January 09, 2017

Patanjali Ayurved Limited

Instrument* Rated Amount Rating Action
(in crore)
Fund Based Limits 300.0 [ICRA]A+ (Stable) upgraded from [ICRA]A- (Stable)
Non Fund Based Limits 20.0 [ICRA]A1 upgraded from [ICRA]A2+
Total 320.0
*Instrument Details are provided in Annexure-1

Rating Action

ICRA has upgraded the long term rating of Patanjali Ayurved Limited (PAL) from [ICRA]A- (pronounced ICRA A
minus) to [ICRA]A+ (pronounced ICRA A plus)1 for Rs. 300.0 crore2 fund based facilities. The outlook on the
long-term rating is Stable. ICRA has also upgraded the short term rating of PAL from [ICRA]A2+ (pronounced
ICRA A two plus) to [ICRA]A1 (pronounced ICRA A one) for Rs. 20.0 crore non fund based facilities.

Detailed Rationale

The rating action factors in PALs robust revenue growth in FY2016 (Rs. 4812 crore from Rs. 2007 crore in
FY2015) and the current fiscal (~ Rs. 3600 crore in 7 months), supported by increasing brand penetration
through strengthened marketing in the recent past and strong following of Baba Ramdev; continuous new
product introduction giving the company one of the widest product portfolio amongst the fast moving consumer
goods (FMCG) players operating in India; and competitive pricing for its products. PAL has also strengthened
its distribution network by adding both number as well as layers of intermediaries, in order to support the
business growth. These factors combined with partial backward integration and relatively lower selling and
administrative overheads have enabled PAL to maintain its healthy profitability margins and return indicators, in
spite of high competitive pressures. PALs liquidity remains strong on the back of healthy internal accrual
generation, sizeable cash balances and limited debt repayment liability resulting in moderate utilisation of the
working capital limits availed from the bank. This coupled with a sizeable net worth has continued to result in
low gearing levels and robust debt protection metrics.

However, the ratings also take into consideration the high competitive intensity of the industry and relatively
high working capital intensity of the company, primarily driven by high inventory levels. Given the regular rollout
of new products, the companys reliance on contracted manufacturing is increasing which can moderate the
companys profitability margins going forward. Rapid growth in scale of operations exposes the company to
challenges of enhancing the management bandwidth as well as maintaining product quality. In order to meet
the aggressive growth plans, the company has plans for significant expansion of manufacturing facilities over
the next few years, for which it has already been sanctioned land parcels by various state governments. PAL
has also acquired operating companies as part of its expansion strategy. Overall, the ramp-up for facilities will
increase reliance on external debt, which is expected to result in some increase in the gearing level. These
facilities once operational, are expected to drive the companys future revenue growth. However any delay in
completion of these capex plans can hamper the PALs future growth plans and also impact its liquidity
position. Also given the strong linkage of the Patanjali brand with PALs key management personnel, and
ongoing legal proceedings against some of them, the company remains exposed to the outcome of these
proceedings and/or any decline in the followership of these individuals.

Going forward, PALs ability to sustain its revenue growth on increasing base, while maintaining its profitability,
and timely completion of its capex plans remain the key rating sensitivities.

1
For complete rating scale and definitions, please refer to ICRAs website www.icra.in or other ICRA Rating
Publications.
2
100 lakh = 1 crore = 10 million
Key rating drivers

Credit Strengths

a. Robust revenue growth in recent years

b. Diversified revenue base given a wide product basket, with regular addition of new products, leads to wider
addressable market and provides cushion against slowdown in a particular segment
c. Comfortable liquidity position as marked by moderate limit utilisation and healthy cash balances
d. Well entrenched distribution network has resulted in high geographical revenue diversification
e. Healthy profitability margins on the back of relatively lower advertisement/brand promotion expenses and
overheads compared to other established fast moving consumer goods (FMCG) players.
f. Robust internal accrual generation has led to low reliance on debt, leading to low gearing levels and strong
debt protection metrics
g. The company is in the process of expanding its manufacturing facilities across the country, which is likely
to drive the future revenue growth and also help in increasing brand penetration.

