RATING RATIONALE
15 Sep 2022
Dhaliwal-Sobti Sugar & Chemical Industries Pvt. Ltd.
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.23.00 Crs. of Dhaliwal-Sobti Sugar & Chemical Industries Pvt. Ltd.
Particulars| Facility** | Amount (Rs.Crs) | Tenure | Rating* |
|---|---|---|---|
| Fund Based | |||
|
Term Loan
Cash Credit |
18.00
05.00 |
Long Term | BWR BB - (Stable) |
| Sub Total | 23.00 | ||
| Grand Total | 23.00 | (Rupees Twenty Three Crores Only) | |
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable
Brickwork assigns the long term rating to Dhaliwal-Sobti Sugar & Chemical Industries Pvt. Ltd. of BWR BB- Stable as business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. It continues to derive comfort from the vast experience of its management for smooth functioning of the business. The ratings also positively factor in its gradual improving of scale of operations, capital structure and moderate debt protection metrics. However, these rating strengths remain constrained due to cyclic nature of the business. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.
KEY RATING DRIVERS
Credit Strengths:
- Experienced Management :
The company is managed by Mr. Harpreet Singh Dhaliwal and Mr. Nainjeet Singh Sobti who join their hands to share their experience to develop, improve and manufacture sugar from sugar cane for the growing needs of the region and the country as well. Directors of the company have also their business and shared their experience for the Company.
- Moderate Capital Structure :
The analyzed tangible net worth of the company is Rs. 7.78 Crs. for FY 21-22 as there are unsecured loans worth Rs. 12.03 Crs. Although, bank has mentioned in sanction letter that minimum of Rs. 8.05 Crs. of unsecured loans shall be maintained which will be treated as Quasi capital. Debt Protection Matrix (i.e. DSCR & ISCR) stood at 1.78 & 524.59 times for FY 21-22.
Credit Risks:
- Agro-climatic risks and cyclical trends in the industry :
Sugar industry being agro based and vulnerable to commodity cycles is vulnerable to the associated risks. Sugar industry is a cyclical industry with one business cycle of ~3-5 years in which there is a supply glut followed by the slump in prices leading to contraction in production. Further, profitability of sugar mills shall remain vulnerable to the agro-climatic risks related to sugarcane production. The sugarcane crop is dependent upon weather conditions including timeliness and intensity of yearly monsoon, and is vulnerable to pests and diseases that may not only impact the yield per hectare but also the recovery rate.
- Regulated nature of the industry :
The domestic sugar industry is highly regulated because of central and various government policies with respect to sugarcane prices, export and import of sugar, and the sugar release mechanism.
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).
RATING SENSITIVITIES
Going forward, the ability of the company to further increase its scale of operations by improving its revenue, profitability margins and financial risk profile, as usual maintaining its debt obligations and efficiently managing its working capital will be the key rating sensitivities.
Positive: The ratings may be upgraded if revenue, profitability, financial strength, liquidity and overall credit profile show substantial improvement.
Negative: The rating may be downgraded in case there is a significant deterioration in the business and financial risk profile of the company from its current level.
LIQUIDITY POSITION
- The Company has cash & bank balance of Rs. 0.09 Crs in FY21 and Rs. 0.23 Crs. in FY22(Prov.). The projected cash balance is to be at Rs. 0.47 Crs in FY23.
- The current ratio of the company stood at 1.02 times for FY22(Prov.) and 1.57 times for FY23 (Projected).
- The firm generated net cash accruals of Rs. 01.51 Crs in FY 22(Prov.) against the CPLTD which is Nil indicating the availability of funds to meet its debt obligations in FY22. The projected net cash accruals for FY23 is of Rs. 3.85 Crs against CPLTD of Rs. 1.51 Crs. indicating that there will be availability of funds from next year onwards.
- Debt Protection Matrix (i.e. ISCR & DSCR) is at 524.89 & 1.78 times for FY22(Prov.) respectively. They are projected to decline at 24.17 & 0.86 times respectively for FY23.
- Cash Credit utilization is 24.65% for last six months.
Hence, the overall liquidity of the company is adequate.
PROFILEDhaliwal-Sobti Sugar & Chemical Industries Pvt. Ltd. incorporated on 14th October 2020 at Bareilly, Uttar Pradesh. The Company is formed with a business objective for manufacturing of sugar products, refinery of sugar, sugarcane, molasses and chemicals. They generally deal in sugar, sugar beets, sugarcane, molasses, syrups, alcohol and all products or by products thereof and food products. The manufacturing plant is located at Lakhimrpur Kheeri, U.P with the installed capacity of 1500 TCD (Tones of Cane per day). The company is managed by Mr. Nainjeet Singh Sobti and Mr. Harpreet Singh Dhaliwal who joined hands to share their experience for smooth functioning of the business.
KEY FINANCIAL INDICATORS| Key Parameters | Units |
FY 21-22 (Provisional) |
FY 20-21 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 5.30 | 0.00 |
| EBITDA | Rs.Crs. | 1.52 | 0.00 |
| PAT | Rs.Crs. | 0.08 | 0.00 |
| Tangible Net Worth | Rs.Crs. | -0.28 | 0.50 |
| Total Debt/Tangible Net Worth | Times | -125.22 | 11.92 |
| Current Ratio | Times | 1.02 | 1.31 |
RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)
| S.No | Current Rating (2022) | Rating History | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Facilities | Tenure | Amount (Rs.Crs) | Rating | 2021 | 2020 | 2019 | ||||
| Fund Based | ||||||||||
| 1 | Term LoanCash Credit | Long Term | 18.0005.00 | BWR BB-(Stable) | NA | NA | NA | |||
| Total | 23.00 | (Rupees Twenty Three 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 : For More Information Contact:| Analytical Contacts | |
|---|---|
|
Kartik Arora Lead Analyst kartik.a@brickworkratings.com |
Hari Kishan Yadav Associate Director - Ratings hari.ky@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 & Sind Bank | Term Loan | 18.00 | _ | 18.00 |
| 2 | Punjab & Sind Bank | Cash Credit | 5.00 | _ | 5.00 |
| Total | 23.00 | 0.00 | 23.00 | ||
| TOTAL (Rupees Twenty Three Crores Only) | |||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
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