ICRA has upgraded the long term rating of Dwarikesh Sugar Industries (DSIL) to 'B' from 'B-'  for Rs 2.35 billion (earlier Rs 2.75 billion) term loans, Rs 2.61 billion (earlier Rs 3.25 billion) cash credit facilities and Rs 1.03 billion (earlier nil) unallocated limits. ICRA has also withdrawn the rating watch with negative implications. 

The rating upgrade takes into account continued satisfactory debt servicing and liquidity position of the company in face of adverse business conditions and continued losses in the core business of sugar manufacture, mainly because of continuous infusion of funds by the promoters in the form of redeemable preference shares. The total funds infused amounted to Rs 50 million in SY13 and Rs 300 million in SY14.

The rating also factors in the improvement in the working capital intensity of the company owing to liquidation of stocks, DSIL's long track record in the sugar business, satisfactory operational performance and forward integration into cogeneration and distillery businesses, which will continue to provide alternate revenue streams and some cushion against cyclicality in the sugar business. Further, ICRA notes that interest free (excise duty) loans from SDF to the tune of Rs 610.8 million is expected to improve the liquidity position of the company and aid in clearing the cane payments during SY14. 

With the continuation of high cane costs in UP (SAP of Rs. 280/Qtl) in SY14 coupled with prevailing low sugar realizations, pressure on the profitability is likely to continue. Further, ICRA expects continued reliance of DSIL on promoters for debt servicing given the high debt repayments falling due in FY14 in relation to expected accruals. The rating also continues to be constrained by risks arising out of the inherent cyclicality in the sugar business, agro-climactic factors and government policies governing cane pricing, sugar release mechanism and pricing of by-products.

ICRA has earlier placed DSIL's rating under watch with negative implications following the company's decision to suspend the mill operations to oppose the direction of the State Government to sugar mills for commencing operations for the sugar year SY14. The sugar mills of DSIL have commenced operations from December onwards. 

Shares of the company gained Rs 0.8, or 3.46%, to settle at Rs 23.95. The total volume of shares traded was 5,472 at the BSE (Wednesday).