Rating Rationale
March 26, 2018 | Mumbai
E.I.D. Parry India Limited
'CRISIL AA-/Stable' assigned to NCD
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 (Assigned)
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 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+'. 

EID Parry's business performance is expected to moderate in fiscal 2018, compared to earlier expectations, due to lower cane availability in Tamil Nadu as a result of the drought like conditions during the year, and weaker than forecast sugar realisations, following higher cane crushed from Karnataka and Andhra Pradesh units. The company also made an extraordinary expense of Rs. 90 Cr in the third quarter of fiscal 2018 pertaining to a one-time payment to farmers considering higher payment for cane procured during sugar seasons 2014 to 2017.

The company's standalone operating profitability moderated sharply to 5.5% in first nine months of fiscal 2018 as against 12.0% during the corresponding period of previous fiscal. Further, continuing low sugar prices are expected to continue pressure on profitability, even in fiscal 2019.

Receipt of Rs. 338 Cr cash proceeds from the sale of bio-pesticides business will offset the moderation in business cash accruals, in the current fiscal; cash accruals are however expected to moderate in fiscal 2019. On the other hand, debt levels are expected to be in line with earlier expectations, due to scheduled retirement of sizeable long term debt, and only modest capital spending.

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+'). Further, the rating is also supported by the company's adequate financial risk profile. 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.

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; '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
* 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.

* 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

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.

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 (over 3 times) and Debt/EBITDA (below 3.5-3.7 times)

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 impacting credit metrics.

About the Company

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.

EID Parry represents the group's sugar manufacturing interests. The promoters held 45% stake in the company as on September 30, 2017. 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-percent 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. The company has also announced a 50:50 joint venture (JV) with Synthite Industries Limited (rated 'CRISIL AA-/Stable/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 loss was Rs. 21 crores on operating revenues of Rs. 1,581 crores for the first nine months of fiscal 2018, against net profit of Rs. 119 crores on operating revenues of Rs. 1,630 crores during the corresponding period of the previous fiscal. 

Key Financial Indicators (Consolidated)*
Particulars Unit 2017 2016
Revenue Rs crore 4,374 3,870
Profit after tax (PAT) Rs crore 298 -157
PAT margin % 6.8 -4.1
Adjusted debt/ adjusted networth Times 1.6 3.0
Interest coverage Times 3.2 0.7
*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
NA Debenture@ NA NA NA 100 CRISIL AA-/Stable
INE126A08044 Debenture 7-Sep-15 9.23% 4-Sep-18 100 CRISIL AA-/Stable
NA Commercial Paper NA NA 7-365 Days 950 CRISIL A1+
NA Bank Guarantee^ NA NA NA 311 CRISIL A1+
NA Cash Credit# NA NA NA 451 CRISIL AA-/Stable
NA Letter of Credit* NA NA NA 50 CRISIL A1+
NA Long Term Loan NA NA 31-Mar-19 145 CRISIL AA-/Stable
NA Long Term Loan NA NA 21-Sep-19 110 CRISIL AA-/Stable
NA Long Term Loan NA NA 18-Mar-20 50 CRISIL AA-/Stable
NA Long Term Loan NA NA 30-May-20 200 CRISIL AA-/Stable
NA Proposed Bank Guarantee NA NA NA 277.6 CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 360.6 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
@Yet to be placed
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  950  CRISIL A1+    No Rating Change    No Rating Change   No Rating Change    No Rating Change   CRISIL A1+  
Non Convertible Debentures  LT  200  CRISIL AA-/Stable    No Rating Change  26-05-17  CRISIL AA-/Stable    No Rating Change  25-11-15  CRISIL A+/Stable  CRISIL AA-/Stable 
Fund-based Bank Facilities  LT/ST  1316.6  CRISIL AA-/Stable    No Rating Change  26-05-17  CRISIL AA-/Stable  22-12-16  CRISIL A+/Stable  25-11-15  CRISIL A+/Stable/ CRISIL A1+  CRISIL AA-/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST  638.6  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
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
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee^ 311 CRISIL A1+ Bank Guarantee^ 311 CRISIL A1+
Cash Credit# 451 CRISIL AA-/Stable Cash Credit# 451 CRISIL AA-/Stable
Letter of Credit* 50 CRISIL A1+ Letter of Credit* 50 CRISIL A1+
Long Term Loan 505 CRISIL AA-/Stable Long Term Loan 505 CRISIL AA-/Stable
Proposed Bank Guarantee 277.6 CRISIL A1+ Proposed Bank Guarantee 277.6 CRISIL A1+
Proposed Long Term Bank Loan Facility 360.6 CRISIL AA-/Stable 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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