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ICRA reaffirms ratings of Balrampur Chini Mills; revises outlook to positive
(10 Apr 2021, 14:56)

The ratings agency has revised the outlook on the long-term rating to 'positive' from 'stable'.

ICRA said that the rating action considers an expected improvement in Balrampur Chini Mills' (BCML) operating profitability and debt coverage indicators in FY2022 on the back of higher B-heavy ethanol sales volumes and an expected stable sugar realisation.

In Uttar Pradesh (UP), sugar production is estimated to decline by approximately 20% in SY2021, which is likely to support sugar prices in the near term. Also, with continued higher diversion of cane towards B-heavy molasses, there is likely to be an increase in the sales volume of B-heavy ethanol, having better realisation, thus increasing the overall revenue and profits from the distillery segment.

The ratings continue to factor in BCML's large scale of sugar business with operationally efficient sugar units with forward integration into the cogeneration and distillery businesses, which provides alternative revenue stream and partially reduces the impact of cyclicality of the sugar business.

The company is planning to set up a new distillery of 320 kilo litres per day (klpd), which is expected to commence operation by December 2022, which will further strengthen the operating profile, going forward.

The long-term rating continues to be constrained by the cyclical nature of the sugar industry, agro-climatic risks related to cane availability and the susceptibility of profitability to sudden changes in Government policies.

However, ICRA notes that recent interventions by both the Central Government and the state government, which included revision in minimum support price, interest subvention loans for setting up of ethanol manufacturing facilities, soft loans and export subsidy, supported the sugar industry and benefited integrated sugar producers like BCML.

ICRA could upgrade the rating if there is a sustained improvement in profitability from the distillery and sugar division. Specific triggers for a rating upgrade would be maintaining operating profit margin above 15% on a sustained basis.

However, pressure on the rating could emerge in case of any adverse changes in government policy, which weakens the profitability and debt coverage metrics on a sustained basis. Any large debt-funded additional capex, other than what is already planned, and/or inorganic growth plans may also have a negative impact on the rating.

Balrampur Chini Mills is one of the largest sugar producers in India. The operations of the company are forward integrated, manufacturing alcohol (using molasses, a byproduct of sugar) and power (using cogeneration from bagasse, another byproduct of sugar manufacturing).

The company's consolidated net profit declined 62.91% to Rs 26.89 crore on a 10.34% fall in net sales to Rs 1072.17 crore in Q3 FY21 over Q3 FY20.

The scrip shed 0.04% to end at Rs 234 on the BSE on Friday.

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