Credit Weakness

a. Fragmented nature of domestic industry, with stiff competition from other organized as well as unorganized
players
b. PALs brand is strongly linked to yoga guru Baba Ramdev and Aacharya Balkrishna. Any decline in their
popularity/following can have an adverse impact on the companys sales
c. Working capital intensity of the business, largely driven by the need to maintain high inventory levels.
d. Possibility of deployment of funds towards investments/loans in group companies, as seen in the past.
e. The company has aggressive capex plans, part of which will be funded through debt. This is likely to result
in an increase in debt levels and gearing going forward.
f. As the company continues to scale its capacities and product portfolio, ability to maintain quality, which is
the primary pull-factor, becomes more challenging. The company remains vulnerable to claims of poor
quality and mis-selling. This risk is also heightened on account of sizeable revenue generation from
contract manufacturing
g. Ability to expand the management bandwidth along with the scale of operations remains to be seen

Detailed description of key rating drivers highlighted above:

PAL has a wide product basket and has regularly added new products across different segments, resulting in
one of the widest product portfolio amongst the fast moving consumer goods (FMCG) players in India. This
leads to revenue diversification through wider addressable market and provides cushion against slowdown in a
particular segment. The company has developed a well entrenched distribution network, resulting in high
geographical revenue diversification, and supporting the business growth. These factors coupled with
competitive pricing have enabled the company to register robust revenue growth in recent years and the
operating income has increased to ~Rs. 4800 crore in FY2016 as against Rs. 843 crore in FY2013. Additionally
these strengths combined with partial backward integration and relatively lower selling and administrative
overheads have enabled PAL to maintain its healthy profitability margins and return indicators, in spite of high
competitive pressures. PALs liquidity remains strong on the back of robust internal accrual generation, healthy
cash balances and limited debt repayment liability. The company has limited reliance on external funding
resulting in moderate utilisation of the working capital limits availed from the bank. PAL is also in the process of
setting up manufacturing facilities across different locations across the country. This is likely to drive the future
revenue growth and also help in increasing brand penetration.
 The company operates in a highly competitive market, marked by the presence of numerous established
players. Also PALs brand is strongly linked to yoga gurus Baba Ramdev and Aacharya Balkrishna. Any
decline in their popularity/following can have an adverse impact on the companys sales. However in order to
enhance brand penetration and reduce this dependence, the company has engaged in aggressive marketing
over the past year, resulting in a steep increase in its advertisement spend. The working capital intensity of the
company remains high, primarily driven by high inventory levels given the wide product mix. While majority of
the products are manufactured in house, the level of contract manufacturing has also increased in recent years,
to support the revenue growth. Given the regular rollout of new products, this can moderate the companys
profitability margins going forward. PAL is also exposed to challenges of enhancing the management
bandwidth as well as maintaining adequate product quality which is critical for continued brand acceptance.
The company also has plans for significant expansion of manufacturing facilities over the next few years which
is likely to result in an increase in external debt and project execution risks.

Analytical approach: Not Applicable

Links to applicable Criteria

Corporate Credit Rating A Note on Methodology

About the Company:

Incorporated in 2006, Patanjali Ayurved Limited (PAL) is engaged in producing and selling staples,
herbal/ayurvedic and FMCG products. PAL has three manufacturing units located in Haridwar. PAL is part of
the Patanjali Group setup by Baba Ramdev. Majority (93.47%) of the companys shareholding is held by
Aacharya Balkrishna. PAL sells its brand under the Patanjali brand. .

In FY2016, PAL reported operating income of Rs. 4812.1 crore and profit after tax of Rs. 772.6 crore against an
operating income of Rs. 2006.7 crore and profit after tax of Rs. 308.8 crore in FY2015.

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years:

Table: Rating History

Name of
Chronology of Rating History for the
Instrument Current Rating (2016)
past 3 years
S.No
Amount Date & Date & Date &
Type Date &
outstanding Rating in Rating in Rating in
Rating
(Rs. Crore) FY2016 FY2015 FY2014
January September
2017 2015
Long 300.0 [ICRA]A+ [ICRA]A-
1 Cash Credit - -
Term (Stable) (Stable)
Bank
Short [ICRA]A2+
2 Guarantee/Letter 20.0 [ICRA]A1 - -
Term
of Credit
Complexity level of the rated instrument:
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly
Complex". The classification of instruments according to their complexity levels is available on the website
www.icra.in
Annexure-1
Details of Instrument

Size of
Name of the Date of Current Rating and
Coupon rate Maturity Date the issue
instrument issuance Outlook
(Rs. Cr)
Cash Credit - - - 300.0 [ICRA]A+ (Stable)
Bank Guarantee - - - [ICRA]A1
20.0
Letter of Credit - - - [ICRA]A1
Name and Contact Details of the Rating Analyst(s):
Analyst Contacts
Mr. Sabyasachi Majumdar Mr. Harsh Jagnani
+91-124-4545304 +91-124-4545394
sabyasachi@icraindia.com harshj@icraindia.com

Mr. Deepak Jotwani

+91-124-4545870
deepak.jotwani@icraindia.com

Name and Contact Details of Relationship Contacts:

Mr. Jayanta Chatterjee
+91-80-43326400
jayantac@icraindia.com

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