NSL Sugars Limited

November 28, 2018

Summary of rating action

Current Rated Amount
Instrument* Rating Action
(Rs. crore)
Fund-based -Term Loan 219.18 [ICRA]D; Assigned
Fund-based - Working Capital Facilities 99.49 [ICRA]D; Assigned
Total 318.67
*Instrument details are provided in Annexure-1

Rationale
The assigned rating factors in the delay in the debt servicing obligations owing to the company’s stretched liquidity
position. NSL’s financial profile is weak as is evident from losses at net level, weak capital structure and weak debt
coverage metrics in FY2016-FY2018. Further, in the absence of adequate working capital facilities, NSL Sugars Limited
(NSL) and its subsidiary, NSL Krishnaveni Sugars Limited (KSL), are dependent on timely infusion of promoter funds to
meet their working capital requirements. The rating is also constrained by the risks associated with the inherent
cyclicality in the sugar business; the agro-climactic conditions related to cane production; the Government policies on
import duties; the pricing and offtake of cogeneration power and ethanol; and the counterparty credit risk associated
with sale of power to the utilities in Karnataka and Maharashtra. In addition, the tenure mismatch between the power
purchase agreement (PPA) of the co-generation units and the debt repayment period (PPA is ending in FY2021 for Koppa
and Aland while repayment is till FY2027) would expose these co-generation units to demand and tariff risks post
FY2021.

However, ICRA takes note of the significant experience of the promoters in the sugar industry; and the forward
integrated operations with cogeneration and distillery units, which provide additional revenue stream and cushions
profitability during sugar downturn. Also, the expected improvement in cane crushing activity in SY2019 is likely to
support the by-products’ profitability performance.

Key rating drivers

Credit strengths
Significant experience of promoters in sugar industry – NSL was incorporated in 1999 and the promoters have extensive
experience of over 15 years in the sugar industry.

Forward-integrated operations - NSL’s sugar operations, with a capacity of 20,000 TCD, are forward integrated with a
94-MW cogeneration unit and a 60-KLPD distillery unit. The forward integrated profile of sugar operations (with
cogeneration and distillery units) cushions profitability during sugar downturn

Expected improvement in cane crushing in SY2019 - Cane crushing is expected to increase to around 24 lakh MT in
SY2019 from around 18 lakh MT in SY2018, supported by good monsoons. Also, the forward integrated units—
cogeneration and distillery—are likely to benefit from this increase in cane crushing.

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Credit challenges
Delays in debt servicing - Delays in debt servicing owing to NSL’s stretched liquidity position.

Weak financial profile – NSL’s financial profile is weak as is evident from the decline in operating income over the last
two years (majorly due to significant decline in the cane crushing activity in SY2017), moderate operating profitability,
losses at net level, weak capital structure and debt coverage metrics.

Dependence on promoter funds due to inadequate working capital facilities - The absence of adequate working capital
facilities for NSL and its subsidiary, KSL, could constrain the cane crushing activity. These companies are dependent on
timely infusion of promoter funds to meet their working capital requirements.

Exposure of co-generation unit to demand and tariff risk - Tenure mismatch between the power purchase agreement
(PPA) of the co-generation units and the debt repayment period (PPA is ending in FY2021 for Koppa and Aland while
repayment extends till FY2027) would expose these units to demand and tariff risks post FY2021.

Vulnerability of profitability to agro-climatic and regulatory risks – Profitability of sugar mills remains exposed to the
cyclicality of the sugar industry, agro-climatic risks related to cane production, and Government policies related to sugar
trade.

Liquidity Position:
Continuous losses since FY2016 have adversely impacted the company’s liquidity position. In addition, NSL’s working
capital facilities have been completely utilised, resulting in stretched liquidity.

