Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank loan facilities and commercial paper programme of E.I.D. Parry India Limited (EID Parry).

 

The ratings continue to reflect EID Parry’s established market position in the sugar business, derived from integrated nature of operations with diversified revenue profile, average and adequate financial risk profile, and superior financial flexibility derived from being the holding company of Coromandel International Limited (CIL, rated ‘CRISIL AAA/Stable/CRISIL A1+). The ratings also factor in the strong support from Murugappa Group as EID Parry is an integral part of the group  These strengths are partially offset by the susceptibility of its business performance to downturn in the sugar business and to regulatory changes in the sugar sector, and modest performance of its subsidiary engaged in the sugar refinery business, Parry Sugars Refinery India Pvt Ltd (PSRIPL, ‘CRISIL A+/Stable/CRISIL A1’).

 

EID Parry’s business risk profile continued to remain healthy, with consolidated revenue rising 26% y-o-y in fiscal 2023 primarily driven by higher sugar volumes and realizations and increasing share of distillery sales, however the nutraceutical segment witnessed a muted growth. Sugar cane crushed volume moderately increased to 51.8 Lakh MT in fiscal 2023 compared with 50.21 lakh MT crushed in fiscal 2022 however, overall revenue from sugar business grew 10.5%, supported by better realisations.

 

Sugar operations was well supported by the distillery segment in which company was able to add 120 KLPD additional capacity from January 2023 at their Sankili plant, taking up total distillery capacity to 417 KLPD. EID-Parry is also further expanding their distillery capacity by 165 KLPD at Nellikuppam and Haliyal plants; the same is expected to become available by the fourth quarter of  fiscal 2024 taking the total distillery capacity to 582 KLPD. Total ethanol produced grew by 23% on-year in fiscal 2023, which along with better ethanol realisations, led to revenue growth of 31% from this segment.

 

In the sugar refinery business, revenue grew by 40% driven by volume growth of 15% and better spreads as international sugar prices firmed up in fiscal 2023. Revenue from cogeneration business also grew 54% driven by higher power export and better power tariff realization Overall, revenue are expected to grow by 11-12% in the near term with sugar volumes remaining almost stable and realization improving further due to optimal sugar stocks and lower production in other sugar growing geographies. Revenue will also be supported by improving revenues from distillery business, including due to higher capacity.

 

EID-Parry’s consolidated operating margin moderated in fiscal 2023 to 2% compared to 6.1% fiscal 2022, due to losses incurred at PSRIPL. While operating margins on standalone basis remained above 9%, higher coal costs at the refinery, damage to raw materials requiring replacement at a higher cost, and demurrage costs incurred due to two accidents in August 2022, which resulted in closure of refinery plant and operations for 40-45 days, led to large losses at PSRIPL, also impacting consolidated operating profitability. Operations at the refinery have thereafter gradually stabilized, and consolidated operating margins are expected at 5-6% in the near to medium term, also supported by higher contribution from distillery operations.

 

EID-Parry’s financial risk profile remained stable though debt protection metrices moderated in fiscal 2023 over fiscals 2022 due to lower profitability. The company is expected to incur capital expenditure (capex) of ~Rs 350 crore in in fiscal 2024 (Rs. 238 crore in fiscal 2023), which will involve spend of Rs 250 crore  towards expanding their distillery capacity by 165 KLPD. The proposed total capex will be funded by debt of ~Rs 250 crore and rest from accruals. Over the medium term, the company is expected to incur capex of ~Rs.130-150 crore annually, mainly for routine modernization, which will be funded mainly from accruals. EID Parry’s liquidity is adequate with expected net cash accruals of Rs 280-290 crore sufficient for modest annual debt repayments and funding part of the proposed capex. Debt protection metrics which moderated in fiscal 2023, due to lower profitability and higher debt, are expected to gradually improve to adequate levels over the medium term.

