New Delhi, Jan 24 (KNN) CRISIL analysis of 250 micro and small enterprises (MSEs) reveals that the cold storages in West Bengal are under severe pressure due to rental cap. Rentals inclusive of labor charges were estimated at Rs 1,600 per tonne in West Bengal and Rs 2100 per tonne in Uttar Pradesh.

However, lack of pricing autonomy has reduced the profitability of units and made them vulnerable except renting out, these cold storages also provide advances to farmers and traders in lieu of cold storage receipt. Huge dependence on external borrowings to fund these advances results in a highly leveraged capital structure, which is quite visible  in their high gearing and low interest cover signifying relatively weak credit profile compared with their counterparts in Uttar Pradesh.

The risk of capital erosion is also high, given that advances are 3.5 times net worth. With decline in potato prices it become difficult for farmers to repay back the loans to lenders.

The rental cap has also disincentive capacity addition.

According to ministry of food processing data, capacity in West Bengal logged a paltry 0.5 per cent CAGR between fiscal years 2009 and 2017.

To improve the units ability to reduce operating costs and encourage investment it is necessary to Link rental rates to market rates and stop immoral practices for better price discovery for farmers, the study added.

As a next step, these units could be encouraged to take accreditation from approved agencies, which could help in fair valuation of the collateral. (KNN/YV)