Rating Rationale
July 05, 2019 | Mumbai
Nava Bharat Ventures Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.1084.5 Crore (Enhanced from Rs.1069 Crore)
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank loan facilities of Nava Bharat Ventures Limited (NBVL).

NBVL has recently availed a term loan of Rs. 15.50 crore, which was extended to the company as per the government's scheme of offering soft loans to sugar mills.

The ratings continue to be supported by NBVL's integrated business operations (with captive power), stable operating performance owing to moderate demand conditions for silico manganese alloys and steady profitability of its ferrochrome conversion business. The financial risk profile of the company is healthy, reflected in moderate debt protection metrics, adequate liquidity, and a comfortable capital structure.

However, the ratings are constrained by exposure to cyclicality in its ferroalloys and sugar businesses and the significant amount of investment in group entities, particularly in Maamba Collieries Limited (MCL).

Analytical Approach

For arriving at its ratings, CRISIL has fully consolidated the business and financial risk profiles of NBVL, Nava Bharat (Singapore) Pte Ltd (NBSPL) and Nava Bharat Energy India Ltd (NBEIL).
 
NBSPL is consolidated owing to its significant business and financial linkages with NBVL, especially for funding the equity requirement of NBVL's overseas step-down subsidiaries, which are held by NBSPL.
 
NBEIL is a step-down subsidiary of NBVL and operates a 150 MW thermal power plant (TPP) based out of Telangana. CRISIL has consolidated NBEIL owing to significant financial linkages with its parent, following NBVL's undertaking of the company's entire term debt obligations in FY 2018-19 by borrowing a similar amount and extending an inter-company loan to the company.
 
However, CRISIL has not combined the business and financial risk profiles of the other subsidiaries of NBVL and NBSPL, as they are moderately integrated, and their project debt is non-recourse in nature. In addition, the management has articulated that NBVL shall not extend support to these subsidiaries for meeting their debt repayment obligations. CRISIL has, however, factored in further equity investments in some of these entities. These subsidiaries/step-down subsidiaries include Brahmani Infratech Pvt Ltd, Nava Bharat Projects Ltd, Kawambwa Sugar Ltd (Zambia), and MCL. Any change in the management's policy of support to these companies will be a key rating sensitivity factor.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths:
* Healthy financial risk profile
NBVL has a comfortable financial risk profile, reflected in moderate debt protection metrics, adequate liquidity and a comfortable capital structure. NBVL has a low gearing, estimated at about 0.25 times as on March 31, 2019 despite adjusting for investment in group entities (mainly MCL) from the company's net-worth. Debt protection metrics such as interest coverage and Net cash accruals to total debt (NCATD) are expected to remain adequate in fiscal 2020, owing to steady profitability and moderate debt levels.
 
* Integrated nature of Ferro-chrome operations
NBVL's 125,000 MTPA silico manganese manufacturing facility in Telangana is supported by a 114 MW captive power plant (CPP), while its 75,000 MTPA ferrochrome conversion facility in Orissa is supported by a 90  MW CPP ' both the CPPs have e-auction/auction-linkages for coal, and sell excess power in the exchange, or via short term PPAs. The company has recently entered into short term PPAs (starting from July 2019 till March-2020) with local discoms in Telangana for sale of excess power of 50-megawatt from its 114 MW Telangana power plant, and for 135 MW generation capacity of the IPP operated by subsidiary, NBEIL. NBVL started providing O&M support services to MCL's 300 MW power plant in Zambia in fiscal 2018, which has resulted in steady additional revenues.

The company's 4000 TCD sugar facility is also fully integrated with a 20 KLPD distillery and a cogeneration plant. The integrated nature of operations partly mitigates the impact of cyclicality of the businesses.

Stable realizations and sales volumes for the company's silico manganese alloys segment, steady profitability in its ferrochrome conversion business and satisfactory power sales resulted in steady  profitability with PBIT of Rs. 204 crore (NBVL standalone) in FY 2018-19, as against Rs. 206 crore for FY 2018.  Going ahead, profitability is expected to remain stable, given the insulation of ferro chrome segment from price volatility due to a fixed price contract with Tata steel, and moderate demand conditions for silico manganese. Nonetheless, any large decline in operating margins would be a key rating sensitivity factor going forward.

