Rating Rationale
August 16, 2018 | Mumbai
E.I.D. Parry India Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.1955.2 Crore
Long Term Rating CRISIL AA-/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.100 Crore Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.100 Crore Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.950 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the long-term bank facilities and Non-Convertible Debenture (NCD) programme of E.I.D. Parry India Limited (EID Parry) at 'CRISIL AA-/Stable' while reaffirming the rating on short-term bank facilities and commercial paper at 'CRISIL A1+'.

EID Parry's business performance was impacted in fiscal 2018 due to declining sugar prices in the second half of the fiscal and one-time settlement to farmers amounting to Rs 87 Cr. The company's standalone operating profitability moderated sharply to 5.3% in fiscal 2018 from 8.7% in the previous fiscal. The company's performance is expected to remain modest in fiscal 2019 as well, due to continued lower cane availability in Tamil Nadu, and weak forecast of sugar realisations, following higher cane output expected from Maharashtra, Karnataka, Andhra Pradesh and Uttar Pradesh for the upcoming sugar season. In the first quarter of fiscal 2019, the company incurred operating losses of over Rs 100 crores owing to continuing weak performance of its sugar and co-generation divisions.  Nevertheless, EID Parry received Rs. 338 Cr cash proceeds from the sale of bio-pesticides business in April 2018. This will help partly offset the expected moderation in business cash accruals, in the current fiscal.

However, the company's debt levels are expected to be higher at ~Rs.2000 crore at March 31, 2019 (~Rs.1700 crore at March 31, 2018), due to moderate long term debt being raised for setting up ethanol plants, as well as part refinancing of maturing long term debt. Further, short term debt levels, which had spiked in March 2018 due to bumper sugar season and high stocks (valued at ~Rs.1000 crore) as well as a government restrictions on sale of sugar, are expected to remain high in the current fiscal as well, as sugar production is expected to remain in surplus, for the second year in succession.

The ratings also continue to reflect EID Parry's established market position in sugar business, derived from integrated nature of operations with diversified revenue profile, financial flexibility derived from being part of the Murugappa group, and as holding company of Coromandel International Ltd (CIL, rated 'CRISIL AA+/Stable/CRISIL A1+'). 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 industry, sub-par performance of its sugar refinery, and its moderate financial risk profile.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of EID Parry, Parry Sugars Refinery India Private Limited (PSRIPL; 'CRISIL AA-(SO)/CRISIL A+/Stable/CRISIL A1') and US Nutraceuticals LLC (USN). This is because the two subsidiaries are in the same line of business as EID Parry. CRISIL also believes EID Parry will extend support, both business and financial, to scale up operations of PSRIPL and USN. CRISIL 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.

Key Rating Drivers & Detailed Description
* Diversified revenue profile due to integrated nature of operations
EID Parry is a large integrated sugar producer. It has the capacity to crush 45,800 tonne per day (TPD) of sugarcane, a co-generation plant of 160 megawatt, distillery of 234 kilo litre per day, and sugar refinery of 2000 TPD (through PSRIPL). Large scale, integrated operations with the power and distillery business along with nutraceuticals provide moderate cushion from cyclicality in the sugar business. Performance of PSRIPL improved in fiscal 2017 due to decline in foreign exchange losses and favourable spread between raw sugar and refined sugar prices; however, its performance deteriorated sharply in fiscal 2018, due to soft sugar prices, impacting the spread.

* 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 60.58% stake in CIL is valued at almost Rs. 7,500 crores as on August 07, 2018. CIL has a healthy dividend track record, which is expected to continue over the medium term. EID Parry received dividend of almost Rs.410 crores between fiscal 2015 and 2018; steady dividend flows supports the company's overall profits, and helps partly mitigate impact of volatile business performance. The group also enjoys strong reputation with the lending community, which helps entities including EID Parry raise funds at attractive coupon rates.

* Susceptibility to volatility in sugar prices and regulatory changes
The sugar industry is susceptible to movements in sugar prices which results in volatile profitability. 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. Regulatory mechanisms and dependence on monsoons have also rendered the sugar industry cyclical.

The government regulates the domestic demand-supply through restrictions on imports and exports. When sugar prices were on an increasing trend during sugar season (SS) 2016-17, the government introduced limits on sugar inventory held by dealers, re-introduced excise duty on ethanol being supplied to oil marketing companies, and also withdrew the production subsidy on sugar exports. These measures limited profitability of the mills to an extent.

