Indian Cane Power Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 255.51 Crs. of Indian Cane Power Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (03 Jun 2020)	Present
Fund Based	205.88	243.01	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB - /Stable Reaffirmation
Non Fund Based	12.50	12.50	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Grand Total	218.38	255.51	(Rupees Two Hundred Fifty Five Crores and Fifty One 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

The rating reaffirmation continues to factor the experience of the management, strong parentage of the Devangere based Shamanur group of industries, established operational track record, integrated operations, proximity of the plants to sugarcane cultivation areas and established relationships with farmers for procurement of sugar. The ratings remain constrained by susceptibility to regulatory changes, cyclicality of the sugar industry, exposure to agro-climatic risks including flood and draught conditions which expose the company to volatility in revenue and profitability, high inventory levels and large working capital requirements. The rating strengths are also offset by the uncertainties in the domestic sugar and ethanol market due to second wave of the Covid-19 pandemic.

BWR notes the company has not applied for one time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.

BWR expects that Indian Cane Power Ltd’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if the company records substantial improvement in the operating performance and supply-demand dynamics are favourable with resulting higher sugar prices and profitability, improved working capital management and liquidity profile. The outlook may be revised to Negative in case of a deterioration in operating performance, significant increase in the cane procurement cost impacting the sugar contribution margins resulting in lower than estimated coverage indicators, deterioration in the performance of the company and a weaker liquidity position which adversely impacts the financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established track record :
The management of the company is well experienced and the long operational track record of operations is expected to continue to drive Indian Cane Power Limited's (ICPL’s) business growth over the medium term. ICPL is a part of the Shamanur group of industries, an established business group in Davanagere, promoted by Mr. Shamanur Shivashankarappa.
Established integrated operations :
The company has an integrated sugar plant with a capacity of 24000 TCD with 90 KPLD distillery and 83 MW cogeneration. The integrated facility leads to diversification of revenue profile offsetting cyclicality in the sugar business to a certain extent. In FY21, the contributions from sale of sugar, power and distillery were ~72% (FY20: ~70%), ~17% (FY20: ~22%) and ~9% (FY20: ~8%), respectively, on provisional basis. ICPL has locational advantages ensuring steady availability of cane. The company’s 24,000 TCD integrated sugar plant is located in Mudhol taluk, Bagalkot district, Karnataka, which is a sugarcane belt of Karnataka.
Consistent operational performance during the past 3 years :
The company’s sugar recovery is fairly consistent as reflected in sugar recovery of 11.25% in FY21 against 10.67% in FY20 and 11.30% in FY19. The company crushed 20.15 Lakh MT of sugarcane in FY21 (10.70 Lakhs MT in FY20). Also, there has been an improvement in power generation with 33.30 Crs. units in FY21 as against 31.24 Crs. units in FY20 and 22.33 Crs. units in FY19. The distillery unit also produced ~1.68 Crs. litres of rectified spirit in FY21 as against ~1.22 Crs. litres in FY20 and 1.17 Crs. litres in FY19.
Moderate financial risk profile :
The company’s operating income increased to Rs. 644.56 Crs. in FY20 from Rs. 415.02 Crs. in FY19. EBITDA improved to Rs. 98.42 Crs. in FY20 from Rs. 83.52 Crs. in FY19. The company recorded net profit in FY20 of Rs. 15.80 Crs. after losses for previous three consecutive fiscals. The debt coverage metrics were moderate as reflected in DSCR of 1.54 times and ISCR of 2.42 times as on 31Mar2020. Leverage continues to be high as reflected in debt/equity of 5.85 times as on 31Mar2020. The company reported total operating income of ~Rs. 831 Crs. in FY21 on a provisional basis.

Credit Risks:

Susceptibility to regulatory changes and inherent volatility in sugar prices :
The sugar industry is susceptible to movements in sugarcane and sugar prices which results in volatile profitability. While the government policy of Fair & Remunerative Price (FRP) and State Advisory Price (SAP) for sugarcane has brought some amount of stability and predictability in input price, open market sugar price remains dependent on the demand-supply scenario. Besides, the government regulates domestic demand-supply through restrictions on imports and exports, sugar release orders and buffer stock limits. Government interventions will remain a driver for the profitability of sugar mills and continue as a key rating sensitivity factor.
Agro climatic risks and cyclical trends in the industry :
Profitability of sugar mills will remain vulnerable to the agro-climatic risks related to cane production. Being an agricultural product, the sugarcane crop is dependent upon weather conditions and is vulnerable to pests and diseases that may not only impact the yield per hectare but also the recovery rate. These factors can have a significant impact on the company’s revenue and profitability. The company is also exposed to geographical concentration risks associated with single-mill operations.
Working capital intensive nature of operations :
As is inherent in the sugar industry, the production takes place during 4-5 months a year while the product is sold over 10-12 months. This results in high working capital requirement and other carrying costs like godown maintenance, insurance etc. The company’s average fund based working capital utilization goes in the range of 95-100% in the peak season with associated finance costs.
Impact of Covid-19 :
Covid-19 pandemic and the associated nation-wide lockdowns impacted the demand of sugar and distillery products in H1FY21. Recovery was fast in H2FY21 and the overall impact was not significant. ICPL was also impacted in H1FY21 due to the pandemic and the lockdown but recovered soon after lifting of the lockdown. The second wave of Covid-19 pandemic has added uncertainty in the domestic sugar and ethanol market.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has adopted a standalone approach. However, BWR has taken note of Indian Cane Power Limited’s two wholly owned subsidiaries viz., Someshwar Sugars Limited. and Alagawadi Bireshwar Sugars Private Limited. The financials of these companies are consolidated in the financial statements of Indian Cane Power Limited. However, these subsidiaries are not operational and hence, their contribution is negligible.

