RATING RATIONALE
04May2022
Dr. Patangrao Kadam Sonhira Sahakari Sakhar Karkhana Ltd.
Brickwork assigns the ratings for the Bank Loan Facilities of Rs. 348.50 Crs. of Dr. Patangrao Kadam Sonhira Sahakari Sakhar Karkhana Ltd. (DPKSSSKL or "The Society")
Particulars| Facilities** | Amount(Rs.Crs.) | Tenure | Rating# | |
|---|---|---|---|---|
| Fund Based | 348.50 | Long Term |
BWR BBB
/Stable Assignment |
|
| Grand Total | 348.50 | (Rupees Three Hundred Forty Eight Crores and Fifty lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK
Brickwork Ratings (BWR) has assigned BWR BBB/Stable to the bank facilities of DPKSSSKL. The rating reflects robust business profile of the society marked by sugar cane crushing capabilities crossing 11 Lakh MT during current season, diversified revenue streams supported by integrated operations leading to remunerative cogen power sale and distillery sales. The society further benefits from assured sugar cane availability from its command area backed by satisfactory track record of cane payments. Society’s financial risk profile improved significantly as they have been successful in decreasing the debt levels significantly in FY22E. The rating also reflects benefits that society derives from its established regional position in sugar business, integrated nature of operations and extensive industry experience of the management. These strengths are partially offset by the execution risk associated with ongoing capex for enhancement in distillery capacity, exposure to regulatory changes, cyclicality and climatic changes associated with the sugarcane production.
KEY RATING DRIVERSCredit Strengths:
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Diversified Revenue Streams :
DPKSSSKL has integrated operations as it runs a 22MW cogeneration plant and 60 KLPD distillery units (2*30 KLPD) alongwith sugar mill with a cane crushing capacity of 5000 TCD. The 22MW cogen plant has a power purchase agreement with the state grid at Rs.6.64/unit, which is valid till 2024. The company produces ethanol from its distillery units. The sugar mill’s profitability is supported by cogen power sale and sale of ethanol. Further the society has maintained healthy sugar recovery rates of over 12% for its sugar mill since the past four years. Operating margin has also remained steady at a minimum of 10% over the last four years ending FY22E. Further, the integrated nature of operations and remunerative sale of ethanol and power will also continue to reduce susceptibility to sugar cycles.
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Improvement in debt and liquidity profile :
DPKSSSKL has been successful in substantially reducing its total debt from Rs. 414.05 Crs. in FY21 to Rs. 200.73 Crs in FY22. This reduction has led to yoy improvement in the Total Debt / Tangible Net Worth to 0.85x in FY22E (FY21: 1.5x). Further, the society’s average utilisation of its fund based pledge cash credit limits is only 28% providing sufficient liquidity cushion in event of a spike in working capital requirement, The improvement in financial risk profile is led by significant jump in operating income during FY22 on account of higher sugar exports (50% in FY22 vs. 29% in FY21) and improvement in average export sales realisation (28.88 in FY22 vs. 25.26 in FY21). As per the provisional numbers shared by the society for FY22, the Total Operating Income has improved by 24% to Rs. 587.96 Crs. with Op. EBITDA margin stable at 10.34% and Net margin also stable at 2.43%.
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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 minimum selling price (MSP) for sugar, extending working capital loans with interest subvention under SEFASU-2014, extending soft loans, export subsidy to motivate sugar export which were otherwise unviable, creation of sugar buffer stock to improve the demand-supply situation in the domestic market, interest subvention on setting up or enhancing ethanol distilling capacity etc.
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Promoter Experience and Track record :
Promoters have over three decades of experience in the sugar industry leading to established relationships and trust among the local community
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Working Capital Intensive Business :
As inherent with the companies in the sugar sector, DPKSSSKL’s working capital intensity remains high due to a lengthy inventory holding period. The high levels are on account of government regulation related to minimum selling price and monthly release quota. Diversion of sugar juice and B Heavy molasses towards production of ethanol, refined spirits, extra neutral alcohol and higher exports on account of strong international demand and favorable pricing has helped the society to reduce their inventory holding period thus easing the debt requirement. The risk is offset to a certain extent as DPKSSSKL's average pledge CC limit utilization for the last 12 months ending March '22 is 28% which provides sufficient cushion in case of a working capital requirement spike.
