Vishnu Sugar Mills Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 132.29 Crs. of Vishnu Sugar Mills Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (19 May 2021)	Present
Fund Based	140.81	132.13	Long Term	BWR BBB/Stable Reaffirmed	BWR BBB /Stable Reaffirmation
Non Fund Based	0.16	0.16	Short Term	BWR A3+ Reaffirmed	BWR A3 + Reaffirmation
Grand Total	140.97	132.29	(Rupees One Hundred Thirty Two Crores and Twenty Nine lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) has reaffirmed the ratings for the long-term and short-term Bank Loan Facilities aggregating Rs.132.29Crs of Vishnu Sugar Mills Ltd. (VSML or the company) at BWR BBB,Stable/A3+. BWR has essentially relied on the Company's audited financials for FY21, provisional financials for FY22, and projections for FY23 and FY24, along with other information as available in the public domain and information/clarifications provided by the company and its bankers, to arrive at the present ratings.

The reaffirmation of the ratings of Vishnu Sugar Mills Ltd. is based on the expected increase in sugar sales volumes in the upcoming season (November to March) of FY23 driven by the normal climatic conditions in the Bihar region resulting in better cane yields in FY23 indicating continuous supply of sugarcane crops to the Company's facilities and thereby supporting operations. The rating factors in the expected improvement in the scale of operations and EBIDTA margins as well as debt protection metrics in FY23 after a dip in the operating performance in FY21 and FY22 due to heavy floods in Bihar that severely destroyed the sugarcane crops, the expected improvement in the capacity utilisation at the mills and improvement in the sugar recovery rate with better quality seeds being sown in the fields after the natural calamity. The rating is also supported by the extensive experience of the management in the sugar industry, the established track record of the Company, long-standing relationships with suppliers and customers. However, the ratings remain constrained by high regulatory risks and volatility in sugarcane yield and prices, susceptibility of its profitability to volatility in raw material price, and agro climatic risks arising out of the key raw material being an agricultural product. BWR also believes that the Company may face problems due to adverse changes in the demand for sugar which could lead to price fluctuations and thereby affect the company's margins. The Company has informed BWR of its plans to set up a distillery but the same is not expected before FY24. BWR believes that the CAPEX will not only reduce its dependence on sugar sales but also boost its profitability and improve its financial and credit profile.

The outlook is retained at “Stable” since BWR expects that the business risk profile of Vishnu Sugar Mills Limited will be maintained over the medium term. The outlook may be revised to Positive in case of a sustained increase in the scale of operations and higher than envisaged improvement in profitability resulting in an improved financial risk profile. The outlook may be revised to negative in case of a decline in sales and profitability on a sustained basis, deterioration in the capital structure due to debt-financed capital expenditure, further stretch in the conversion cycle, and weakening of the financial risk profile of the Company.

KEY RATING DRIVERS

Credit Strengths:

Expected Improvement in Financial performance in FY23 :
The Company’s operations were impacted due to the flood in Bihar which destroyed Sugarcane crops during FY21 and FY22. The Company faced raw material supply interruptions leading to lower production and sales volumes. Although there is a dip in the topline in FY22 (Provisional), the Company generated EBIDTA better than the previous year owing to lower operating costs, particularly raw materials. The financial performance of the Company is likely to improve in FY23 with operations having stabilised post the flood conditions. The Company expects sugarcane yield to improve with normal climatic conditions in the State. The Company also has plans to set up its own distilleries and use the by-product for the production of ethanol for which demand is on the rise and the prices are conducive. However, the CAPEX is not expected before FY24.
Sustenance of capacity utilisation and sugar recovery rate :
Capacity utilization and sugar recovery rate moderated in FY22 to around 60% to 65% and to around 10%, respectively due to the non-availability of raw materials i.e. sugarcane crops. The Company expects the recovery rate to improve as it has shifted to better quality sugar and has sown quality seeds in the fields. Sustained production capacity utilisation and recovery rate which ensure stability in profitability will be the key monitorable for the Company.
Government’s consistent support to the sugar Industry :
The Government of India, in order to support the sugar industry has adopted multiple measures over the past couple of years, such as fixation of a MSP of sugar, extending working capital loans with interest subvention under scheme SEFASU-2014, extending financial assistance through soft loan scheme, export subsidy to motivate sugar export which were otherwise unviable and creation of sugar buffer stock to improve the demand-supply situation in the domestic market, etc. However, the government has recently capped export sales to prevent a surge in domestic sugar prices and ensure a steady domestic sugar supply.
Extensive experience and established track record :
The Company has a track record of nearly eight decades, having begun its operations in 1932. The promoters have extensive experience and an established track record in the sugar industry. The company enjoys long term relationships with its suppliers.