RATING SENSITIVITIES

The ability of the company to optimally utilize its capacities, increase its scale of operations, improve operational efficiency and profitability, service the debt repayment obligations on a timely basis, strengthen its overall credit profile and manage its working capital efficiently would be the key rating sensitivities.

Positive:

Better-than-estimated operational performance with improvement in revenue, EBIDTA and PAT margin and credit metrics on a sustained basis
Capital infusion in the form of equity and improvement in gearing to 2.50 times

Negative:

Decline in the revenue and profitability leading to deterioration in the overall credit metrics on a sustained basis will be negative for the ratings
Any significant increase in the working capital borrowings owing to higher-than-expected sugar inventory levels
Disruption in demand of sugar and ethanol due to the current second wave of Covid-19 pandemic

LIQUIDITY INDICATORS - Stretched

Liquidity is stretched as reflected in the average utilization of fund based working capital limits at ~100% in past six months and subdued Current Ratio at 1.10 times as on 31Mar2020 and 1.12 times as on 31Mar2021 on a provisional basis. Cash and cash equivalents were moderate at ~Rs.23 Crs. as on 31Mar2020 which improved to ~Rs. 29 Crs. as on 31Mar2021 on a provisional basis. The net cash accruals were sufficient to service the debt repayments in FY20 and FY21 (provisionally). Debt repayments are in the range of ~Rs. 37-40 Crs. for FY22-23 which are expected to be serviced from net cash accruals and any shortfall is expected to be met through funds from the promoters.

ABOUT THE ENTITY

Indian Cane Power Limited (ICPL) was incorporated on 01Mar2002 at Bengaluru, Karnataka by Mr. Shamanur Shivashankarappa. It started its commercial operation in 2008. The company is engaged in production of sugar, ethanol and power. It has an integrated unit with sugar plant of 24000 TCD capacity, distillery with 90 KLPD capacity and a cogeneration plant with 83 MW capacity. The sugar and co-gen unit is located at Uttur village, Mudhol taluk in Bagalkot district, Karnataka and the distillery unit is located at Duggavathi village, Harapanahalli taluk in Davangere district, Karnataka. Sugar mill capacity utilization and sugar recovery were ~66% and ~11.25% , respectively, in FY21 as against capacity utilization of ~61% and sugar recovery of ~10.67% in FY20. The company has crushed 20.15 lakh MT sugarcane during Sugar Season 2020-21. It also generated ~33.30 crore units of power and 1,68,37,000 litres of rectified spirit in FY21.

Mr. S S Mallikarjun is the Chairman and Mr. A.S. Niranjan the Managing Director. Mr. S Shivashankarappa, Ms. Prabha Mallikarjun, Mr. Subhash Chand Pahuja and Mr. Premchand are the other directors of the company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	644.56	415.02
EBITDA	Rs.Crs.	98.42	83.52
PAT	Rs.Crs.	15.80	-2.94
Tangible Net Worth	Rs.Crs.	85.88	70.08
Total Debt/Tangible Net Worth	Times	5.85	7.72
Current Ratio	Times	1.08	1.12

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction for the bank loan facilities include standard covenants normally stipulated for such facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not applicable

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	243.01	BWR BBB-/Stable (Reaffirmation)	03Jun2020	BWR BBB-/Stable (Reaffirmation)	29May2019	BWR BBB-/Stable (Reaffirmation with revision of Outlook)	15May2018	BWR BBB-/Negative (Reaffirmation)
Non Fund Based	ST	12.50	BWR A3 (Reaffirmation)	03Jun2020	BWR A3 (Reaffirmation)	29May2019	BWR A3 (Reaffirmation)	15May2018	BWR A3 (Reaffirmation)
Grand Total		255.51	(Rupees Two Hundred Fifty Five Crores and Fifty One lakhs Only)

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
Swarn Saurabh Senior Rating Analyst swarn.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Indian Cane Power Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	20.00	_	20.00
2	Term Loan - Out-standing	81.63	_	81.63
3	Term Loan - Proposed	5.00	_	5.00
4	GECL - Sanctioned	25.25	_	25.25
5	Cash Credit - Sanctioned	15.00	_	15.00
6	Term Loan - Out-standing	2.78	_	2.78
7	Term Loan - Proposed	30.00	_	30.00
8	Cash Credit - Sanctioned	50.00	_	50.00
9	Term Loan - Out-standing	13.35	_	13.35
10	Letter of Credit - Sanctioned	_	10.00	10.00
11	Bank Guarantee - Sanctioned	_	2.50	2.50
Total		243.01	12.50	255.51
TOTAL (Rupees Two Hundred Fifty Five Crores and Fifty One lakhs Only)

ANNEXURE-III

List of entities consolidated

Name of Entity	% Ownership	Extent of consolidation	Rationale for consolidation
Someshwar Sugars Limited	100	Full	Wholly Owned Subsidiary
Alagawadi Bireshwar Sugars Private Limited	100	Full	Wholly Owned Subsidiary

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