Tikaula Sugar Mills Ltd.

Brickwork Ratings reaffirms/revises the ratings for the Bank Loan Facilities of Rs. 524.11 Crs. of Tikaula Sugar Mills Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (19 Apr 2021)	Present
Fund Based	495.69	524.11	Long Term	BWR BBB+ /Stable Assignment	BWR BBB + /Stable Reaffirmation
Grand Total	495.69	524.11	(Rupees Five Hundred Twenty Four Crores and Eleven 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
Note: In the Annexure-1 of details of Bank Facilities, Facility no. 9 & 11 refers to ZSBL,Meerut (Zila Sahkari Bank Limited) while facility no. 10 & 12 refers to ZSBL, Bijnor

RATING ACTION / OUTLOOK

BWR has essentially relied on financials of FY22 (Provisional), FY21(A), publicly available information and information & clarifications provided by management. The rating draws comfort from experienced management along with an established track record of operations, integrated operations, consistent improvement in scale of operations along with moderate profitability margins and adequate liquidity indicators. However, the rating remained constrained due to susceptibility of  revenue  to the volatile nature of industry, moderate debt protection metrics and moderate capital structure. Further  the rating remained constrained due to the cyclical nature of industry which is exposed to agro climatic risk and working capital intensive nature of business.

KEY RATING DRIVERS

Credit Strengths:

• Long operational track record of the promoters :

  The Company is promoted by Mr. Nidhish Prakash who is the Chairman and the Managing Director. The promoters have an experience of over 35 years in the industry.

• Integrated nature of operations resulting in substantial de-risking of core sugar business :

  The company has an integrated sugar plant with a capacity of 9000 TCD with 75 KPLD distillery and 30 MW power cogeneration plant. The integrated facility leads to diversification of revenue, offsetting cyclicality in the sugar business. 

• Consistency in operational capacity with increased cane crushing and recovery rates: :

  Presently, TSML has an installation capacity of 9000 TCD which is further envisaged to expand to 12000 TCD by  Sep-22 and to be fully operationalized in the coming sugar season 22-23. The recovery rate of sugar has consistently been above 11%, better than the state average. This Company is the only one out of the eight sugar mills in Muzaffarnagar which has cleared all the cane dues, reflecting the company’s commitment to the farmers.

• Consistent improvement in scale of operations with moderate profitability margins :

  The profitability of TSML marked by EBITDA  & PAT remained moderate albeit declined marginally to 9.68% and 2.72% respectively in FY22 (Prov.)Further, the overall economic scenario for the sugar and ethanol business is very comfortable and there is a constant demand of Ethanol by the petroleum industry.

Credit Risks:

• Susceptibility of the revenue due to volatility in sugar prices and government intervention: :

  The sugar industry is susceptible to movements in sugar prices which results in volatile profitability. While the input prices are driven by the government, sugar prices are volatile and based on open market prices which are dependent on the production levels. Besides, the government regulates domestic demand-supply through restrictions on imports and exports and buffer stock holdings. Regulatory mechanisms and dependence on monsoons have also rendered the sugar industry cyclical. Government interventions will remain a driver for the profitability of sugar mills and continue as a key rating sensitivity factor.

• Moderate debt protection metrics :

  The debt coverage indicators of TSML remained moderate, marked by ISCR at 2.97x in FY22 as compared to 2.78x in FY21. DSCR remained stretched at 1.04x for FY22 as compared to 1.14x for FY21.  

• Moderate Capital Structure :

  The capital structure of TSML remained moderate marked by overall gearing improved to 1.45x as on March 2022 as against 1.73x as on March 21. Further the TOL/TNW remained leverage to 1.83x as on March 2022 albeit improved over previous year as against 2.41x as on March 2021 owing to decline in total outside liabilities and increase in tangible net worth base.

• Working Capital Intensive operations :

  Due to the seasonality of the industry, and the controls, sugar production has high working capital requirement and other carrying costs like godown maintenance, insurance etc. The company’s average fund based working capital utilization is in the range of 95-100% in the peak season.

• Cyclical nature of sugar industry and exposure to agro climatic risk :

  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. The time taken from harvesting to crushing of the sugarcane also affects the recovery rate of sugar. These factors can have a significant impact on the company’s profitability. The company is also exposed to geographical concentration risks associated with single-mill operations.

• Regulated nature of the sugar industry :

  The government on its part resorts to various regulations like fixing the raw material prices in the form of State Advised Prices (SAP) and Fair & Remunerative Prices (FRP). The government regulates the domestic demand and supply through the restrictions on imports and exports . When sugar prices were on rise and there was an oversupply situation of sugar, the government introduced limits on the sugar release in the form of a monthly sugar release quota system which affected the margins on sugar.