Following a bumper sugar crop in SS 2017-18 and in anticipation of another good season in 2018-19, sugar prices declined to below Rs.30/kg in March 2018, from over Rs.40/kg a year ago, while cane prices too have been increased in keeping with interests of farmers. To lower the impact on sugar mills, and in turn limit the growth in cane dues to farmers, the government increased import duty on raw and white sugar to 100%, and placed restriction on sugar sales by imposition of stockholding limits for February and March 2018. Also, the government in March 2018, removed the 20% export duty on sugar, in a bid to encourage exports. Exports however, are unlikely to increase materially in the absence of export incentives, and sugar inventory at end of current sugar season could reach a high 8-9 million tonnes, leading to continuing soft sugar prices in fiscal 2019.

In June 2018, the Central Government announced a Rs 8,000 Cr bailout package for the domestic sugar industry which included fixing of minimum support price (MSP) of sugar at Rs 29 per kg; creation of 3 million tonnes of buffer stock to absorb excess supply from the market (with government bearing the carrying cost of the commodity) and grant of Rs 4,400 Cr soft loans for sugar mills to expand ethanol capacities.

Additionally, in its budget in March 2018, the Tamil Nadu government announced adoption of revenue-sharing model for sugarcane pricing for sugar firms in the state. Maharashtra and Karnataka are the only other states which have already migrated to this model, aimed to provide cane farmers with a fair price for their produce.

Hence, government interventions will be remain a driver for the profitability of sugar mills and continue as a key rating sensitivity factor.

* Sub-par performance of subsidiary, PSRIPL
PSRIPL imports raw sugar predominantly from Brazil, refines the same in the refinery in Kakinada and exports. PSRIPL's operating performance in fiscal 2018 was severely impacted by weak sugar prices, resulting in net losses of Rs 76 Cr. This was due to sizeable inventory losses incurred in the last quarter of the fiscal following decline in global raw sugar prices.  Global sugar prices have been on a declining trajectory for the last year following higher sugar production from India, Thailand, Pakistan and the European Union. CRISIL believes that PSRIPL's performance will remain weak over the medium term due to thin margins and large working capital requirements.
* Moderate financial profile
EID Parry's financial performance moderated in fiscal 2018 as cash accruals were impacted following subdued performance of the sugar business and losses in PSRIPL. Further, stockholding restrictions imposed by Government led to pile up of inventory, a large portion of which was funded through bank borrowings.

Financial risk profile is expected to remain moderate over the medium term as business cash flows will weaken in fiscal 2019 following continued low sugar prices and modest performance of PSRIPL. However, the same will be partly offset by the expected steady dividend inflows from CIL and proceeds from sale of bio-pesticides business which has already been received in April 2018 and largely deployed for debt retirement.

The company is also expected to incur capex of about Rs 150-200 Cr in fiscals 2019-2020 towards setting up of new ethanol capacities by availing soft loans announced by the Government in June 2018, which allowed for interest subvention of 5 years including moratorium of 1 year. Further, the inventory levels are also expected to remain high over the medium term, as oversupply conditions in the market are expected to continue in fiscal 2019.

Consequently, debt levels will remain elevated in fiscal 2019 and credit metrics will hence remain sub-par for the rating category. Gearing is expected to remain at about 1.5-2 times while interest coverage ratio will remain modest at around 2-2.5 times.

Outlook: Stable

CRISIL believes EID Parry's business performance and credit metrics will continue to remain sub-par in fiscal 2019, due to softer sugar realisations, and higher cane prices. Debt levels are also likely to remain high, due to part debt funding of new ethanol plants, and part refinancing of maturing debt obligations, and large inventory levels. However, steady dividend flow from CIL is expected to continue, while support from Murugappa group is also expected to be forthcoming, if required.

Upside Scenario
* Improvement in business performance, resulting in healthy cash generation
* Continued correction in debt levels, which along with healthy cash generation, will lead to better key credit metrics such as interest cover.
Downside Scenario
* Sharper than expected decline in sugar prices or sizeable increase in cane prices, impacting operating profitability and business cash generation
* Sizeable increase in working capital requirements or higher than expected capital expenditure leading to higher borrowings and further impacting credit metrics.

About the Company

EID Parry is part of the Rs.33000 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 45% stake in the company as on June 30, 2018. 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 has also announced a 50:50 joint venture (JV) with Synthite Industries Limited (rated 'CRISIL AA-/Positive/CRISIL A1+'). The JV will be involved in manufacturing value added algae products. EID Parry's investment in the JV will be the tune of Rs 11 crore.

On a standalone basis, EID Parry's net profit was Rs. 54 crores on operating revenues of Rs. 468 crores for the first three months of fiscal 2019, against net loss of Rs. 18 crores on operating revenues of Rs. 484 crores during the corresponding period of the previous fiscal.

