RATING RATIONALE
05Mar2022
Jay Shree Tea & Industries Ltd.
Brickwork Ratings assigns/ reaffirms the ratings for the enhanced Bank Loan Facilities of Rs. 302.00 Crs. of Jay Shree Tea & Industries Ltd and also removes the credit watch with developing implications and assigns a Stable Outlook.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (16 Jul 2021) |
Present | ||
| Fund Based | 241.67 | 262.00 | Long Term |
BWR BBB- /Credit Watch with Developing Implications
Reaffirmation and change in Outlook |
BWR BBB -
/Stable Reaffirmation and change in Outlook |
| Non Fund Based | 25.00 | 40.00 | Short Term |
BWR A3/Credit Watch with Developing Implications
Reaffirmation and change in Outlook |
BWR A3
Reaffirmation and change in Outlook |
| Grand Total | 266.67 | 302.00 | (Rupees Three Hundred Two Crores Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
Rating Action: Rating Reaffirmation with Change in Outlook
Brickwork Ratings has removed its ratings on the bank facilities of Jay Shree Tea & Industries Ltd from 'credit watch with developing implications' and reaffirmed the 'BWR BBB-/BWR A3' ratings. The outlook on the long-term rating is 'Stable'.
Brickwork Ratings had placed the credit watch with developing implications in July 2021, following the announcement of amalgamation of Jay Shree Tea & Industries Ltd (transferee company) and Majhaulia Sugar Industries Private Ltd (transferor company) by the company’s board of directors, wherein the Sugar business was to be merged into Jay Shree Tea's existing Tea, fertilizer and chemical businesses. The ‘Watch’ reflected the uncertainty around pending regulatory approvals for the transactions, as well as impact analysis of the amalgamation on the credit profile of the proposed entity,
The ratings have been removed from the watch as the company has received final NCLT approval for the amalgamation of Jayshree Tea & Industries Limited (JTIL) & Erst. Majhaulia Sugar Industrious Private Limited (MSIPL) in Q3FY22. (the effective date of amalgamation: 01/04/2020). The outlook has been revised to “Stable” on the back of improvement in the performance of the company after the recovery in Covid-19 situation and sustainability of performance in future with improvement in demand conditions with recovery in the economy globally. The company has recorded ~60% revenue growth in FY21 which is mainly due to the consolidation of the sugar business into existing Tea, fertilizer, and chemical businesses. Revenue from the existing business of Jay Shree Tea & Industries Limited grew by 10.33% to Rs. 536.74 crs in FY21 against Rs. 486.49 Crs in FY20. Similarly, the company recorded an operating profit of Rs. 58.39 Crs and Net Profit of Rs. 35.61 Crs for FY21. The profitability of the amalgamated entity has been reduced due to the low profitability of the sugar business.
The rating continues to derive comfort from the experience of the promoters, Company’s strong brand name and the leading position in the bulk tea industry in India and its geographically diversified tea estates. The rating also draws comfort from its superior quality of tea, realizations of which are higher than the industry averages, and the favorable age profile of tea bushes, being in the productive age group of 5-45 years. The rating also draws comfort from the scale of operations, diversified revenue streams, and operating efficiency of the company.
The rating, however, is constrained by the exposure of the Company to agro-climatic risks, working capital intensive nature, moderate financial risk profile and suppressed liquidity position. The rating is also constrained by the inherent cyclicality of the fixed cost-intensive industry along with its seasonal nature which leads to variability in the Company’s profitability and cash flows. The rating also considers leveraged capital structure and moderate debt indicators however the same is expected to improve going forward.
Credit Strengths:
-
Experience of the promoters, strong brand name, and the leading position in the bulk tea industry in India :
The Company is part of B K Birla group . The Company has been operating in the bulk tea industry for almost 75 years. Jay Shree Tea & Industries Ltd. is the second largest tea producer in India, accounting for ~2% of India’s tea production. JTIL derives strength from the extensive experience of its promoters, strong and competent management, reflecting the expertise in its execution capabilities.JTIL is controlled by Jayashree Mohta, elder daughter of late BK Birla. She has more than 26 years of experience in the business management, tea, sugar, chemicals and fertilizers industries. JSTIL also has a strong operational track record, which has enabled the Company to maintain a healthy scale of operations in the past several years. The Company is an established producer of good quality premium bulk tea which also helps to command premium prices over other tea plantation companies.
-
Operating efficiency of the Company :
The operating efficiency of a tea producer is largely governed by the productivity of its tea estates and the share of bought leaf operations. The Company’s output is around 2-3% of India’s tea output and 11% of total Darjeeling tea output. Further, the age profile of the tea bushes is maintained around 5-45 years for better productivity.
The company has recently amalgamated with its wholly-owned subsidiary- Majhaulia Sugar Industries Private Ltd in Q3FY22. The amalgamation is expected to enable the resultant entity-JTIL to streamline their business activities into a single combined entity, thereby resulting in economies of scale and enhancement of overall business efficiency.
