Shree Laxmi Narshinha Sugars LLP (erstwhile Mohtadevinarshinha Sugar & Agro Products LLP)

Brickwork Ratings revises the ratings for the Bank Loan Facilities of Rs. 104.55 Crs. of Shree Laxmi Narshinha Sugars LLP (SLNS, erstwhile Mohtadevinarshinha Sugar & Agro Products LLP)

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (16 Jul 2020)	Present
Fund Based	55.00	104.55	Long Term	BWR BB- /Stable Downgrade/INC	BWR BB + /Stable Upgrade
Grand Total	55.00	104.55	(Rupees One Hundred Four Crores and Fifty Five 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 ratings have been upgraded from BB-/Stable to BB+/Stable and moved out of the INC category. The upgrade reflects extensive experience of SLNS's management team in the sugar industry, robust improvement in operating efficiency and moderate financial risk profile. These strengths are partially offset by cyclicality in the sugar business, susceptibility to regulatory changes, volatility in sugar prices, ongoing capex of distillery plant and working capital intensive nature of business.

The outlook is kept stable as BWR believes the firm's business and financial profile to remain at similar level in near term.

KEY RATING DRIVERS

Credit Strengths:

Improving scale of operations and moderate operating efficiencies :
SLNS's scale of operations have improved significantly since the past two fiscals on account of higher sugar cane crushing and liquidation of sugar inventory. The company at present has 3500 TCD cane crushing plant. The firm has demonstrated robust improvement in operating efficiencies marked by stable recovery rates (above 10% in FY20 and FY21) and operating margin of 15-21.8% over the last three years. The company is in process to set up a 45 KLPD distillery plant expected to be operational by October 2021. Going forward the integrated nature of operations and remunerative sale of ethanol will help the firm to reduce susceptibility to sugar cycles.
Management"s extensive experience in sugar industry and financial strength :
SLNS promoters have extensive experience in the sugar industry and have established connect with sugarcane farmers. SLNS LLP partners long track record and improved relationship with local farmers over the past 3 years shall continue to support the business risk profile over the medium term. Further the partners capital infusion has increased from Rs. 6.45 Crs. in FY18 to 40.31 crs. in FY21 highlighting the financial strength of the partners.

Credit Risks:

Operationalization of Distillery unit :
The company is in process to set up a 45 KLPD distillery plant. The capex cost is around Rs. 61.60 crore which is funded by a mix of external debt and funding from partners in Debt /Equity ratio of 85:15. At present the Civil work is completed, Mechanical work is expected to be completed by August 2021, electric work and cabling work by September 2021, trial and COD by October 2021. Any delay in timelines would hamper the firm's capability to participate in ethanol bidding process which usually starts from October thus leading to lower sales and profitability in FY22.
Average credit metrics: :
Though the sales growth and operating profit has been high in the past couple of years the credit metrics of the company are still at average level with current ratio being 1.17x in FY21 (FY20: 1.08) and Total Outside Liability/Tangible Networth(adjusting for revaluation reserve of fixed assets) for FY21 4.09x(FY20: 3.78x). The firm may face further deterioration in the credit metrics on account of distillery capex if the expected future cash accruals are not met from ethanol and refined spirits sales.
Working Capital Intensive Business :
As inherent with the companies in the sugar sector, the Firm's working capital intensity remains high due to 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 and extra neutral Alcohol will help the integrated sugar mills to reduce their inventory holding period thus easing the debt requirement. The risk is offset to a certain extent as the firm's average pledge CC limit utilization for the last 12 month ending June '21 is 30% which provides sufficient cushion in case of a working capital requirement spike. Further the firm has been able to sell sugar worth 50 Crs till July end 2021 thus bringing down inventory from Rs. 108 Crs.as at March 2021 to Rs. 58 crs as at July 2021.
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 crops growth and hence in turn affects the Company’s revenues. This is mitigated to a certain extent by the availability of irrigation facilities in the Parbhani area of Maharashtra where the plant is located.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale).BWR has adopted a standalone approach for arriving at its ratings.

RATING SENSITIVITIES

Positive sensitivities: Sucessful execution and operationalization of distillery plant, sustained improvement in the operating performance as envisaged, sustained profitability, improved working capital management, credit metrics and liquidity profile could result in a rating upgrade.

Negative Sensitivities: Delay in execution of distillery plant, any significant increase in the cane procurement cost impacting the sugar contribution margins, deterioration in financial risk profile of the firm and a weaker liquidity position could result in a rating downgrade.

LIQUIDITY INDICATORS - Adequate

Cash & Cash Equivalents were at Rs. 1.65 Crs. as on 31Mar20201(P), The firm has Rs. 80 crs. of CC limit with average utilization of 30% during past 12 months, The upcoming interest and debt repayment obligation is Rs. 26.71 Crs. which can be easily met from expected NCA of Rs 41.97 Crs in FY22.

ABOUT THE ENTITY

SLNS is a Limited Liability Partnership firm formerly known as Mohtadevinarshinha Sugar & Agro Products LLP. It has purchased an old plant, previously known as Tridhara Sugar Limited. The LLP has three partners – Anuradha Rajendra Nagawade, Sanjay Shantaram Dhankawade and Pramod Narharrao Jadhav. Its sugar plant has a capacity of 3500 TCD. The firm is setting up a 45 KLPD distillery plant which is in the final stages of construction. The plant is expected to be operational in October 2021.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	61.88	14.74
EBITDA	Rs.Crs.	13.76	2.33
PAT	Rs.Crs.	2.08	1.60
Tangible Net Worth	Rs.Crs.	35.10	27.02
Total Debt/Tangible Net Worth	Times	3.31	1.89
Current Ratio	Times	1.08	1.20

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction 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	104.55	BWR BB+/Stable (Upgrade)	16Jul2020	BWR BB-/Stable (Downgrade/INC)	17Jul2019	BWR BBB-(SO)/Stable (INC)	31Mar2018	BWR BBB-(SO)/Stable (Assignment)
Grand Total		104.55	(Rupees One Hundred Four Crores and Fifty Five 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
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

Shree Laxmi Narshinha Sugars LLP (erstwhile Mohtadevinarshinha Sugar & Agro Products LLP)

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	Suvarnayug Sahakari Bank Limited	Term Loan - Sanctioned	3.00	_	3.00
2	The Maharashtra State Co-operative Bank Limited	Term Loan - Sanctioned	25.00	_	25.00
3	The Maharashtra State Co-operative Bank Limited	Term Loan - Sanctioned	17.19	_	17.19
4	The Maharashtra State Co-operative Bank Limited	Term Loan - Sanctioned	27.72	_	27.72
5	The Pune District Co-operative Bank Limited	Term Loan - Sanctioned	10.00	_	10.00
6	The Pune District Co-operative Bank Limited	Term Loan - Sanctioned	21.64	_	21.64
7	Un tied portion	Term Loan - Proposed	_	_	0.00
Total			104.55	0.00	104.55
TOTAL (Rupees One Hundred Four Crores and Fifty Five lakhs Only)

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