Rationale

 The revision in the outlook on the long-term rating takes into consideration the weak operating performance of Tasty Bite Eatables Limited (TBEL or the company) since Q2 FY2022, because of subdued demand from key export markets, reduction in export incentive benefits1 , along with profitability being impacted by commodity headwinds. In addition, the company's performance in Q3 FY2022 was also impacted by a reduction in scale of operations, as a result of inventory build-up at its key customers catered to the US market. ICRA expects the revenues to remain subdued in the short-term until the inventory buildup corrects itself in the export markets and demand picks up thereafter. Further, profitability is expected to continue to remain weaker than earlier levels owing to lower scale and reduction in export incentives (benefits lower to the extent of ~3-4%). TBEL's ability to improve its scale of operations, and its current profitability levels would remain a monitorable over the near term. Despite the weak performance in the recent past, the rating reaffirmations continue to favourably factor in the support and strong parentage of TBEL by being a part of the Mars Group (Mars) spearheaded by Mars, Incorporated; majority of sales of TBEL are routed through group companies. The ratings continue to factor in the established distribution network of the Tasty Bite brand in the USA, characterised by strong relationships with established retailers and distributors. ICRA also notes TBEL's sustainable business model through product innovation and technological barriers for the niche products supplied to leading brands in the domestic market; along with the positive demand outlook for the Quick Service Restaurant (QSR) industry, all of which provides adequate revenue visibility to the company. The ratings assigned continue to remain constrained by TBEL's comparatively moderate scale of operations in the intensely competitive processed foods industry, which is dominated by large players, especially in matured markets such as the US. The company's profitability has also dipped sharply in 9M FY2022 characterised by OPBITDA margin of 5.6% in Q3 FY2022 over 17.2% in FY2021, while it continues to demonstrate high customer concentration risk with ~70% revenues generated from exports; though increasing share of domestic revenues provides some cushion. TBEL also stands exposed to foreign exchange (forex) fluctuations; however, its hedging practices provide some comfort against the fluctuations to an extent.