RATING RATIONALE
17Jan2022
Kunjir Bioenergy India LLP
Brickwork Ratings revises the ratings for the Bank Loan Facilities of Rs. 87.40 Crs. of Kunjir Bioenergy India LLP (KBILLP or "The firm")
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (02 Dec 2021) |
Present | ||
| Fund Based | 75.00 | 87.40 | Long Term |
BWR B-/Negative
Downgrade/ISSUER NOT COOPERATING* |
BWR BB +
/Stable Upgrade |
| Grand Total | 75.00 | 87.40 | (Rupees Eighty Seven Crores and Forty lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
The rating for the fund-based facility has been removed from the ‘Issuer Not cooperating’ category and upgraded. The rating upgrade favorably factors in the successful achievement of final commercial operation date (COD) in March 2021 after the same was extended by one year following the disruptions caused by the flood in Maharashtra and outbreak of the COVID-19 pandemic. Further, the marginal increase in the cost of the project was funded through the promoter’s funds. The achievement of COD and the commencement of cash flow from operations reflects a significant change in the firm’s risk profile. The firm has also commenced debt repayment from June, 2021. The rating also considers the funding support provided by the related parties in the form of interest-free unsecured loans subordinated to bank debt. The performance of the company is expected to improve during FY2022 supported by improvement in capacity utilization level and the continued support from the Government in the form of remunerative pricing for ethanol.
The rating draws comfort from the strategic geographical location of the distillery unit with close proximity to the source of raw material, funding support from the promoters & related parties, and strong demand for ethanol supported by favorable policy initiatives by the government
However, the rating is constrained on account of the limited track record of operations and limited experience of the promoters in the distillery business, working capital intensive nature of operations and susceptibility of the profitability to volatility in raw material and end-product prices. The rating also considers the risk associated with the limited liability partnership constitution of the entity.
Outlook: Stable
BWR believes that KBILLP’s business risk profile will be maintained over the near to medium term supported by a favorable demand outlook and funding support from the related parties. The “Stable” outlook indicates a low likelihood of rating change over the medium term.
KEY RATING DRIVERSCredit Strengths:
-
Strategic Geographical location of the plant :
The firm benefits from the low transportation cost and easy access to quality raw material i.e. molasses as the distillery plant is strategically located in the Daund region which is considered to be a sugarcane-rich belt of the state. There are around 43 sugar companies located within the radius of 200 to 250 km of the plant thereby ensuring an adequate supply of molasses.
-
Favorable demand prospects supported by government policy initiatives
:
The demand for ethanol is estimated at 1016 crore liters in 2025 with the advancement of Ethanol Blended Petrol-EBP20 wherein the 20% ethanol blending target from 2030 to 2025. However, the current ethanol production capacity in India stood at 426 crores liters derived from molasses-based distilleries and 258 crores liters from grain-based distilleries. Hence, ethanol producers including KBILLP have favorable demand prospects. The ethanol industry is further supported by favorable government policies such as remunerative pricing of ethanol, interest subvention loans for additional capacities, and easing of regulations to enable interstate movements as well as relatively relaxed procurement procedures by oil marketing companies.
-
Funding support from related parties :
The firm also benefits from funding support provided by the promoters and related in the form of unsecured loans and capital from partners. The unsecured loan to the tune of Rs. 11.21 crores as of 31st March 2021 is interest-free and subordinated to the bank debt. Further, the partners have also infused additional capital to fund the marginal increase in the cost of the project due to the time overrun.
Going forward also, the partners are expected to provide funding support in the event of any shortfall in the net cash accruals to meet the debt obligations.
-
The profitability of the firm is susceptible to the volatility in raw material prices :
The prices and availability of the main raw material i.e. molasses is dependent on the availability and prices of sugarcane. Further, the sugarcane crop, being an agri-commodity, is dependent on the weather conditions and also susceptible to plant pests and diseases that might adversely impact the yield and recovery rate for the crop. Since the cost of the raw materials constitutes around 90 percent of the total cost of goods sold; any volatility in the prices of the molasses can significantly affect the firm’s profitability. The government policy on ethanol prices can also affect the profitability of the firm.
-
Working Capital intensive nature of operations :
The firm in order to mitigate the fluctuation risk in prices procures the main raw material i.e. molasses during the sugarcane crushing season i. e. October to April and store the same in the storage tanks. This reduces the impact of the increase in price during the off-season and also ensures a competitive advantage along with the smooth supply of molasses. However, the procurement during the crushing season and high inventory holding increase the working capital requirement for the firm as the payment to the suppliers has to be made in advance or against delivery.
-
Exposure to risk associated with limited liability partnership constitution :
The credit risk profile of the entity is exposed to the risk associated with partnership constitution (LLP) as any substantial capital withdrawal could negatively impact its net worth and the capital structure.
-
Limited track record of operation and limited experience of the promoters :
The firm has commenced its operations in March 2021 and has only ten months of operation as of date. Further, the promoters of the firm have limited experience in the distillery business. However, with a buoyant industry scenario and comfortable order in hand position of Rs. 58.79 crores as of 30th November 2021, the risk is mitigated to a considerable extent.
For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). BWR has principally relied upon the standalone audited financials up to FY21, publicly available information and clarification/information provided by the Company.
RATING SENSITIVITIES
Positive:
- Significant improvement in the operating income and profitability leads to higher than expected net cash accruals.
- Better working capital management leading to overall improvement in the financial risk profile of the firm.