Key Financial Indicators (Consolidated)*
Particulars Unit 2018 2017
Revenue Rs crore 4,553 4,374
Profit after tax (PAT) Rs crore 29 298
PAT margin % 0.6 6.8
Adjusted debt/ adjusted net worth Times 1.54 1.6
Interest coverage Times 2.02 3.2
*For ratings purpose, CRISIL has consolidated the financials of EID Parry with PSRIPL and USN as these two subsidiaries are in the same line of business as EID Parry.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. 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) Rating Assigned
with Outlook
INE126A08044 Debenture 7-Sep-15 9.23% 4-Sep-18 100 CRISIL AA-/Stable
INE126A07251 Debenture 27-Apr-18 8.25% 27-Apr-21 100 CRISIL AA-/Stable
NA Commercial Paper NA NA 7-365 Days 950 CRISIL A1+
NA Bank Guarantee^ NA NA NA   190 CRISIL AA-/Stable
NA Cash Credit# NA NA NA 300 CRISIL AA-/Stable
NA Letter of Credit* NA NA NA 50 CRISIL AA-/Stable
NA Long Term Loan NA NA 31-Mar-19 93 CRISIL AA-/Stable
NA Long Term Loan NA NA 21-Sep-19 34.40 CRISIL AA-/Stable
NA Long Term Loan NA NA 30-May-20 133.60 CRISIL AA-/Stable
NA Proposed Non Fund based bank limits NA NA NA 398.60 CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA  755.6 CRISIL AA-/Stable
#50% interchangeable to non-fund based working capital limits. 
^Interchangeable with letter of credit and fund based working capital limits.
*Interchangeable with bank guarantee and fund based working capital limits.
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  950.00  CRISIL A1+  26-03-18  CRISIL A1+  29-12-17  CRISIL A1+    --    --  -- 
Non Convertible Debentures  LT  200.00
CRISIL AA-/Stable  26-03-18  CRISIL AA-/Stable  29-12-17  CRISIL AA-/Stable  22-12-16  CRISIL A+/Stable  25-11-15  CRISIL A+/Stable  CRISIL AA-/Stable 
            14-07-17  CRISIL AA-/Stable  26-05-16  CRISIL A+/Stable  28-07-15  CRISIL AA-/Stable   
            26-05-17  CRISIL AA-/Stable      12-06-15  CRISIL AA-/Stable   
Short Term Debt  ST                      CRISIL A1+ 
Short Term Debt (Including Commercial Paper)  ST          14-07-17  CRISIL A1+  22-12-16  CRISIL A1+  25-11-15  CRISIL A1+  -- 
            26-05-17  CRISIL A1+  26-05-16  CRISIL A1+  28-07-15  CRISIL A1+   
                    12-06-15  CRISIL A1+   
Fund-based Bank Facilities  LT/ST  1316.60  CRISIL AA-/Stable  26-03-18  CRISIL AA-/Stable  29-12-17  CRISIL AA-/Stable  22-12-16  CRISIL A+/Stable  25-11-15  CRISIL A+/Stable/ CRISIL A1+  CRISIL AA-/Stable/ CRISIL A1+ 
            14-07-17  CRISIL AA-/Stable  26-05-16  CRISIL A+/Stable/ CRISIL A1+  28-07-15  CRISIL AA-/Stable/ CRISIL A1+   
            26-05-17  CRISIL AA-/Stable      12-06-15  CRISIL AA-/Stable/ CRISIL A1+   
Non Fund-based Bank Facilities  LT/ST  638.60  CRISIL AA-/Stable/ CRISIL A1+  26-03-18  CRISIL A1+  29-12-17  CRISIL A1+  22-12-16  CRISIL A1+  25-11-15  CRISIL A1+  CRISIL A1+ 
            14-07-17  CRISIL A1+  26-05-16  CRISIL A1+  28-07-15  CRISIL A1+   
            26-05-17  CRISIL A1+      12-06-15  CRISIL A1+   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee^ 190 CRISIL AA-/Stable Bank Guarantee^ 311 CRISIL A1+
Cash Credit# 300 CRISIL AA-/Stable Cash Credit# 451 CRISIL AA-/Stable
Letter of Credit* 50 CRISIL AA-/Stable Letter of Credit* 50 CRISIL A1+
Long Term Loan 261 CRISIL AA-/Stable Long Term Loan 505 CRISIL AA-/Stable
Proposed Long Term Bank Loan Facility 755.6 CRISIL AA-/Stable Proposed Bank Guarantee 277.6 CRISIL A1+
Proposed Non Fund based limits 398.6 CRISIL A1+ Proposed Long Term Bank Loan Facility 360.6 CRISIL AA-/Stable
Total 1955.2 -- Total 1955.2 --
#50% interchangeable to non-fund based working capital limits. 
^Interchangeable with letter of credit and fund based working capital limits.
*Interchangeable with bank guarantee and fund based working capital limits.
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Sugar Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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