| E.I.D. Parry India Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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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+'. |
| Analytical Approach |
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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 |
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Strengths * 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. Weakness * 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 |
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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. |
| About the Company |
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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. |
| Key Financial Indicators (Consolidated)* | ||||||||||||||||||||||||
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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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
^Interchangeable with letter of credit and fund based working capital limits. *Interchangeable with bank guarantee and fund based working capital limits. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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