Negative:
- Any disruption or disturbance in the supply of molasses along with fuel supply arrangements will adversely impact the operations of the firm.
- Significant decline in operating income and profitability leading to lower than expected net cash accruals
- Any major debt-funded capital expenditure plan or stretch in the working capital cycle results in the firm’s capital structure and liquidity profile.
The firm has annual debt repayment obligations of around Rs. 26.76 crores over the next three years and internal accruals are expected to be sufficient to meet these debt obligations going forward. The firm has reported negative net cash accruals for FY2021 however the net cash accruals are expected to improve with improvement in the capacity utilization levels and higher sales from FY2022 onwards.
The current ratio is comfortable at 1.28 times as on 31.03.2021. Further, the company’s average working capital limit utilization stood at around 77 percent for the period from March 2021 to December 2021. Apart from the cash credit limits, the firm has also availed GECL loans to the tune of Rs. 18.71 crores under the COVID-19 relief scheme to support the working capital limits of the firm. The firm was also allowed an Adhoc limit to the tune of Rs. 2.50 crores during the period from October 2021 to January 2022. The firm does not have any debt-funded capital expenditure plans over the near term. Further, the firm benefits from the funded support from the promoters in the form of secured loans to the tune of Rs. 11.22 crores as of 31.03.2021 is subordinated to bank debt and also the promoters.
ABOUT THE ENTITYKunjir Bioenergy India LLP was incorporated as a limited liability partnership firm in the year 2016 with a registered office located in Pune, Maharashtra by the Pune-based Kunjir family. The firm has set up an Ethanol plant at Daund, Pune Maharashtra with an installed capacity of 60 Kilo Liters per day (KLPD) which commenced its operations in March 2021. The firm has also set up a captive cogeneration power plant of 2.00 MW by utilizing the steam generated.
The firm mainly sells specially denatured spirit (SDS) which contributed around 41 percent, ethanol which contributed around 52.23 percent, rectified spirit contributed around 1.44 percent, and fly ash contributed around 0.01 percent to the revenue for FY2022(6M). The average capacity utilization stood at around 56 percent for FY 2022(6M). The key raw material required by the firm is molasses which constitutes around 76 percent of the total cost of material and coal which constitutes around 24 percent. The main raw material i.e. molasses is procured from the nearby 43 sugar factories within a distance of 200-250 km from the plant and the firm has entered into a tie-up arrangement with three sugar companies i.e. Ashti Sugar Limited, Shree Kranti Sugar and Power Limited, and Loknete Marutrao Ghule Patil Dnyaneshwar SSK Ltd for the purchase of molasses to the tune of 36630 tonnes during the period from December 2021 to May 2022. The molasses is procured against advance payment and the firm receives a credit period of around 10 to 15 days from suppliers of coal and other materials.
The firm is mainly selling to customers from the private sector however the firm has received orders to the tune of Rs. 58.79 crores from public sector Oil Marketing Companies (OMC) for the period from December 2021 to May 2022. The firm receives payment against delivery from its customers and the OMCs make payment within 20 days of the delivery.
The firm has a sister concern under the name “L. B. Kunjir” (LBK) as described in the group profile section. The firm does not have any purchaseor sale transactions with LBK.
KEY FINANCIAL INDICATORS (Standalone)
| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 0.22 | Not Available |
| EBITDA | Rs.Crs. | 0.01 | Not Available |
| PAT | Rs.Crs. | -8.10 | Not Available |
| Tangible Net Worth | Rs.Crs. | 41.27 | 34.63 |
| Total Debt/Tangible Net Worth | Times | 1.97 | 1.26 |
| Current Ratio | Times | 1.28 | 2.67 |
The terms of sanction include standard covenants normally stipulated for such facilities.
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
Not Applicable
ANY OTHER INFORMATIONNot Applicable
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 87.40 |
BWR BB+/Stable
(Upgrade) |
02Dec2021 |
BWR B-Negative
(Downgrade/ISSUER NOT COOPERATING*) |
03Nov2020 |
BWR BNegative
(Downgrade/Issue Not Cooperating*) |
17Sep2019 |
BWR BBStable
(Assignment) |
| Grand Total | 87.40 | (Rupees Eighty Seven Crores and Forty lakhs Only) | |||||||
BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.
Hyperlink/Reference to applicable Criteria| Analytical Contacts | |
|---|---|
|
Shashikala Umanath Hegde Senior Ratings Analyst Board : +91 22 2831 1426, +91 22 2831 1439 shashikala.h@brickworkratings.com |
Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Name of the Bank/Lender | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) | |
|---|---|---|---|---|---|---|
| 1 | Punjab National Bank | Term LoanOut-standing | 20.95 | _ | 20.95 | |
| 2 | Punjab National Bank | Cash CreditSanctioned | 4.00 | _ | 4.00 | |
| 3 | Punjab National Bank | GECLOut-standing | 1.79 | _ | 1.79 | |
| 4 | Punjab National Bank | GECLSanctioned | 4.58 | _ | 4.58 | |
| 5 | Union Bank of India | Term LoanOut-standing | 38.26 | _ | 38.26 | |
| 6 | Union Bank of India | GECLOut-standing | 3.34 | _ | 3.34 | |
| 7 | Union Bank of India | GECLSanctioned | 8.48 | _ | 8.48 | |
| 8 | Union Bank of India | Cash CreditSanctioned | 6.00 | _ | 6.00 | |
| Total | 87.40 | 0.00 | 87.40 | |||
| TOTAL (Rupees Eighty Seven Crores and Forty lakhs Only) | ||||||
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