Analytical approach:
Analytical Approach
Applicable Rating Methodologies
Parent/Group Support
Consolidation / Standalone
Comments
Corporate Credit Rating Methodology
Policy on default recognition
Rating Methodology for Entities in the Sugar Industry
Not applicable
For arriving at the ratings, ICRA has considered the limited consolidation
approach, under which only the funding commitments to KSL towards debt
servicing and operational shortfall have been considered. The subsidiary, NSL
Sugars (Tungabhadra) Limited is not considered for consolidation as it is under
insolvency and is unlikely to have an impact on parent’s credit profile. As on
March 31, 2018, the company had two subsidiaries, of which one is considered
for consolidation, as enlisted in Annexure-2.

About the company:

Incorporated in 1999, NSL Sugars Limited (NSL) was promoted by Nuziveedu Seeds Group. The company manufactures
and markets sugar, generates power and produces ethanol. The company has three units, two at Koppa and Aland in
Karnataka and the third at Pawarwadi in Maharashtra. NSL has a 6000-TCD sugar plant along with a 30-MW cogeneration
plant and a 60-KLPD distillery at Koppa in the Mandya district of Karnataka and a 7000-TCD sugar plant along with a 34-
MW cogneration plant in Aland, Karnataka. Jay Mahesh Sugar Industries Limited (JMSIL) was took over by NSLSL in

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FY2012 and amalgamated into NSLSL. Currently, JMSIL is operational with a 7000-TCD sugar unit and a 30-MW cogen
unit.

NSL has two subsidiaries, NSL Sugars (Tungabhadra) Ltd, (fully owned) and NSL Krishnaveni Sugars Ltd. The latter is 74%
owned by NSL. The Group Holding Company is Mandava Holdings Pvt Ltd.

In FY2018, on a provisional basis, the company reported a net loss of Rs. 54.01 crore on an operating income of Rs.
541.71 crore, as compared to a net loss of Rs. 150.97 crore on an operating income of Rs. 536.49 crore in the previous
year.

Key financial indicators (provisional)

FY2017 FY2018
Operating Income (Rs. crore) 536.49 541.71
PAT (Rs. crore) -150.97 -54.01
OPBDIT/OI (%) -2.31% 13.25%
RoCE (%) -30.64% -57.44%

Total Debt/TNW (times) 11.37 11.71

Total Debt/OPBDIT (times) -95.46 15.37
Interest coverage (times) -0.11 0.76

Status of non-cooperation with previous CRA:

NSL’s ratings were downgraded to BWR D based on consortium leader’s feedback and moved to ‘Issuer not Cooperating’
category by Brickwork Ratings due to inadequate information provided by the company.

Any other information: None

Rating history for last three years:

Chronology of Rating History for the
Current Rating (FY2019) Past 3 Years
Date & Date & Date &
Date & Rating in Rating in Rating in
Amount Amount Rating FY2018 FY2017 FY2016
Rated Outstanding November
Instrument Type (Rs. crore) (Rs. crore) 2018 - - -
1 Fund-based -Term Long [ICRA]D - - -
Term 219.18 219.18
Loan
2 Fund-based - Long [ICRA]D - - -
Working Capital Term 99.49
Facilities

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

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Annexure-1: Instrument Details
Date of Amount
Issuance / Maturity Rated Current Rating
ISIN No Instrument Name Sanction Coupon Rate Date (Rs. crore) and Outlook
Jul-2010 to 4.25% - Aug-2020 to
NA Fund-based Term Loan 219.18 [ICRA]D
Jun-2017 14.65% Oct-2027
Fund-based Working
NA 99.49 [ICRA]D
Capital Facilities
Source: NSL Sugars Limited

Annexure-2: List of entities considered for consolidated analysis

Company Name Ownership Consolidation Approach
NSL Krishnaveni Sugars Limited 74.00% Limited consolidation

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ANALYST CONTACTS
Sabyasachi Majumdar Anupama Reddy
+91 124 4545 304 +91 40 4067 6516
sabyasachi@icraindia.com anupama.reddy@icraindia.com

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Jayanta Chatterjee
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jayantac@icraindia.com

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Ms. Naznin Prodhani
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info@icraindia.com

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