| Kothari Sugars and Chemicals Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale Crisil Ratings has revised its outlook on the long-term bank facility of Kothari Sugars and Chemicals Ltd (KSCL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘Crisil BBB+’ and has reaffirmed its ‘Crisil A2’ rating on the short-term bank facility.
The revision in outlook reflects a deterioration in the company's business risk profile, primarily driven by a decline in sugar crushing volume over the last three fiscals. The company's crushing volume dropped from 10 lakh metric tonne (MT) in fiscal 2023 to substantially lower 2.6 lakh MT in fiscal 2025, representing a decline of approximately 74% over the two-year period. This decline was caused by drought and pest disease in the company's command area. The lower crushing volume, over the years, has resulted in lower-than-expected revenue and earnings before interest, depreciation and amortisation (Ebitda) of approximately Rs 310 crore and Rs 12 crore, respectively, for fiscal 2025. In response to these challenges, the company has implemented countermeasures to mitigate the pest issue, including the development of a fungus that has shown favourable results in resolving the disease. Additionally, the company has introduced a satellite monitoring irrigation system, which has led to improved crop yields in its sample area. The topline and Ebitda performance are expected to be subdued in fiscal 2026 with lower inventory of sugar and molasses currently, but it is expected to improve from fiscal 2027 onwards with increased sugar cane crushing from the current year, which remains a key monitorable. Despite the deteriorating business risk profile, the company's strong financial risk profile, as indicated by the absence of long-term debt, and robust liquidity risk profile will support the company over the medium term.
The ratings continue to reflect the longstanding presence of KSCL in the sugar industry, its integrated operations, diverse product portfolio and healthy financial risk profile. These strengths are partially offset by susceptibility to the downturn in the sugar business and exposure to regulatory changes in the sugar industry and scale of operations. |
Analytical approach Crisil Ratings has evaluated the standalone business and financial risk profiles of KSCL. |
Key rating drivers and detailed description Strengths: Longstanding presence in the sugar industry: Backed by presence of over seven decades, KSCL has established itself as a significant player in the sugar segment. Over the years, the company's promoters and management have gained good insights into the industry and have established diverse customer base and healthy relationships with sugarcane farmers. Furthermore, the company has also weathered the inherent cyclicality in the sugar industry. A sugarcane crushing capacity of around 6,400 tonne per day, distillery of 60 kilolitre per day (KLPD) of output and a co-generation unit of 33-megawatt (MW) capacity have supported the business risk profile. With increasing focus on distillery operations, vulnerability of performance to volatility in sugar production and prices is expected to gradually reduce over the medium term.
Healthy financial risk profile: The capital structure has been healthy due to lower reliance on external funds yielding gearing of 0.17 time and low total outside liabilities to adjusted networth (TOLANW) ratio of 0.56 time as on March 31, 2025. Debt protection metrics, primarily interest coverage ratio, has reduced to 3.51 times in fiscal 2025 due to reduced profitability but is still adequate. The net cash accrual to total debt (NCATD) ratio was 0.17 time for fiscal 2025. The debt protection metrics are expected to improve over the medium term.
Weaknesses: Susceptibility of business performance to downturn in the sugar business and volatile margin: Sugar prices are largely market driven and dependent on production for the sugar season and inventory levels prevailing in the country. Hence, higher production, which increases inventory levels, may lead to a steep fall in prices and impact profitability severely, as the cost of production is relatively sticky. Monsoon also has a bearing on cane production and recovery rate of cane, impacting overall sugar production in the country. Additionally, the government has taken measures to encourage increased diversion of sugarcane to ethanol instead of sugar and promote exports in the past to address the excess inventory and arrest the fall in prices. The company's operating margin has been volatile over the past four fiscals through 2025, due to the inherent cyclical nature of the industry. Notably, the operating margin fluctuated between 4% and 12% during this period, highlighting the challenges posed by industry cyclicality.
Exposure to regulatory changes in the sugar industry: While sugar prices are market driven, the government is empowered to fix the price paid to cane growers annually. KSCL’s profitability, mainly because of its sugar segment, remains vulnerable to material changes based on the regulatory changes in the sugar industry. Any change in the regulatory stance and continuation of government support to sugar sector (including distilleries and ethanol pricing) are key rating sensitivity factors. |
Liquidity: Adequate Bank limit utilisation was low at 41% on average for the 12 months ended May 31, 2025. Cash accrual is expected to be over Rs 12 crore with no term debt obligation over the medium term. The current ratio is adequate at 2 times as on March 31, 2025. Healthy cash and cash equivalent of around Rs 133 crore, as of March 2025, further supports liquidity. |
Outlook: Negative The ‘Negative’ outlook reflects the deterioration in the business risk profile of KSCL and its revival remains a key monitorable over the medium term. |
Rating sensitivity factors Upward factors
Downward factors
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About the company Incorporated in 1961, KSCL manufactures sugar and has two plants in Tamil Nadu, one in Kattur village and the other in Sathamangalam village, with a combined installed capacity of 6,400 tonne crushing per day (TCD). Also, the sugar mill has a 33-MW captive power generation capacity, which it fuels using bagasse generated in the sugar production and 60 KLPD molasses-based distilleries. |
Key financial indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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