The scale of operations remains healthy and diversification of the product basket into tea, Chemical & Fertiliser, and Sugar divisions. During FY21, the company has generated around 57% of its revenue from the Tea segment, followed by 31% revenue generated from the Sugar division and the remaining 12% from the Chemical & Fertiliser division.
-
The profitability of the Company is susceptible to price volatility and exposure to agro-climatic risks :
The risk associated with the inherent cyclicality of the fixed cost-intensive nature of the industry along with its seasonal nature and price volatility leads to variability in the entity’s profitability and cash flows. The production of tea and sugar is primarily dependent on agro-climatic conditions and hence production and quality of the product can vary depending on the climatic conditions which can have an adverse impact on the operations of the Company. Further, the tea prices are dependent on the auction prices which in turn is dependent on the international tea prices. Hence, any adverse movement in the international tea prices can have an impact on the Company’s profitability. Further, given the inherent cyclicality in the sugar industry, domestic players remain vulnerable to volatile sugar prices, which are driven by the production levels. Any change in sugar prices can adversely impact the profitability of the company as 30% of its revenue is expected from the Sugar segment. The government also regulates the domestic demand-supply situation through its policies on sugar and cane prices, trade, and subsidies. The ability of the Company to sustain its profitability targets as envisaged is key in elevating the overall operations of the Company and therefore, this remains key rating sensitivity.
-
Moderate Financial Risk Profile :
Financial risk remains moderate marked by high gearing. However, the same has gradually improved over the last 3 fiscals through FY21 due to better accruals, liquidation of its investment portfolio/ garden sale proceeds resulting in a progressive reduction in long-term debt. Consequently, gearing has reduced from 1.72 times in FY19 to1.25times in FY21 and is expected to come below 1 time in FY22. Additionally, the company had also availed low-cost loans under Emergency Credit Guarantee Lending Scheme to aid liquidity. ISCR stood at 1.22 times and DSCR at 1.14times in FY21. Debt protection metrics are expected to improve, albeit only marginally on account of higher operating profitability over the medium term, with expected improvement in cash generation.
Analytical Approach: The ratings are based on the standalone financial statements of the entity.
While assigning the Ratings, BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Positive
A substantial increase in profitability and improvement in liquidity position, gearing and debt coverage indicators with gearing of less than 0.50 times and interest cover of more than 3 times on a sustained basis will be the factors for a rating upgrade.
Negative
Any large debt-funded capex resulting in a deterioration in the capital structure of the company and/or the Group and a decline in profitability and/or any sizable increase in debt repayment obligation, leading to a deterioration in debt coverage indicators or stretched liquidity position could also be triggers for ratings downgrade.
LIQUIDITY INDICATORS - Adequate
The profits and cash accruals are expected to improve in the current financial year. Further, the company has been steadily reducing term borrowing over the last three years from the garden sale proceeds and from the liquidation of its investment portfolio. The company has reduced around Rs. 200 crs of term liability in the last three years. As of date, the term liabilities in Tea & Chemical business is NIL. The Company will continue to monetize certain assets to garner liquidity thereby improving overall performance. The company has generated net cash accruals of around Rs. 32 Crs in FY21 and expected to generate around Rs. 52 crs in FY22 against debt repayment obligation of Rs. 18.69 in FY22 which would be more than sufficient to meet the debt-servicing requirement of the company in near future. The current ratio stood at 0.58 times for FY21. The liquidity position of the Company will still remain suppressed on an absolute basis due to the seasonal nature of business. The average working capital limits utilization has also reduced significantly at around 87% in the last 12 months. This in turn provides headroom for liquidity in case of any exigencies.
ABOUT THE ENTITYIncorporated in October 1945, Jay Shree Tea & Industries Ltd. is a part of the diversified conglomerate of B.K Birla Group. The Company is controlled by Mrs. Jayashree Mohta, elder daughter of late Mr. BK Birla. The company is engaged in the manufacturing of tea and chemicals & fertilizers. It is the third-largest tea producer in the world & 2nd the largest tea producer in India. The tea produced by Jayshree’s estates has consistently commanded a premium over the district average because of quality. Besides Tea, it is also involved in the Chemicals and Fertilizers, Sugar, Real Estate, and Education sectors through its subsidiaries. JTIL had three Indian subsidiaries (Majhaulia Sugar & Industries Limited, North Tukvar Tea Company Limited, and Jayantika Investment and Finance Limited ) and one foreign subsidiary (Birla Holdings Limited). At present, the Sugar unit under MSIPL has a crushing capacity of 5,000 TCD. The company also has a co-generation plant of 6 MW capacity for captive consumption. In May 2019, MSIPL has also commenced a distillery, with an ethanol production capacity of 60 KLPD. Sugarcane is an agricultural product and renewable source of energy. From sugarcane, the company produces Sugar, Alcohol, Ethanol, Power, and Bio Compost. The Board of Directors of Jay Shree Tea & Industries Ltd and Majhaulia Sugar Industries Private Ltd have considered and approved the scheme of amalgamation of both the companies. The Company has received NCLT order for the amalgamation of Jayshree Tea & Industries Limited (JTIL) & Erst. Majhaulia Sugar Industrious Private Limited (MSIPL) in Q3FY22. (the effective date of amalgamation: 01/04/2020).
