KEY RATING DRIVERS
The downgrade indicates
SRSL’s delays in servicing its bank loan obligations for the six
months ended 31 March 2016 on account of a stretched liquidity position. The
agency’s downgrade of the rating on the NCD reflects the impaired debt
servicing capability currently.
Ind-Ra attributes this to a significant deterioration in the consolidated EBITDA amid poor profitability in its domestic milling as well as in its overseas Brazilian operations. This coupled with depreciation in the Brazilian real has resulted in an increase in debt levels and affected SRSL’s consolidated credit profile. SRSL reported consolidated net leverage of 20.0x (FY14: 10.5x) and interest coverage of 0.5x in FY15 (FY14: 1x).
Ind-Ra in the previous rating action commentary had highlighted the refinancing risk the company would have to face in FY16. SRSL on a standalone basis had repayment obligations to the tune of (maturities of long-term loans) of INR4.1bn and INR2.2bn for FY16 and FY17, respectively. SRSL under the Joint Lenders Forum is in talks with its bankers for refinancing/restructuring its loans; however, uncertainty looms over the outcome of the same.
The company’s operating cash flows and its repayment capabilities have been affected due to muted sugar realisations in FY15 which has transpired a sharp correction in international and domestic sugar commodity prices.
The ratings continue to reflect the vulnerability of sugar companies to government policies relating to cane pricing. In addition, SRSL remains exposed to the cyclicality risk of the sugar industry, climatic conditions and to comparative prices for other remunerative crops which determine acreage and sugar production.
The ratings are underpinned by around 20 years of operating experience of SRSL’s founders, the company’s proximity to the sugar producing belt of Maharashtra and Karnataka with high recovery levels (11%-12%) as well as by the cushion available from high by-product realisations.
For the purpose of its analysis, the agency has taken a consolidated view of SRSL, which includes the standalone entity (Indian operations) as well as its domestic and overseas subsidiaries (Brazilian operations).
Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.
Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.