ICRA has downgraded the long term rating assigned to Rs 3.74 billion (enhanced from Rs 2 billion) term loans, Rs 5 billion (enhanced from Rs 4 billion) fund based bank limits and Rs 3 billion of Non Convertible Debenture (NCD) programme of Dalmia Bharat Sugar & Industries (DBSIL) to 'A' from 'A+'.
ICRA has also reaffirmed the short term rating at A1 for Rs 2 billion of Non-fund based bank limits and Rs 2 billion (reduced from Rs 1 billion) Commercial Paper/Short-Term Debt programme of DBSIL. The ratings have been removed from rating watch with negative implications and a negative outlook has been assigned to the long term rating.
The revision in the ratings and assignment of the negative outlook factors in the continued pressures on operating profitability of UP based sugar mills, including DBSIL, arising mainly out of high cane costs in the state and depressed sugar prices. These pressures are also reflected in large financial losses reported during 9M FY14.
ICRA also notes that profitability of UP based sugar mills will continue to remain vulnerable to the Government of UP (GoUP) policy on cane prices, given that they are largely fixed without any reference to prevailing sugar prices. This apart, profitability of sugar mills will also remain vulnerable to the cyclical nature of the sugar industry, agro-climatic risks related to cane production and counter party credit risk associated with the sale of power to the utilities in Uttar Pradesh (UP).
ICRA however notes that although the UP State Administered Price (SAP) for cane has been kept at previous year's levels at Rs. 280/ quintal for SY14, the actual cost of procurement would be lower for UP based sugar mills, including DBSIL, for the sugar year 2013-14 vis-a-vis SY 2012-13, given the various waivers in taxes and duties offered by the GoUP to the sugar mills in the State
The ratings are supported by DBSIL's large scale of sugar operations with operationally efficient sugar units, ramping up of operations of its recently acquired Kohlapur unit, significant improvement in recovery rates in both UP and Maharashtra units of the company and DBSIL's forward integration into cogeneration and distillery businesses which coupled with its presence in other (non-sugar) operations continue to provide alternate revenue streams and cushions against the cyclicality of the sugar business to an extent. ICRA notes availability of adequate bank limits to support its working capital intensive operations and also further funding support by way of a ailment of interest free excise duty loans under a scheme announced by the GoI.
Shares of the company gained Rs 0.03, or 0.17%, to settle at Rs 17.75. The total volume of shares traded was 1,397 at the BSE (Friday).