 

The credit profile of the ~Rs.74,000 crore Murugappa group has also strengthened in fiscal 2023, supported by strong performances of leading entities including Tube Investments of India Ltd (TI, rated ‘CRISIL AA+/Stable/CRISIL A1+’), CIL, Carborundum Universal Ltd (CUMI, rated ‘CRISIL AA+/Stable/CRISIL A1+’) and Cholamandalam Investment & Finance Company Ltd (CIFCO, rated ‘CRISIL A1+’). Debt metrics of the manufacturing companies of the group, have also strengthened to healthy levels.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of EID Parry with its two subsidiaries namely PSRIPL, and US Nutraceuticals INC (USN). CRISIL Ratings has also moderately consolidated its joint venture (JV) Algavista Greentech Pvt Ltd (Algavista)to the extent of support required over the medium term. This is because these entities are in the similar line of business as EID Parry. CRISIL also believes EID Parry will extend both business and need-based financial support, to scale up operations.

 

CRISIL Ratings has also factored in support from the Murugappa group, since EID Parry is an integral part of the Murugappa group representing the group’s presence in sugar industry. The group is also expected to extend financial support in case of exigencies.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation..

Key Rating Drivers & Detailed Description

Strengths:

• Diversified revenue profile due to integrated nature of operations: EID-Parry is a large integrated sugar producer. It has the capacity to crush 40,300 tone per day (TPD) of sugarcane, a co-generation plant of 140 megawatt, distillery of 417 kilo litre per day (increased from 297 KLPD in fiscal 2022), and sugar refinery of 9 Lakh MT per year (through PSRIPL). Large scale, integrated operations with the power and distillery business along with nutraceuticals provide moderate cushion from cyclicality in the sugar business. EID-Parry crushed 51.8 Lakhs MT of sugar cane in fiscal 2023 compared to 50.21 lakhs MT in fiscal 2022. Other businesses (co-generation and distillery) also performed better in fiscal 2023 showing overall improvement in business. The company distilled 1044 lakhs liters of ethanol in fiscal 2023 compared to 847 lakhs liters in fiscal 2022. Average realization also improved to Rs.60.4 per liter in fiscal 2023 from Rs.57.1 per liter in fiscal 2022. EID Parry is also expanding its  distillery capacity by additional 165 KLPD which will contribute to revenues from the fourth quarter of  fiscal 2024. With increasing focus on distillery operations and with additional capacity becoming available in fiscal 2025, vulnerability of performance to volatile sugar production and prices is expected to gradually reduce over the near to medium term.

 

• Average and adequate financial risk profile: Financial risk profile of EID Parry moderated in fiscal 2023 due to lower profitability and higher debt. Debt in the company increased due to the capital expenditure program and higher utilization of working capital limits. Interest coverage ratio declined to 2.70 times in fiscal 2023 from 7.77 times in fiscal 2022, due to lower profitability and higher interest cost (due to increased utilization of working capital limits and general increase in the interest rates in fiscal 2023). Though debt is expected to increase due to further addition of debt for the planned distillery business expansion, interest coverage ratio expected to improve to above 3.50x in the near to medium term with better operating profitability. Total debt is expected to remain between Rs 1100-1200 crore resulting in the ratio of total outside liabilities (TOL) to tangible net worth (TNW), remaining between 1.50-1.84 times in the near to medium term. Gearing increased to 0.72 times at March 31, 2023, from 0.44 times at March 31, 2022 due to higher debt. Gearing is expected to remain between 0.7-0.8 times over the medium term, due to additional debt funded capex, but still be comfortable.

 

• Financial flexibility, being part of the Murugappa group: EID Parry is one of the leading entities in the Murugappa group of companies. It also derives substantial financial flexibility from being the holding company for CIL. Its 56% stake in CIL was valued at almost Rs. 15500 crores as on July 1, 2023. CIL has a healthy dividend track record, which is expected to continue over the medium term. EID-Parry received dividend of almost Rs.1,000 crores between fiscal 2018 and 2023; steady dividend flows support its overall profits and helps partly mitigate impact of volatility in its business. Additionally, company also sold ~4% stake in CIL during fiscal 2021, proceeds of which has largely been used to pare debt. The group also enjoys strong reputation with the lending community, which helps entities including EID-Parry to raise funds at attractive coupon rates.

