group (Aman Group) regarding financialissues, strong controlling and monitoring system, management support andinfrastructural facilities. The labor retention success, technology used, soundmanagement information system but weak financial reporting and the nature of businessare also considered while assigning the rating.Page 2 of 2