• Project Execution Risk :

  The  company has an on-going CAPEX of Rs. 102.00 Cr approx for expanding sugar mill capacity from 9000 TCD to 12000 TCD which is envisaged to be operationalized  from Sep-22. The capex has been planned well and the execution is on track, to enable the company to have a crushing capacity of 12000 TCD in the coming sugar season 2022-23. All clearances are in place, and the required machinery has been ordered. The funding has been tied up, and the expectation is that the capex will be satisfactorily completed in time. 

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has considered the standalone performance of Tikaula 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

Going forward the ability of the company to improve scale of operations, to improve capital structure and maintaining overall financial risk profile will be the key rating sensitivities.

Positive:

• Sustained improvement in scale of operations and profitability

• Substantial Improvement in liquidity, debt protection matrix and capital structure

Negative:

• Delay in completion and execution of On-going CAPEX

• Deterioration in scale of operations

• Specific credit metrics that could lead to a downgrade of SFPL rating include gearing above 1.50 times and ISCR and DSCR less than 1.00 times on a sustained basis.

LIQUIDITY INDICATORS - Stretched

The liquidity indicators remained stretched, marked by the current ratio stands at 1.26x for FY21 (A) as against 1.29x for FY20(A). Further due to the current market dynamics and on-going debt funded CAPEX the liquidity indicators is further expected to remained stretched for F22 & FY23. The net cash accruals for FY22 (Prov.) remain stretched at Rs. 41.75 Cr as against gross loan repayments of Rs. 38.89 Cr for FY22 and it is further expected to remain stretched owing to debt funded CAPEX. However TSML envisages cash accruals of Rs. 57.4 Cr approx for FY23 as against Gross loan repayments of Rs. 35.51 Cr for FY23 owing to increase in scale of operation led by increase in sugar crushing installation capacity from 9000 TCD to 12000 TCD. The unencumbered cash and bank balance is expected to remains at Rs. 19.45 Cr for FY22 (Prov.) 

ABOUT THE ENTITY

Incorporated in 1994, M/s. Tikaula Sugar Mills Ltd (TSML) was engaged in manufacturing sugar and sugar related products like Distillery and also power.  TSML is currently operating with a capacity of 9000 TCD (Tonnes of Canes Per Day) from its plant located at Muzaffarnagar, Uttar Pradesh. The company also has a distillery capacity of 75 KLPD (Kilo Litre Per Day) and power generation capacity of 30 MW. TSML utilizes around 14MW for its captive consumption and the balance is exported to Uttar Pradesh Power Corporation Ltd and Paschimanchal Vidyut Vitran Nigam Ltd under PPA. Presently TSML is being spearheaded by Mr. Nidhish Prakash in the capacity of Chairman and Managing Director and Mr. Sudhish Prakash as Managing Director.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	769.06	582.30
EBITDA	Rs.Crs.	83.74	86.81
PAT	Rs.Crs.	23.60	30.71
Tangible Net Worth	Rs.Crs.	222.61	198.89
Total Debt/TNW	Times	1.74	2.27
Current Ratio	Times	1.26	1.30

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	524.11	BWR BBB+/Stable (Reaffirmation)	19Apr2021	BWR BBB+ Stable (Assignment)	19Feb2020	BWR BBB+Stable (Assignment)	NA	NA
Grand Total		524.11	(Rupees Five Hundred Twenty Four Crores and Eleven 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

• Approach to Financial Ratios
• General Criteria
• Manufacturing Companies
• Short Term Debt

Analytical Contacts
Shah Niraj Ratings Analyst nirajshah@brickworkratings.com	Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@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	Muzaffarnagar District Cooperative Bank Limited	Term Loan - Out-standing	15.00	_	15.00
2	Muzaffarnagar District Cooperative Bank Limited	Cash Credit - Sanctioned	55.00	_	55.00
3	Punjab National Bank	GECL - Out-standing	18.96	_	18.96
4	Punjab National Bank	Cash Credit - Sanctioned	132.00	_	132.00
5	State Bank Of India (SBI)	Cash Credit - Sanctioned	60.00	_	60.00
6	State Bank Of India (SBI)	GECL - Out-standing	17.85	_	17.85
7	Uttar Pradesh Cooperative Bank Limited	Term Loan - Out-standing	53.80	_	53.80
8	Uttar Pradesh Cooperative Bank Limited	Cash Credit - Sanctioned	50.00	_	50.00
9	Zila Sahkari Bank Limited	Cash Credit - Sanctioned	55.00	_	55.00
10	Zila Sahkari Bank Limited	Cash Credit - Sanctioned	38.00	_	38.00
11	Zila Sahkari Bank Limited	Term Loan - Out-standing	16.50	_	16.50
12	Zila Sahkari Bank Limited	Term Loan - Out-standing	12.00	_	12.00
Total			524.11	0.00	524.11
TOTAL (Rupees Five Hundred Twenty Four Crores and Eleven lakhs Only)