 

Weaknesses:

• Susceptibility to volatility in sugar prices and regulatory changes: While the input prices are driven by the government, sugar prices are volatile and based on open market prices (which are dependent on the production levels) leading to volatility in players’ profitability. Besides, the government regulates domestic demand-supply through restrictions on imports and exports, and stock holdings. Regulatory mechanisms and dependence on monsoons have rendered the sugar industry cyclical. EID-Parry's operating profitability will continue to improve due to cost reduction initiatives, closure of loss making plants in Tamil Nadu and integrated nature of operations.      

 

The GoI has showcased the intent to fasten the move to an ethanol-based economy, by advancing the 20% ethanol blending target (with gasoline) to 2025 from 2030. Additionally, the government has made supplies profitable by raising ethanol prices every fiscal, in addition to differential pricing for B-Heavy and the direct cane juice route and providing interest sops on loans for setting up ethanol-based distilleries. Any change in the regulatory stance and continuation of government support to sugar sector (including distilleries and ethanol pricing) are key monitorable.

 

• Modest Performance of PSRIPL: Performance of the refinery segment under PSRIPL has continued to remain modest with losses increasing in fiscal 2023, due to stoppage of operations for 40-45 days owing to accidents at its plant. The company also consequently incurred high demurrage charges, as ships had arrived at the port to lift the quantity for exports but shipments got delayed. Besides, higher coal costs and replacement of damaged raw materials (due to accidents) at higher costs, also impacted profitability in fiscal 2023.

 

PSRIPL imports raw sugar predominantly from Brazil and Thailand, refines the same into white sugar and exports. PSRIPL’s operating performance in fiscals 2018 and 2019 had been severely impacted by weak sugar prices, resulting in net losses. This was due to sizeable inventory losses following decline in global raw sugar prices. Despite achieving 15% higher volumes in sales and nearly 40% on-year growth in revenue, the company reported a higher loss at operating level, and at the net level in fiscal 2023 due to unexpected demurrage charges of ~Rs 105 crore incurred due to disruption of operation for 40-45 day in the month of August-September in 2022, following two fatal accidents involving the boiler at the plant, besides higher coal and raw material costs. Export prices of white sugar remained elevated during the year and demand remained strong amid lower supply from major sugar producing nations including Brazil and Thailand. At present, the refinery unit is running at normal capacity with additional safety measure implemented to prevent any future mishaps. Global sugar prices are expected to remain elevated in fiscal 2024 due to lower exports from India, following lower production of sugar by 6-7% in the country and the need to maintain 5-6 million MT of stock for consumption during the lean production season. PSRIPL is expected to be benefited by the higher international sugar prices, and better spreads which will support its operating performance in fiscal 2024.

Liquidity: Strong

EID-Parry’s liquidity position is strong and supported by fund based working capital line of ~Rs 1000 crore which were moderately utilized at 11% in the past 12 months. Though utilization in the near term may increase to 25-30% due to higher working capital requirement, the company is expected to have ample liquidity to manage their working capital needs. Also the company holds majority stake in CIL, valued at over Rs.15000 crore, and if required, some stake can be sold in the event of any financial exigencies.

 

EID-Parry is expected to incur capex of ~Rs 350 crore in fiscal 2024 of which Rs 250 crore will be incurred for expanding its distillery capacity by 165 KLPD. A term loan of Rs.250 crore is being availed for the distillery expansion, which will enjoy interest subvention of ~2%.  Annual net cash accruals of Rs.280-300 crore will be sufficient for annual debt repayment of Rs 50-71 crore and part fund capex plans.

 

ESG Profile of EID Parry:

CRISIL Ratings believes that EID Parry’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile. The company’s commitment to ESG principles will play a key role in enhancing stakeholder confidence.

 

Sugar production has a moderate impact on the environment owing to moderate emissions, water consumption and waste generation. The sector’s social impact is also moderate considering the impact of operational activities on the company’s own employees. The company is focusing on mitigating environmental and social risks

 

Key ESG highlights:

• The Company has a continuous focus on conservation of energy. Targets in terms of sourcing mix and cost are set every year and action plans are drawn.
• Share of energy from renewal sources was 82.60% in FY23 which was better than the industry.
• Company has a gender diversity of 2% and Loss time Injury Frequency Rate (LTIFR) rate of 0.82 for fiscal 2023.
• The governance structure is characterized by 50% of its board comprising independent directors. Position of the chairman and CEO are split. It has a committee at the Board level to address investor grievances and also put out extensive disclosures.
• There is growing importance of ESG among investors and lenders. The commitment of EID Parry to ESG principles will play a key role in enhancing stakeholder confidence, given its access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings expects better contribution from EID Parry’s distillery and co-generation operations, and stable sugar demand in the domestic and export market will lead to improved cash generation in the near to medium term. Debt metrics are expected to remain at adequate levels, supported by steady cash generation and prudent funding of capex. Also, support from Murugappa group is expected to be forthcoming, if required.

