Rating Rationale
February 11, 2022 | Mumbai
Twentyone Sugars Limited
'CRISIL BB / Stable' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.450 Crore
Long Term RatingCRISIL BB/Stable (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BB/Stable’ rating to the long-term bank facilities of Twentyone Sugars Limited (TSL).

 

The rating reflects the extensive experience of the management of TSL and their funding support, integration between processing facilities and improving operating performance, backed by commencement of full-fledged operations. These strengths are partially offset by the average financial risk profile and exposure to risks arising from the limited track record, change in regulations and cyclicality in the sugar industry.

Analytical Approach

Preference shares of Rs 92.6 crore have been treated as neither debt nor equity as these are non-cumulative in nature, carry a lower coupon rate and expected to remain in the business for long term.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the management in the sugar industry: The management has extensive experience in operating sugar units in the Marathwada region of Maharashtra. Longstanding presence of the promoters, their association with the farmer community and adequate irrigation in the operating area should ensure availability of sugar cane and help TSL ramp-up its operations over the medium term. The company is likely to crush over 15 lakh MT in sugar season 2021-22, which is also its first full-fledged season. It has achieved sales of around Rs 334 crore in the nine months ended December 31, 2021 and is likely to report turnover of around Rs 600 crore for the full fiscal. Further, the promoters too will continue to extend funding support.

 

  • Improving operating performance, along with integrated nature of operations: Scale of operations should improve significantly in fiscal 2022, led by higher cane crushing, sale of sugar inventory and sales from the co-generation unit. The company is expected to book revenue of about Rs 600 crore in fiscal 2022, as compared to Rs 74.91 crore in fiscal 2021. Growth in revenue and profitability should aided by commencement of operations from distillery units from fiscal 2023.

 

Ongoing capital expenditure (capex) towards the new distillery unit at Latur, Maharashtra, is almost complete and the distillery is likely to be commissioned from April 2022. The company is also planning to incur capex of Rs 150 crore at its second unit in Parbhani, Maharashtra, which should be operational from sugar season 2022-23. With healthy profitability expected from the co-generation unit and distillery sales, operating margin is also likely to be moderately healthy. Integrated nature of operations and remunerative sale of ethanol will also improve resilience to sugar cycles.

 

Weaknesses:

  • Average financial risk profile: Gearing was high at 2.83 times as on March 31, 2021. Planned capex and continued large working capital requirement may together keep the capital structure leveraged over the medium term. The company is planning to incur capex towards the new distillery unit at Parbhani entailing a cost of around Rs 150 crore. The capex will be funded through a mix of debt, internal accrual and funding support from promoters.

 

Further, TSL has a limited track record of operations and the current season is its first full-fledged season. Achieving operating efficiency amidst different business cycles is critical for sugar units.

 

  • Susceptibility to regulatory changes and cyclicality in the sugar industry: Production of sugarcane and its availability are highly dependent on monsoons, cane prices and prices of alternative crops. The sugar industry is cyclical and highly fragmented. The government regulates the domestic demand-supply scenario by restricting imports and exports, and also controls the cane procurement prices. Any adverse changes in sugar cane prices or realisations on sugar sales can adversely impact profitability.

Liquidity: Stretched

Liquidity is marked by tightly matched cash accrual against debt obligation and moderate bank limit utilisation. Cash accrual of Rs 60-70 crore expected over the medium term will be tightly matched against the yearly debt of Rs 50-70 crore. Fund-based bank limit was moderately utilised, thereby offering a partial cushion. The company can avail of a cash credit limit against its sugar stock to meet any funding requirement. Any major capex or acquisition straining liquidity is a key monitorable. 

Outlook: Stable

CRISIL Ratings believes TSL will continue to benefit from the extensive experience of its management in the sugar industry and their funding support. 

Rating Sensitivity factors

Upward factors:

  • Sharp growth in revenue and sustenance of healthy operating profitability, leading to cash accrual of over Rs 70 crore on a consistent basis
  • Sustained improvement in the financial risk profile, especially capital structure

 

 

Downward factors:

  • Lower-than-expected revenue or operating profitability, leading to net cash accrual to debt repayment ratio of below 1 time
  • Larger-than-expected debt-funded capex or any new acquisition or stretch in working capital cycle, straining the financial risk profile, especially liquidity

About the Company

TSL was incorporated on August 26, 2011, and currently has two sugar units in Maharashtra. The first unit is located at Malavati, Latur with installed cane crushing capacity of 5,000 TCD upgradable to 7,500 TCD, and a 32 MW co-gen plant with 90 KLPD distillery. The second unit at Sonpeth, Parbhani (Maharashtra) has an installed sugar cane crushing capacity of 3,500 TCD and a co-gen plant (22 MW). TSL had acquired the second unit in Parbhani from the National Company Law Tribunal proceedings of Maharashtra Shetkari Sugars Ltd. Operations of the company commenced from fiscal 2021 and SS 2020-21 was the trial season.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

74.91

0.15

Reported profit after tax

Rs crore

(5.48)

0.4

PAT margin

%

(7.31)

264.76

Adjusted debt/Adjusted networth

Times

2.83

2.05

Interest coverage

Times

1.57

61.93

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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. crore) Complexity level Rating assigned with outlook
NA Long term loan NA NA Dec-2027 231 NA CRISIL BB/Stable
NA Sugar pledged cash credit NA NA NA 119 NA CRISIL BB/Stable
NA Proposed long-term bank loan facility NA NA NA 100 NA CRISIL BB/Stable
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 450.0 CRISIL BB/Stable   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Long Term Loan 231 The Maharashtra State Co-Op. Bank Limited CRISIL BB/Stable
Proposed Long Term Bank Loan Facility 100 Not Applicable CRISIL BB/Stable
Sugar Pledge Cash Credit 119 The Maharashtra State Co-Op. Bank Limited CRISIL BB/Stable

This Annexure has been updated on 11-Feb-2022 in line with the lender-wise facility details as on 11-Feb-2022 received from the rated entity.

Criteria Details
Links to related criteria
The Rating Process
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios

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