Bhimashankar Sahakari Sakhar Karkhana Ltd - ICRA
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Bhimashankar Sahakari Sakhar Karkhana Ltd
January 29, 2019
Summary of rating action
Current Rated Amount
Instrument* Rating Action
(Rs. crore)
Fund-based – Term Loan (Proposed) 125.00 [ICRA]BBB- (Stable); Assigned
Total 125.00
*Instrument details are provided in Annexure-1
Rationale
The assigned rating takes into account the long operational history of Bhimashankar Sahakari Sakhar Karkhana Ltd
(Bhimashankar Sugar or the company) in the manufacturing of sugar, its healthy sugar recovery rates, and its high
capacity utilisation levels maintained over the past four fiscals amid its presence in the high sugar-recovery, high cane-
yield Pune district of Maharashtra. The ratings also favourably factor in the healthy profitability maintained by the
company over the last three fiscals, its adequate debt protection metrics, and comfortable liquidity position supported
by sizeable cash and bank balances, as well as undrawn working capital limits. The rating also considers the existence of a
19-Mega Watt (MW) power co-generation capacity, which supports the company’s operating profitability and provides
diversification of revenues. The Government support to the sugar industry in the form of soft loans, and interest
subvention schemes among others, are other favourable factors.
The rating, however, remains constrained by the high working capital intensity of the company’s operations owing to
high inventory levels; vulnerability of its revenues and profitability to volatility in sugar prices; the inherent cyclicality in
the sugar industry; exposure to agro-climactic risks related to cane production, and Government policies on cane pricing
and sugar trade. ICRA also notes the large debt-funded capital expenditure (capex) planned by the company in FY2020
involving expansion of crushing capacity and setting up a distillery, which may put pressure on its credit metrics in the
near term. Further, given the sizeable debt repayments in the near-to-medium-term, timely completion of the capex and
healthy ramp up of operations while maintaining adequate profitability levels would be crucial from a credit perspective.
Outlook: Stable
ICRA expects Bhimashankar Sugar to benefit from its established presence in the high cane-yield, high sugar-recovery
rate Pune region of Maharashtra. Forward integrated operations and Government support to the sugar industry are
other beneficial factors. The outlook may be revised to Positive if substantial growth in revenue and profitability, and
better working capital management, strengthens the financial risk profile. The outlook may be revised to Negative if
sharp decline in revenues/ profitability, or failure to generate adequate returns from the proposed debt-funded capex,
or stretch in the working capital cycle, weakens liquidity.
Key rating drivers
Credit strengths
Long operational track record – Bhimashankar Sugar has a long operational track record of close to two decades in the
sugar industry. The company started manufacturing sugar from October 2000, and in subsequent years added its power
co-generation unit. At present, the company enjoys a 2,500-TCD crushing capacity and 19-MW power generation
1capacity. Given its long presence in the Pune region, it has developed established relationships with the farmers in
nearby villages and had 12,840 cane supplying members in SY12018.
Healthy sugar recovery rates and high capacity utilisation levels of crushing unit; existence of power co-generation
capacity provides diversification of revenues - Bhimashankar Sugar is located in the Pune district of Maharashtra, which
has healthy sugar recovery rates of over 11% given the conducive topography and favourable environment conditions.
The company has consistently reported healthy sugar recovery rates of over 11% in the last four fiscals (11.66% in
SY2018) Moreover, the utilisation of its crushing capacity has remained over 100% in each of the last four fiscals, given
the adequate availability of sugar cane in the catchment. The company’s sugar operations are integrated with a 19-MW
power co-generation capacity, which provides diversification of revenues and some comfort against cyclicality of sugar
operations. The co-generation unit has signed a power purchase agreement (PPA) with Maharashtra State Electricity
Distribution Company Limited (MSEDCL) for a period of 13 years from the date of commissioning, at the tariff
determined by the Maharashtra Electricity Regulatory Commission (MERC). In FY2018, the company derived Rs. 214.52
crore (73%) of revenues from sugar operations, while Rs. 22.66 crore (9%) was derived from its power co-generation
operations.
Financial profile characterised by healthy profitability, adequate debt protection metrics and comfortable liquidity
position – The company has reported healthy profitability levels during FY2016 to FY2018, with operating profit margins
in the range of 11-12% and net profit margins in the range of 6-9%. As on March 31, 2018, its capital structure remained
moderate with gearing of 1.05 times while the debt protection metrics remained adequate with interest coverage of
4.49 times, NCA/TD of 24%, TD/OPBDITA of 4.02 times and TOL/TNW of 1.68 times. The company’s liquidity position has
remained comfortable with cash and bank balances of Rs. 29.81 crore as on March 31, 2018. The same is further
supported by sizeable cushion available in the form of undrawn cash credit limits as reflected by average monthly
utilisation of 21% during the 14-month period ended November 2018.
Government support to the sugar industry – The company benefits from the Government support to the sugar industry
in the form of low cost soft loans and interest subvention schemes, among others, which have material impact on the
profitability of the domestic sugar industry. The company is expected to receive approximately Rs. 10.03 crore as cane
production subsidy and Rs. 4.30 crore as transportation subsidy for exports in FY2020.
Credit challenges
Fluctuating revenues in the past - Sugar revenues have dominated the revenue profile of the company (close to 73% of
the total revenues in FY2018), followed by power and bagasse revenues (close to 8% each of the total revenues in
FY2018). Sugar revenues have demonstrated a fluctuating trend in past fiscals depending upon the cane availability and
variations in sugar realisations.