Credit Risks:

High regulatory risks and volatility in sugarcane yield and prices :
The government regulates the sugar industry by fixing the raw material prices in the form of State Advised Prices (SAP) and Fair & Remunerative Prices (FRP). The government also regulates the domestic demand and supply through the restrictions on imports and exports. Additionally price fluctuations of Sugar products expose the Company to volatility in revenue.
Susceptibility of profitability to volatility in raw material prices :
The raw material (sugarcane) and the final product (sugar) are sensitive to fluctuations in commodity prices thereby impacting the overall revenue of the Company. While the price of sugarcane is dependent on the monsoons, the price of sugar is inherently dependent on the production of sugarcane and the quantity of sugar in the open market. However this risk is mitigated to some extent as the price of sugar is regulated by the government.
Agro climatic risks arising out of key raw material being an agricultural product :
The raw material i.e. Sugarcane is an agricultural crop with high water requirements and is dependent on monsoons. Any changes in monsoons adversely affects the growth of the crop and hence in turn affects the Company’s revenues.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has considered the standalone performance of Vishnu Sugar Mills Ltd. BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Upward Factors: Sustained improvement in scale of operations, profitability margins along with significant improvement in DSCR and ISCR of the Company on a consistent basis.

Downward Factors: Any reduction in the scale of operations, profitability margin, deterioration in liquidity, debt protection metrics of the Company on a consistent basis may lead to negative rating action.

LIQUIDITY INDICATORS - Adequate

The liquidity position of VSML is adequate characterised by average working capital utilisation of ~50% in the last 12 months. The expected net cash accruals along with the unrestricted cash balances cash would be sufficient to meet scheduled debt repayments in FY23. Besides, the Company has sufficient unutilized working capital limits (~50%) for meeting liquidity requirements. Going forward, the Company expects to meet its scheduled debt obligations through internal accruals. With flood conditions impacting operations in FY21cand FY22, the Company had availed GECL loans of Rs.21.01 Crs from State Bank of India in February 2021 and further loans of Rs.6.96Crs from Punjab National Bank in November 2021 for meeting liquidity requirements. The company has paid off the majority of its cane dues by availing soft loans from the government and GECL loans. The Company also receives cane price subsidies from the Central government to make efficient payments to the farmers.

ABOUT THE ENTITY

Incorporated in 1932, Vishnu Sugar Mills Ltd. (VSML) runs a sugar mill with a crushing capacity of 5,000 tons per day, and has capacity to generate six megawatt of power from bagasse for captive consumption. The sugar mill is located at Gopalgunj, Bihar with a total calibrated land area of 3,17,350 acres as on 31-Mar-2020. VSML is involved in manufacturing of Sugar (Molasses, Bagasse and Press mud compost are its by-products).

The company was incorporated by the members of the Jhunjhunwala and Rungta families of Mumbai, in 1932. During 1955, it was taken over by the current promoters Mr Bajoria and the family, in the running condition.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	184.91	185.10
EBITDA	Rs.Crs.	-3.82	12.86
PAT	Rs.Crs.	-16.03	3.86
Tangible Net Worth	Rs.Crs.	36.12	50.14
Total Debt/TNW	Times	3.56	2.14
Current Ratio	Times	1.22	1.13

KEY COVENANTS OF THE FACILITY RATED

Standard.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

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	132.13	BWR BBB/Stable (Reaffirmation)	19May2021	BWR BBBStable (Reaffirmed )	10Dec2020	BWR BBBStable (Reaffirmed )	04Feb2019	BWR BBBStable (Reaffirmed )
		0.00	NA	NA	NA	NA	NA	13Sep2019	BWR BBBStable (Reaffirmed )
Non Fund Based	ST	0.16	BWR A3+ (Reaffirmation)	19May2021	BWR A3+ (Reaffirmed )	10Dec2020	BWR A3+ (Reaffirmed)	04Feb2019	BWR A3+ (Reaffirmed )
		0.00	NA	NA	NA	NA	NA	13Sep2019	BWR A3+ (Reaffirmed )
Grand Total		132.29	(Rupees One Hundred Thirty Two Crores and Twenty Nine lakhs Only)

Rating Advisory, as on 30May2022
Press Release, as on 30May2022
more than 12 months have elapsed since the last rating, BWR could not review the rating within the stipulated time, mainly due to the delay in receipt of essential information/documents required for review.

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

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
Madhu Sonthalia Senior Rating Analyst Board : +91 80 4040 9940 madhusonthalia@brickworkratings.com	Anuradha Gupta Director - Ratings anuradha.g@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Vishnu Sugar Mills Ltd

ANNEXURE-I

Details of Bank Facilities rated by BWR

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	Cash Credit - Sanctioned	25.00	_	25.00
2	Punjab National Bank	GECL - Sanctioned	6.94	_	6.94
3	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	0.16	0.16
4	State Bank Of India (SBI)	GECL - Sanctioned	19.39	_	19.39
5	State Bank Of India (SBI)	Term Loan - Sanctioned	10.80	_	10.80
6	State Bank Of India (SBI)	Cash Credit - Sanctioned	70.00	_	70.00
Total			132.13	0.16	132.29
TOTAL (Rupees One Hundred Thirty Two Crores and Twenty Nine lakhs Only)

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