Rating Sensitivity factors

Upward factors:

• Better than expected improvement in business performance at distillery, co-gen and PSRIPL, benefitting cash generation
• Sustaining debt at modest levels of below Rs.800 crores, which along with better cash generation, will further strengthen debt metrics
• Upward movement in the credit profile of Murugappa group

 

Downward factors:

• Substantially weaker business performance due to decline in sugar prices or sizeable increase in cane prices, or weaker than expected profitability from distillery and PSRIPL, impacting cash generation
• Slower than expected reduction in inventory or higher than expected capital expenditure leading to debt increasing sharply, impacting key debt metrics – TOL/TNW increasing beyond 2-2.25 times
• Decline in credit profile of Murugappa group.

About the Company

EID-Parry is part of the Rs. 74,000 crore Chennai based Murugappa group. The group has diverse business activities that include abrasives, automotive components, cycles, sugar, farm inputs, fertilizers, plantations, construction and bio-products.

 

EID-Parry represents the group's sugar manufacturing interests. The promoters held 44.55% stake in the company as on July 1, 2023. EID-Parry acquired 76% stake in Karnataka-based SSL for Rs.49.62 crores in October 2009, and increased the stake to 100% in September 2011 for Rs.18.0 crores. In May 2014, SSL was merged with EID-Parry (effective from April 1, 2013). In 2010, EID-Parry acquired 65% stake in GMR Industries Ltd (which was subsequently renamed Parry Sugar Industries Limited (PSIL)) for Rs.98.87 crores. In March 2013, the company completed the merger of two of the three mills of PSIL, at Haliyal in Karnataka and at Sankili in Andhra Pradesh, with itself (effective April 1, 2012). In April 2017, the third mill in PSIL was also merged with EID Parry (effective from April 1, 2016).

 

In December 2017, EID-Parry announced slump sale of its in-house bio-pesticides business along with its entire stake in fully owned subsidiary – Parry America Inc, USA to CIL for a total purchase consideration of Rs 338 crore, which was received in April 2018. The company also commenced a 50:50 JV, Algavista, with Synthite Industries Private Limited (rated ‘CRISIL AA/Stable/A1+’). The JV is  involved in manufacturing value added algae products and natural food coloring agent called phycocyanin.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs. Crore)	Complexity Level	Rating assigned with outlook
NA	Commercial Paper	NA	NA	7-365 Days	650	Simple	CRISIL A1+
NA	Bank Guarantee&	NA	NA	NA	100	NA	CRISIL A1+
NA	Cash Credit^	NA	NA	NA	400	NA	CRISIL AA/Stable
NA	Letter of Credit%	NA	NA	NA	50	NA	CRISIL A1+
NA	Long Term Loan	NA	NA	Oct-24	92.5	NA	CRISIL AA/Stable
NA	Long Term Loan	NA	NA	Mar-25	35	NA	CRISIL AA/Stable
NA	Long Term Loan	NA	NA	Nov-27	8	NA	CRISIL AA/Stable
NA	Long Term Loan	NA	NA	Mar-28	87	NA	CRISIL AA/Stable
NA	Long Term Loan	NA	NA	Mar-28	150	NA	CRISIL AA/Stable
NA	Short Term Loan	NA	NA	NA	100	NA	CRISIL A1+
NA	Short Term Loan	NA	NA	NA	100	NA	CRISIL A1+
NA	Proposed Fund Based Bank Limits	NA	NA	NA	352.5	NA	CRISIL AA/Stable

& - Interchangeable with letter of credit and fund based working capital limits

^ - 50% interchangeable to non-fund based working capital limits

% - Interchangeable with bank guarantee and fund based working capital limits