High working capital intensity of operations– The working capital intensity of the company has remained high, as typical
to any sugar company, given the high inventory levels. The same increased significantly to 61% in FY2018 from 27% in
FY2017 because of a sharp increase in sugar inventory. As on March 31, 2018, the company’s inventory stood at 323
days, up from 204 days as on March 31, 2017.
Exposure to agro-climatic risks and cyclical trends in sugar business - Cane production remains a function of the agro-
climatic conditions, which ultimately impacts the volumes and realisations of the sugar and by-product. Lower than
expected rainfall in the co-operative’s catchment area can result in restricted cane availability, thus impacting the
1
Sugar Year: October - September
2crushing volumes for the season, as witnessed during SY2017. Further, the sugar business remains vulnerable to any
unfavourable changes in Government policies related to sugar trade.
Vulnerability of profitability to volatility in sugar realisations and cane procurement costs - Typically, the profitability of
sugar entities remains driven by sugar realisations and cane procurement costs. While sugar realisations remain market-
driven, the state governments fix the minimum support price for cane. Any adverse movements in the same impacts the
contribution margins and hence profitability of the sugar mills.
Large debt-funded capex planned in FY2020; generation of adequate returns will be crucial to service the sizeable
repayments falling due in the near-to-medium-term – Given the healthy availability of cane in the catchment, the
company plans to increase its crushing capacity to 6,000 TCD from 2,500 TCD. Additionally, it plans to fully integrate its
sugar operations by setting up 45 KLPD of distillery capacity, which will further diversify its revenue stream. Both these
projects are expected to be undertaken in FY2020 at a combined cost of Rs. 160.10 crore, which will be funded by
Rs. 126.67 crore term loans and the rest through internal accruals. The large debt funding for the project is likely to
impact the capital structure in the near-to-medium-term. Timely completion of the capex and healthy ramp up of
operations while maintaining adequate profitability levels will be crucial to service the sizeable repayments (Rs. 19.20
crore in FY2019,
Rs. 7.08 crore in FY2020 and Rs. 28.29 crore in FY2021) falling due in the near-to-medium-term.
Liquidity Position:
The average utilisation of the bank limits for the 14-month period ended November 2018 stood at 21% while the peak
utilisation was 41%, reflecting adequate liquidity buffer available with the company. As on November 30, 2018, it had
undrawn cash credit limits of Rs. 173.00 crore against sanctioned limits of Rs. 185.00 crore. Bhimashankar Sugar has
sizeable debt repayments in the near-to-medium-term (Rs. 19.20 crore in FY2019, Rs. 7.08 crore in FY2020 and Rs. 28.29
crore in FY2021), however, internal accruals and buffer available in fund-based limits provide adequate cushion. The
company also had ~Rs. 28.50 crore of unencumbered fixed deposits providing further boost to its liquidity position.
Analytical approach:
Analytical Approach Comments
Corporate Credit Rating Methodology
Applicable Rating Methodologies
Rating Methodology for Sugar Entities
Group Support Not applicable
Consolidation / Standalone Standalone
About the company:
Incorporated in 1994, Bhimashankar Sahakari Sakhar Karkhana Ltd is involved in manufacturing sugar. The 2,500-TCD
sugarcane crushing capacity, integrated with a 19-MW bagasse power co-generation facility is located at Pargaon, in the
Pune district of Maharashtra.
In FY2018, the company reported a net profit of Rs. 25.88 crore on an operating income of Rs. 299.91 crore, as compared
to a net profit of Rs. 31.64 crore on an operating income of Rs. 405.58 crore in the previous year.
3Key financial indicators (audited)
FY2017 FY2018
Operating Income (Rs. crore) 405.58 299.91
PAT (Rs. crore) 31.64 25.88
OPBDIT/OI (%) 12.22% 12.33%
RoCE (%) 17.73% 12.29%
Total Debt/TNW (times) 1.42 1.05
Total Debt/OPBDIT (times) 3.29 4.02
Interest coverage (times) 3.95 4.49
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years:
Current Rating (FY2019) Chronology of Rating History for the
Past 3 Years
Date & Date & Date &
Instrument Amount Amount Date &
Rating in Rating in Rating in
Type Rated Outstanding Rating
FY2018 FY2017 FY2016
(Rs. crore) (Rs. crore)
January 2019 - - -
Term Loans [ICRA]BBB-
1 Long Term 125.00 - - - -
(Proposed) (Stable)
Complexity level of the rated instrument:
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in
4Annexure-1: Instrument Details
Date of Amount
Issuance / Maturity Rated Current Rating
ISIN No Instrument Name Sanction Coupon Rate Date (Rs. crore) and Outlook
Term Loan [ICRA]BBB-
- - - - 125.00
(Proposed) (Stable)
Source: Bhimashankar Sahakari Sakhar Karkhana Ltd
Annexure-2: List of entities considered for consolidated analysis
Not Applicable
5ANALYST CONTACTS
K. Ravichandran Suprio Banerjee
+91 44 4596 4301 +91 22 6114 3443
ravichandran@icraindia.com supriob@icraindia.com
Tushar Bharambe Shashikant Raut
+91 22 6169 3350 +91 20 66969915
tushar.bharambe@icraindia.com shashikant.raut@icraindia.com
RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com
Helpline for business queries:
+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)
info@icraindia.com
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
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For more information, visit www.icra.in
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© Copyright, 2019 ICRA Limited. All Rights Reserved.
Contents may be used freely with due acknowledgement to ICRA.
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
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