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 780.57 | 486.49 |
| EBITDA | Rs.Crs. | 58.40 | -33.78 |
| PAT | Rs.Crs. | 35.61 | -27.88 |
| Tangible Net Worth | Rs.Crs. | 248.39 | 237.87 |
| Total Debt/Tangible Net Worth | Times | 1.25 | 1.64 |
| Current Ratio | Times | 0.58 | 0.77 |
The terms of sanction include standard covenants normally stipulated for such facilities.
NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY
NA
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 | 262.00 |
BWR BBB-/Stable
(Reaffirmation and change in Outlook) |
12Jan2021 |
BWR BBB- Stable
(Reaffirmation) |
10Dec2020 |
BWR BBB- Stable
(Assignment) |
NA |
NA
|
| 0.00 |
NA
|
16Jul2021 |
BWR BBB- Credit Watch with Developing Implications
(Reaffirmation and change in Outlook) |
NA |
NA
|
NA |
NA
|
||
| Non Fund Based | ST | 40.00 |
BWR A3
(Reaffirmation and change in Outlook) |
12Jan2021 |
BWR A3
(Reaffirmation) |
10Dec2020 |
BWR A3
(Assignment) |
NA |
NA
|
| 0.00 |
NA
|
16Jul2021 |
BWR A3Credit Watch with Developing Implications
(Reaffirmation and change in Outlook) |
NA |
NA
|
NA |
NA
|
||
| Grand Total | 302.00 | (Rupees Three Hundred Two Crores 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 | |
|---|---|
|
Priya Depala Senior Rating Analyst priya.d@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 | Axis Bank Ltd. | Term LoanSanctioned | _ | _ | 0.00 |
| 2 | Axis Bank Ltd. | EPC/ PCFC/ FBP/ PSFCSanctioned | 15.00 | _ | 15.00 |
| 3 | DCB Bank | EPC/ PCFC/ FBP/ PSFCSanctioned | 35.00 | _ | 35.00 |
| 4 | DCB Bank | Letter of Credit (Inland/Import) / Buyers CreditSanctioned | _ | 6.00 | 6.00 |
| 5 | HDFC Bank | Letter of Credit (Inland/Import) / Buyers CreditSanctioned | _ | 25.00 | 25.00 |
| 6 | HDFC Bank | EPC/ PCFC/ FBP/ PSFCSanctioned | 59.00 | _ | 59.00 |
| 7 | HDFC Bank | Bank GuaranteeSanctioned | _ | 2.00 | 2.00 |
| 8 | ICICI Bank | Letter of CreditSanctioned | _ | 5.00 | 5.00 |
| 9 | ICICI Bank | Term LoanSanctioned | 36.20 | _ | 36.20 |
| 10 | ICICI Bank | EPC/ PCFC/ FBP/ PSFCSanctioned | 25.00 | _ | 25.00 |
| 11 | IndusInd Bank | EPC/ PCFC/ FBP/ PSFCSanctioned | _ | _ | 0.00 |
| 12 | Kotak Mahindra Bank | EPC/ PCFC/ FBP/ PSFCSanctioned | _ | _ | 0.00 |
| 13 | Kotak Mahindra Bank | EPC/ PCFC/ FBP/ PSFCProposed | _ | _ | 0.00 |
| 14 | Punjab National Bank | Term LoanSanctioned | 8.48 | _ | 8.48 |
| 15 | Punjab National Bank | GECLSanctioned | 22.08 | _ | 22.08 |
| 16 | Punjab National Bank | Common Covid Emergency Line of Credit (CCECL)Sanctioned | 0.24 | _ | 0.24 |
| 17 | Punjab National Bank | Cash CreditSanctioned | 15.00 | _ | 15.00 |
| 18 | RBL Bank | Term LoanSanctioned | _ | _ | 0.00 |
| 19 | RBL Bank | EPC/ PCFC/ FBP/ PSFCSanctioned | 10.00 | _ | 10.00 |
| 20 | State Bank Of India (SBI) | EPC/ PCFC/ FBP/ PSFCSanctioned | 18.00 | _ | 18.00 |
| 21 | UCO Bank | EPC/ PCFC/ FBP/ PSFCSanctioned | 18.00 | _ | 18.00 |
| 22 | UCO Bank | Letter of CreditSanctioned | _ | 1.00 | 1.00 |
| 23 | UCO Bank | Bank GuaranteeSanctioned | _ | 1.00 | 1.00 |
| 24 | Yes Bank | Term LoanSanctioned | _ | _ | 0.00 |
| 25 | Yes Bank | EPC/ PCFC/ FBP/ PSFCSanctioned | _ | _ | 0.00 |
| Total | 262.00 | 40.00 | 302.00 | ||
| TOTAL (Rupees Three Hundred Two Crores Only) | |||||
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