| E.I.D. Parry India Limited | ||||||
| 'CRISIL AA-/Stable' assigned to NCD | ||||||
| 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 assigned its 'CRISIL AA-/Stable' rating for the Rs.100 crore non-convertible debenture (NCD) programme of E.I.D. Parry India Ltd (EID Parry). CRISIL has also reaffirmed its ratings on the existing bank facilities and debt instruments of EID Parry at 'CRISIL AA-/Stable/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; 'Provisional CRISIL AA-(SO)/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 43,700 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; performance of PSRIPL is expected to be sustained in fiscal 2018. * Adequate financial profile EID Parry's financial performance witnessed a sharp turnaround in fiscal 2017, due to firming up of sugar prices, which helped it turn around despite lower sale volumes, due to a decline in cane crushed, following weak monsoon in key operating areas. The refinery business too turned around, and reported marginal profits in fiscal 2017. Prudent management of working capital, tight control over costs and minimal capital spending has enabled cash accruals to be deployed to lower debt levels to below Rs.2000 crores at March 31, 2017, from almost Rs.2600 crores a year ago. This enabled the company to improve its gearing to less than 2 times at March 31, 2017, while maintaining debt protection metrics at average levels. Although business cash flows will moderate in the near term with expected decline in profitability and due to the one-time settlement to farmers, proceeds from sale of bio-pesticides business will provide stability to overall cash accruals in fiscal 2018; also overall debt levels are expected at between Rs.1600-1700 crores, leading to average credit metrics. However, due to lower profitability, credit metrics could temper a bit in fiscal 2019. * 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 60.62 percent stake in CIL is valued at almost Rs. 9,300 crores as on March 21, 2018. CIL has a healthy dividend track record, which is expected to continue over the medium term. EID Parry received dividend of almost Rs.310 crores between fiscal 2015 and 2017; 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. Weaknesses * 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 last sugar season, 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. In anticipation of a bumper sugar crop in sugar season 2017-18, sugar prices have declined to ~Rs.30-31/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. 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. |
| Outlook: Stable |
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CRISIL believes EID Parry's business performance and credit metrics will witness a modest deterioration in fiscal 2019, due to softer sugar realisations, and higher cane prices. Debt levels are likely to remain range bound, in the absence of material capital spending, and long term debt repayments are likely to be partly refinanced, due to modest business cash accruals. Steady dividend flow from CIL is expected to continue, while support from Murugappa group is likely if required. |
| About the Company |
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EID Parry is part of the 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. @Yet to be placed |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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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