Weaknesses:
* Significant business risks given the cyclicality in Ferro alloys and exposure to fluctuations in power realizations & coal prices for NBEIL   
The ferroalloys segment, which is the main driver for NBVL's profitability, operates in an industry  that is closely linked to cyclicality in the steel industry in terms of demand. Moreover, the domestic ferroalloys industry is replete with unorganised players which exacerbates the impact of cyclicality. While the company's ferrochrome segment is a conversion business and is thus insulated from the industry's cyclicality to an extent, the company's contract with Tata Steel is up to March 2020 only ' thus the company will be dependent on the prevailing demand-supply conditions at that time if it is unable to renew the contract. 

The sugar industry is also highly regulated, with guidelines regarding the pricing and supply of sugarcane, and the sale of sugar. Consequently, the credit quality of domestic players in the sugar industry continues to hinge on sugarcane price regulations, and the export-import policy. Also the sugar industry is cyclical and is governed by the cane cultivation pattern. Nevertheless, this segment comprises less than 15% of the company's revenues.

NBVL's 150 MW IPP, NBEIL remains dependent on short-term PPAs and short term energy markets for off-take, in absence of a long term PPA. Moreover, the company does not have long term linkages and procures coal mainly via e-auctions, thus its fuel cost is subject to fluctuations in coal prices.   
 
* Significant investment in MCL, which is yet to generate returns for NBVL
NBVL, through its step down subsidiary MCL, has set up a 300-MW (two units of 150 MW each) power project as well as a coal handling and processing plant (CHPP) in Zambia for which MCL had availed USD 590 million (approximately Rs 4,150 crores) debt. Moreover, NBVL through its wholly owned subsidiary, NBSPL has invested about Rs 1500 Cr as equity/loans in MCL. The power project has been operational since August 2017.

MCL's operating performance has been satisfactory, reflected in average Plant Availability Factor (PAF) of 87% for fiscal 2019. The project's cashflows however remain constrained by delays in release of payments from its counter-party ZESCO, a state owned power distribution company in Zambia. As on March 31, 2019, MCL had realized about 70% of its energy billings since commissioning in July 2016. In this period, MCL has repaid 25% of its long term debt availed for the project. However, NBVL has not been able to generate any returns in the form of dividends from the investment so far.

Given the non-recourse nature of debt for the above project and the management's articulation of not providing support for debt servicing, CRISIL has not factored any further cash outflow to MCL from NBVL. Apart from MCL, NBVL is also investing in other projects via overseas subsidiaries, such as a multi-product agro farm block in Zambia under Kawambwa Sugar Ltd. CRISIL has factored in equity investments in these step-down subsidiaries. Higher than anticipated investments in these entities, or any recourse to NBVL for the debt raised at these entities could have a significant bearing on its financial risk profile.
Liquidity

NBVL Ltd has adequate liquidity driven by expected cash accruals of more than Rs.180 crore in FY 2020, and cash and cash equivalents of about Rs. 60 crore as on March 31, 2019. NBVL also has access to moderately utilized fund based limits of Rs. 66 crore. The company has long term repayment obligations around Rs. 120 crore in FY 2020, while capex and investments in group entities are expected to be about Rs. 60 crore/year in this period. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Outlook: Stable

CRISIL believes NBVL will maintain its comfortable financial risk profile with adequate liquidity over the medium term, supported by its existing cash balance and stable operating margins from ferro alloys. The outlook may be revised to 'Positive' in case of improvement in business profile of NBEIL by signing of a long term PPA and entering into a long term fuel supply agreement, or improvement in financial risk profile emanating from a sizable reduction in debt levels. The outlook may be revised to 'Negative' if the company's profitability declines materially, or its financial risk profile weakens because of large debt-funded capital expenditure, or support provided to group companies.

