Credit Analysis & Research (CARE) reaffirmed 'A-' ratings to Hatsun Agro Product's long-term bank facilities of Rs 3.70 billion (reduced from Rs 4.11 billion).

CARE reaffirmed 'A2+' ratings to the company's short-term bank facilities of Rs 1.17 billion (enhanced from Rs 800 million).

The ratings continue to take into account the established track record of Hatsun Agro Product (HAPL) in the liquid milk and ice-cream businesses, presence of strong brands especially in the standardized milk and ice-cream segments, strong procurement network and experienced management team.

The ratings also draw strength from the considerable improvement in the scale of operations of the company aided by the higher procurement levels of raw milk leading to robust growth in income and higher cash accruals in FY13 and 9MFY14. 

The ratings, however, are constrained by the inherently low profitability associated with the nature of dairy business and the leveraged capital structure of HAPL which is expected to remain at elevated levels owing to the largely debt-funded proposed capital expenditure plan.

Going forward, the ability of HAPL to ensure sustained improvement in the procurement of liquid milk and inturn to optimally utilise its manufacturing capacities, especially in the light of the envisaged capacity expansion will be critical for the company’s financial prospects. Additionally, rationalization of debt level, resulting in improvement in the capital structure will also form the key rating sensitivity. 

Shares of the company declined Rs 3.75, or 1.36%, to settle at Rs 272.15. The total volume of shares traded was 12,051 at the BSE (Thursday).