| 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 Rs. 100 crore 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+'. CRISIL has withdrawn its rating on the Rs. 100 crore NCD programme which was completely repaid in September 2018 on receipt of a no-objection certificate from the debenture trustee. This is in line with CRISIL's policy on withdrawal of ratings. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of EID Parry with its two subsidiaries namely Parry Sugars Refinery India Private Limited (PSRIPL; 'CRISIL AA-(SO)/CRISIL A+/Stable/CRISIL A1'), US Nutraceuticals LLC (USN) and its joint venture (JV) Algavista Greentech Pvt Ltd (Algavista). 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 of PSRIPL, USN and Algavista. |
| 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 3000 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. Sugar crushing in Tamil Nadu continuously declined in the past 3-4 years, and are expected to improve only in the current sugar season. This and volatile sugar prices have led to moderation in EID Parry's performance in the recent past. Performance of PSRIPL has also been muted. However, other business (co-generation and distillery) have helped partially stem impact of weak performance of the sugar businesses. * 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. 8,000 crores as on December 26, 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 volatility in its business. 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. 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 stabilize prices, the Government rolled out a series of initiatives such as increasing import duty on raw and white sugar, removing export duty and providing subsidies for sugar exports, creation of buffer stock to absorb excess supply from the market, fixing minimum support price for sugar at Rs 29 per kg and 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. Though sugar production across the country is expected to reduce in sugar season 2018-19 (October 2018-Septemer 2019), surplus inventory from the earlier season is likely to prevent a sharp improvement in sugar realisations. Cane prices though are expected to be hiked due to farmers stress across several sugar growing states, rendering losses for sugar mills even in fiscal 2020. Government interventions will be remain a driver for 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 and exports. PSRIPL's operating performance in fiscal 2018 and first half of fiscal 2019 has 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. 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. In addition to routine capex of about Rs.50-60 crore annually, the company is expected to incur capex of about Rs 150-200 crore in fiscals 2019 and 2020, towards setting up of new ethanol capacities by availing soft loans announced by the Government (which allows for interest subvention of 5 years including moratorium of 1 year). However, short term debt levels are expected to be lower compared to fiscal 2018 levels, due to lower sugar inventory levels in fiscals 2019 and 2020. Overall debt levels will remain at Rs.1700-1800 crores over the medium term. EID's financial risk profile is expected to remain moderate over the medium term due to modest operational cash flows, resulting from weak sugar prices and subdued performance of PSRIPL. However, steady dividend inflows from CIL, proceeds from sale of bio-pesticides business which has already been received in April 2018 and largely deployed for debt retirement, improved contribution from distillery and ethanol facilities will augment overall cash flows. EID's interest cover is expected to range between 1.5-3 times over the medium term while total outside liabilities (TOL) to tangible net worth (TNW) is expected to gradually reduce. Steep deterioration in these metrics due to higher losses from sugar operations and delay in monetizing benefits from to-be-commissioned ethanol plants (expected in last quarter of fiscal 2020) would be rating sensitive factors. |
| Outlook: Stable |
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CRISIL believes EID Parry's business performance and credit metrics will continue to witness modest improvement, but remain sub-par in fiscal 2019 and fiscal 2020, due to non-remunerative sugar operations, though better contribution from distillery operations, commissioning of new ethanol facilities and steady dividend flow from CIL, are expected to support cash flows. Debt levels are also likely to remain relatively high, due to part debt funding of new ethanol plants, and part refinancing of maturing debt obligations. 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. $CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Consolidation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 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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