About the Company

NBVL was originally incorporated in 1972 as Nava Bharat Ferro Alloys Ltd (Nava Bharat), which began operations in 1975 with a small ferrosilicon manufacturing unit in Paloncha, Andhra Pradesh. In 1980, Nava Bharat ventured into sugar manufacturing, with the amalgamation of The Deccan Sugar and Abkhari Co Ltd, an EID Parry company. In 1997, it set up a second ferroalloy unit in Odisha. It diversified into coal-fired power generation in 1997 as a backward-integration strategy for its highly power-intensive ferroalloy business, and later pursued the merchant power business with the surplus generation capacity. The company's name was changed to NBVL in 2006.

NBVL was promoted by Dr D Subba Rao and is currently managed by his son, Mr D Ashok, and son-in-law, Mr P Trivikrama Prasad. The company has three key business divisions: ferroalloys, power, and sugar. It has installed ferroalloy capacity of 200,000 tonne per annum, power generation capacity of 422 megawatt (MW), and an integrated sugar business with a crushing capacity of 4000 tonne per day, 40 KLPD capacity Distillery and a 9-MW cogeneration facility. NBSPL was incorporated in 2004 to undertake trading of Nava Bharat's ferroalloy products, and later became the holding company for the group's overseas expansions. NBSPL had acquired a 65 per cent stake in MCL in Zambia. MCL setup a 300-MW coal-based power plant with 35% equity participation from an investment holding company of Government of Zambia. Coal production commenced in fiscal 2013, and the power plant commenced operations in August 2017.

NBEIL, a step-down subsidiary of NBVL, operates a 150 MW merchant thermal power plant commissioned in February 2013 in Telangana.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 1,313 949
Profit After Tax (PAT)  Rs crore 155 70
PAT Margins % 11.8% 7.3%
Adjusted debt/adjusted net worth Times 0.26 0.36
Interest coverage Times 16.8 3.4

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 Bank Guarantee* NA NA NA 78 CRISIL A1
NA Cash Credit NA NA NA 66 CRISIL A/Stable
NA Letter of Comfort NA NA NA 165 CRISIL A1
NA Letter of Credit* NA NA NA 110 CRISIL A1
NA Term Loan NA NA  Jul-20 495 CRISIL A/Stable
NA Rupee Term Loan NA NA Mar-26 155 CRISIL A/Stable
NA Rupee Term Loan NA NA Mar-24 15.50 CRISIL A/Stable
*Interchangeable between letter of credit and bank guarantee
 
Annexure - List of entities consolidated
Entities consolidated  Extent of consolidation Rationale for consolidation
Nava Bharat (Singapore) Pte Ltd (NBSPL)   Full NBSPL is consolidated owing to its significant business and financial linkages with NBVL, especially for funding the equity requirement of NBVL's overseas step-down subsidiaries, which are held by NBSPL.
Nava Bharat Energy (India) Ltd (NBEIL)    Full Similar line of business, and significant financial linkages with its parent, following NBVL's undertaking of the company's entire term debt obligations in FY 2018-19 by borrowing a similar amount and extending an inter-company loan to the company.
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  731.50  CRISIL A/Stable      19-12-18  CRISIL A/Stable  31-10-17  CRISIL A+/Stable  18-07-16  CRISIL A+/Stable  CRISIL A+/Negative 
            07-12-18  CRISIL A/Stable           
Non Fund-based Bank Facilities  LT/ST  353.00  CRISIL A1      19-12-18  CRISIL A1  31-10-17  CRISIL A1  18-07-16  CRISIL A1  CRISIL A1 
            07-12-18  CRISIL A1           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee* 78 CRISIL A1 Bank Guarantee* 78 CRISIL A1
Cash Credit 66 CRISIL A/Stable Cash Credit 66 CRISIL A/Stable
Letter of Comfort 165 CRISIL A1 Letter of Comfort 165 CRISIL A1
Letter of Credit* 110 CRISIL A1 Letter of Credit* 110 CRISIL A1
Rupee Term Loan 170.5 CRISIL A/Stable Term Loan 650 CRISIL A/Stable
Term Loan 495 CRISIL A/Stable -- 0 --
Total 1084.5 -- Total 1069 --
*Interchangeable between letter of credit and bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Power Distribution Utilities
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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