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Ongoing Capex :
The Society is planning to set up a new 75 KLPD distillery unit in next nine months at a cost of over Rs.120 cr. (around Rs. 90 crore debt, balance by equity) which will be able to produce ethanol by B-heavy route. Post this capex, the old 30 KLPD distillery unit will be scrapped and society will have a total distillery capacity of 105 KLPD. The remunerative ethanol sale prospects augur well for the society’s profitability. Majority of the project debt is expected to have interest subvention. New unit is expected to commence full scale operations in SS 2023-24.
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Susceptibility of profitability to volatility in raw material availability and Agro climatic risks :
The raw material (sugarcane) and the final product (sugar) are sensitive to fluctuations in commodity prices and thereby impacting the overall revenue of the society. 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 supported by MSP. Sugarcane is an agricultural crop with high water requirements and is dependent on monsoons. Any changes in monsoon patterns could adversely affect the crop’s growth and in turn could affect DPKSSSKL’s revenues. The risk of drought is mitigated to a certain extent by the availability of irrigation facilities in the Sangli area of Maharashtra where the plant is located.
The Society does not have any subsidiaries, for arriving at its ratings, BWR has assessed the standalone financials of DPKSSSKL and has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). BWR has essentially relied upon the society’s audited financial results up to FY21, Provisional financials of FY22 and the projections shared by the society, as well as publicly available information and the information/ clarifications provided by the society.
RATING SENSITIVITIES
Positive sensitivities: Substantial and sustained improvement in the operating performance, improved working capital management, credit metrics and coverage ratios could result in a positive rating action.
Negative Sensitivities: Any significant increase in the cane procurement cost impacting the sugar contribution margins, deterioration in financial risk profile and a weaker liquidity position could result in a negative rating action.
Cash & Bank Balance were at Rs. 1.81 Crs. as on 31Mar2022 (Provisional Financial Statements). DPKSSSKL's total cash credit limits are at Rs. 326 Crs. and average working capital utilization between April 2021 and March 2022 has been 26% with maximum utilization touching 80%, thus indicating sufficient cushion in case of exigencies. The working capital situation is likely to remain stable in FYE23 and FYE24 with improvement in domestic demand supported by opening of the economy and aggressive ethanol blending targets set by the central government. DPSSSKL’s has repayment obligation of ~ Rs. 21.13 Crs. in FY23, and Rs. 11.93 Crs. in FY24 which can be repaid from expected Net cash Accruals of 45-50 Crs each in FY23 and FY24.
ABOUT THE ENTITYDPKSSSKL was registered under the Maharashtra Co-operative Societies Act, 1960 vide registration no. SAN/KHR/PRG (A)/S-46/1994 dated 25th March 1994. It is an integrated sugar mill.. The first crushing season of the sugar mill was conducted in the year 1999-2000 with an installed crushing capacity of 2500 TCD. Since then, the sugar mill has expanded its crushing capacity from 2500 TCD to 4000 TCD in 2011-12 and from 4000 TCD to 5000 TCD in 2016- 17. The existing cane crushing capacity of DPKSSSKL is 5000 TCD along with a 22 MW Cogeneration plant and a 60KLPD distillery.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 475.51 | 537.93 |
| EBITDA | Rs.Crs. | 50.50 | 53.79 |
| PAT | Rs.Crs. | 10.05 | 0.67 |
| Tangible Net Worth | Rs.Crs. | 276.47 | 240.23 |
| Total Debt/Tangible Net Worth | Times | 1.50 | 1.59 |
| Current Ratio | Times | 1.03 | 0.98 |
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
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|
 |
| Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 348.50 |
BWR BBB/Stable
(Assignment) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| Grand Total | 348.50 | (Rupees Three Hundred Forty Eight Crores and Fifty 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 | |
|---|---|
|
Sagar Harendra Desai Ratings Analyst sagar.d@brickworkratings.com |
Chintan Dilip Lakhani Director- Ratings chintan.l@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 | Sangli District Central Co-Operative Bank Limited | Open Cash Credit / Cash Credit (Hypothecation/Pledge)Sanctioned | 176.00 | _ | 176.00 | |
| 2 | State Bank Of India (SBI) | Harvesting and TransportationSanctioned | 22.50 | _ | 22.50 | |
| 3 | State Bank Of India (SBI) | Open Cash Credit / Cash Credit (Hypothecation/Pledge)Sanctioned | 150.00 | _ | 150.00 | |
| Total | 348.50 | 0.00 | 348.50 | |||
| TOTAL (Rupees Three Hundred Forty Eight Crores and Fifty lakhs Only) | ||||||
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