By Aishwarya Arora

India Ratings and Research (Ind-Ra) maintained Zuari Agro Chemicals Limited’s (ZACL) Long-Term Issuer Rating of ‘IND B’ on Rating Watch Evolving (RWE) and withdrawn it. The instrument-wise rating action is as follows: 

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (billion)

Rating

Rating Action

Long-term loan*

-

-

November 2023

INR1.1 

WD

Withdrawn

*Maintained at 'IND B'/RWE before being withdrawn

Ind-Ra is no longer required to maintain the ratings, as the agency has received no-objection confirmation from the lenders. This is consistent with the Securities and Exchange Board of India’s circular dated 31 March 2017 for credit rating agencies.

KEY RATING DRIVERS

The maintenance of RWE reflects ZACL’s ongoing business restructuring process, wherein it is lowering the balance sheet stress through the monetisation of core/non-core assets and rights issue; the impact of this restructuring on ZACL’s credit profile is yet to be seen.

This restructuring includes the transferring of ZACL’s nutrient and allied business (consisting of specialty fertilisers, retail, crop protection and crop-care business) to its 100% subsidiary Zuari Farmhub Limited (ZFL) and the sale of its fertiliser plant in Goa to Paradeep Phosphates Limited.

The ratings reflect the continued operations of ZACL’s urea plant, albeit at a lower capacity, and the likelihood of continued urea operations in the near term, supported by the consistent gas supply from GAIL (India) Limited (‘IND AAA’/Stable). ZACL’s nitrogen, phosphorus and potassium plant witnessed intermittent operations due to COVID-19-led disruptions during 1QFY21, leading to reduced revenue of INR4.2 billion (1QFY20: INR10.6 billion; FYE20: INR20.1 billion). The EBITDA continued to be negative in 1QFY21 owing to the lower absorption of fixed costs.

The ratings remain constrained by ZACL’s high dependency on the timely receipt of subsidy receivables, leading to a stretched working capital cycle and high working capital borrowings, and vulnerability to forex fluctuations and agroclimatic conditions.

Liquidity Indicator - Stretched: ZACL’s average utilisation of fund-based limits was 83% for the 12 months ended June 2020, and the cash and cash equivalents at FYE20 were INR928 million (FYE19: INR336 million). The cash flow from operations turned positive at INR18.2 billion (FYE19: negative INR3.3 billion) due to an improvement in the working capital cycle to negative 5 days (192 days). The working capital cycle turned negative due to a sharp decline in the trade receivables to INR8.2 billion in FY20 (FY19: INR24.1 billion), owing to the realisation of subsidy from the government of India, and the inventory to INR2.5 billion (INR12.3 billion). However, the payables remained high at INR14 billion in FY20 (FY19: INR15.0 billion). ZACL’s adjusted total borrowing decreased to INR16.2 billion at FYE20 (FYE19: INR35.2 billion), and the interest costs increased to INR4.2 billion (INR3.7 billion).

ZACL availed the Reserve Bank of India-prescribed debt moratorium for its bank loans over June-August 2020. The company has already paid off its interest accrued during the moratorium period, and is repaying the principal amount basis the terms of the moratorium.

The ratings remain supported by ZACL’s established regional market position in Maharashtra and Karnataka, its diversified revenue profile, the likelihood of cash inflows from asset monetisation activities, the promoters’ combined experience of over five decades in the fertilisers industry and favourable supply demand scenario for the Indian fertiliser sector.


COMPANY PROFILE

Originally founded in 1967, ZACL was formed in 2012, following the demerger of Zuari Industries Limited into ZACL and Zuari Global Limited. ZACL is now the flagship company of Adventz Group (formerly KK Birla Group) and an agricultural conglomerate. The company is mainly present in the fertiliser sector in Maharashtra, operating in both urea and NPK segments. Its products are branded under the name Jai Kisaan, which has a strong brand recall among farmers.


FINANCIAL SUMMARY

Particulars

1QFY21

FY20

FY19

Revenue (INR million)

4,238

20,126

47,310

EBITDA (INR million)

-241

-4,460

900

EBITDA margin (%)

-5.7

-22.2

1.9

Interest expense (INR million)

843

4,246

3,771

Profit after tax (INR million)

-1,106

-1,890

-3,290

Source: ZACL, Ind-Ra



RATING HISTORY

Instrument Type

Current Rating

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (billion)

Rating

30 July 2020

24 May 2019

15 May 2019

Issuer rating

Long-term

-

WD

IND B/RWE

IND D

IND BB+/Negative

Long-term loan

Long-term

INR1.1

WD

IND B/RWE

IND D

IND BB+/Negative



COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

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.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Aishwarya Arora

    Management Trainee
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
    124 6687246

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121