Rating Rationale
August 12, 2024 | Mumbai
Kothari Sugars and Chemicals Limited
Ratings reaffirmed at 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.103 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2’ ratings on the bank facilities of Kothari Sugars and Chemicals Ltd (KSCL).

 

The ratings reflect the long-standing presence of KSCL in the sugar industry, its integrated operations, diverse product portfolio and healthy financial risk profile. These strengths are partially offset by susceptibility to downturn in the sugar business and exposure to regulatory changes in the sugar industry and scale of operations.

Key Rating Drivers & Detailed Description

Strengths:

  • Long-standing presence in the industry: Backed by presence of over seven decades, KSCL has established itself as one of the significant players in the sugar segment. Over the years, the company's promoters and management have gained good insight about the industry and have established diverse customer base and healthy relationships with sugarcane farmers. Furthermore, the company has also weathered the inherent cyclicality in the sugar industry. A sugarcane crushing capacity of around 6400 tonne per day, distillery of 60 kilolitre per day of output, and a co-generation unit of 33-megawatt (MW) capacity have supported the business risk profile. With increasing focus on distillery operations, vulnerability of performance to volatility in sugar production and prices is expected to gradually reduce over the medium term.

 

  • Healthy financial risk profile: Capital structure has been healthy due to lower reliance on external funds yielding gearing of 0.25 time and low total outside liabilities to adjusted tangible net worth (TOL/ANW) ratio of 0.73 time as on March 31, 2024. Debt protection measures have also been healthy due to leverage and comfortable profitability. The interest coverage and net cash accrual to total debt (NCATD) ratios were 12.64 and 0.51 times, respectively, for fiscal 2024. The interest cover ratio for FY25 Q1 has reduced to 2.29 times due to short term limit utilization during the crushing season and low profitability. Debt protection measures are expected to improve over the medium term.

 

Weaknesses:

  • Susceptibility of business performance to downturn in the sugar business: Sugar prices are largely market driven and dependent on production for the sugar season and inventory levels prevailing in the country. Hence, higher production, which increases inventory levels, may lead to a steep fall in prices and impact profitability severely, as the cost of production is relatively sticky. Monsoons too have a bearing on cane production and recovery rate of cane, impacting overall sugar production in the country. Additionally, the government has taken measures to encourage increased diversion of sugarcane to ethanol instead of sugar and promote exports in the past years to address the excess inventory and arrest the fall in prices.

 

  • Exposure to regulatory changes in the sugar industry and moderate scale of operations: While sugar prices are market driven, the government is empowered to fix the price paid to cane growers annually. KSCL’s scale of operation remains vulnerable to material changes based on the regulatory changes in the sugar industry as reflected in the movement of scale of operations in the last 3 years wherein the revenue was Rs. 609 crores in FY23 and reduced to Rs. 503 crores in FY24 and Rs. 90 crores in FY25 Q1. The decrease in scale of operation is primarily due to the government quota system which the company started following from February 2024. The low sales in FY25 Q1 have led to low profitability too. Business performance in the upcoming quarters, any change in the regulatory stance and continuation of government support to sugar sector (including distilleries and ethanol pricing) are key monitorable.

Liquidity: Adequate

Estimated cash accrual of around Rs. 30 crores will be sufficient against nil term debt obligation over the medium term and support liquidity. Bank limit utilization was moderate at 72% over the past 5 months ended July 2024 due to the crushing season. The current ratio was healthy at 1.7 times on March 31, 2024, while liquid investments were around Rs 100 crore in shares, debentures, and mutual funds as of March 2024 supports the liquidity further. Low gearing and moderate net worth support financial flexibility.

Outlook: Stable

CRISIL Ratings believes KSCL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity Factors

Upward factors

  • Improvement in revenue and operating margin at 14% leading to higher-than-expected cash accruals
  • Sustained improvement in financial risk profile

 

Downward factors

  • Decline in operating profitability to less than 6% leading to lesser cash accrual
  • Increase in working capital requirements thus weakening its liquidity and financial risk profiles

About the Company

Incorporated in 1961, KSCL manufactures sugar and has two plants in Tamil Nadu, one in Kattur village and the other in Sathamangalam village, with a combined installed capacity of 6,400 tonne crushing per day (TCD). Also, the sugar mill has a 33 MW captive power generation capacity, which it fuels using bagasse generated in the sugar production and 60 Kilo Litres per day (KLPD) molasses-based distilleries.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2024

2023

Operating income

Rs.Crore

502.23

609.61

Reported profit after tax (PAT)

Rs.Crore

29.49

41.92

PAT margin

%

5.87

6.88

Adjusted debt/Adjusted networth

Times

0.25

0.15

Interest coverage

Times

12.64

16.07

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Complexity Levels Rating Assigned with Outlook
NA Bank Guarantee  NA  NA  NA 3  NA CRISIL A2
NA Cash Credit NA NA NA 100 NA CRISIL BBB+/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 100.0 CRISIL BBB+/Stable 03-05-24 CRISIL BBB+/Stable 17-03-23 CRISIL BBB+/Stable   --   -- --
Non-Fund Based Facilities ST 3.0 CRISIL A2 03-05-24 CRISIL A2 17-03-23 CRISIL A2   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 3 Indian Bank CRISIL A2
Cash Credit 100 Indian Bank CRISIL BBB+/Stable
Criteria Details
Links to related criteria
Rating Criteria for Sugar Industry
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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