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Rating Assigned Facilities Long-term Bank Facilities Short-term Bank Facilities Total Facilities Rating Rationale The ratings continue to factor in the long track record of DSIL, its diversified business profile and stable outlook for the sugar industry. However, the ratings are constrained by relatively high overall gearing, inherent cyclicality and regulatory risks associated with sugar business. Going forward, the ability of DSIL to sustain and maintain profitability especially from sugar business, the trend of cane prices and regulations governing the sector would remain the key rating sensitivities. Background DCM Shriram Industries Ltd (DSIL) is a part of Dr. Bansi Dhar Group, formed after the restructuring of the DCM Group in 1990. DSIL is currently engaged in manufacturing of sugar, alcohol, fine/organic chemicals and industrial rayon. The plants are ISO certified. DSIL has a wholly-owned subsidiary Daurala Foods and Beverages Ltd. (DFBL) and an associate company DCM Hyundai Ltd. Operations DSIL has two integrated manufacturing plants, Daurala Sugar Complex and Daurala Organics in Daurala, Meerut (U.P.) with capacity of 12,500 TCD, a distillery with a capacity of 45,000 KL per annum and a co-generation power plant to produce about 34 MW using bagasse as input. Out of the total production, DSIL utilises about 50% of power for captive purpose for the sugar plant, fine/organic chemicals plant and distillery and the rest is mainly sold to the Uttar Pradesh Power Corporation Limited (UPPCL) during the crushing season. It also banks 10% of the total produce with UPPCL which it avails during non crushing season. It has another manufacturing unit, Shriram Rayons at Kota for manufacturing of rayons. DSIL is also engaged bottling operations of potable liquor for Pernod Recard India Private Ltd. (earlier Seagrams). The Daurala fine/organic chemicals division produces Potassium Phenyl Acetate (KPA), Phenyl Acetic Acid (PAA), Sodium Phenoxy Acetate (SPHA), Para Hydroxy Phenyl Glycine Base (PHPG) and its derivatives and D(-) Alpha Phenyl Glycine Base (PG) and its derivatives which are mainly used for manufacture of side chain for antibiotics and other specialty chemicals used in pesticides, perfumery and food industry. DSIL has stopped manufacturing country made liquor at its Alcohol division during FY10. The rayon division, started in 1965, is one of the countrys only two manufacturing units of high-grade rayon tyre cord, with rayon and nylon conversion facilities catering to the needs of both overseas and domestic manufacturers of tyres, hoses, belting and a range of other products. The total installed capacity for industrial fibres is 16,200 tonnes per year which includes yarn production capacity, grey fabric and dipped fabric capacity. DSIL has increased its sugar capacity by 500 TCD to 12,500 TCD during FY10. This enhanced capacity is reserve capacity which will be operational only in periods when there is surplus availability of sugarcane. DSIL has been gradually de-risking its business model and over the years has been increasing its exposure to pharmaceutical intermediaries, chemicals and rayon. In FY10, the sugar (including alcohol) division contributed 53%, while the chemical division contributed 26% and rayon division 21% of net sales and other operating income of the company. DSIL has installed a high-pressure, high-temperature back-pressure 15-MW turbine to replace the existing 7.5-MW lowpressure, low-temperature back-pressure TG Set. The project will help in augmenting the power capacity at the sugar division by around 4 MW. The additional supply to grid from this project has commenced in December 2010. Amount (Rs. crore) 369.42 (Reduced from Rs.395.13 crore) 87.18 (Enhanced from Rs.62.18 crore) 456.60 Ratings1 CARE BBB [Triple B] PR3 [PR Three] Remarks Reaffirmed Reaffirmed

Complete definition of the ratings assigned is available at and in other CARE publications.

In order to optimize energy generation, DSIL has converted one of its existing coal-fired spreader-stoker boiler at the rayons division with provision for 100% husk firing. The project was scheduled to be complete by February 2011 and is running as per schedule with trial run in process. Financial Analysis During FY10, the total income of DSIL was led by the sugar division which recorded a turnover of Rs.393 crore (P.Y. Rs.294 crore) which constituted 45% of the total income. The company recorded a decline in its Alcohol division with sales of Rs.83 crore (P.Y. Rs.273 crore). DSIL reported improved PBILDT in FY10 as the year formed part of SS08-09, where sugar production reached an all-time low of 14.5 mn tonnes due to sharp fall in the sugarcane acreage resulting in better realizations. The overall gearing (including acceptances) of DSIL improved to 1.27x as on March 31, 2010 (P.Y. 1.51x) on account of increase in net worth of the company due to accretion of profits. During H1FY11, DSIL achieved total income of Rs.433.96 crore (P.Y. Rs.472.13 crore) with net loss of Rs.15.63 crore (P.Y. PAT of Rs.41.52 crore) due to significant drop in sugar prices to levels of Rs.2,500 per quintal and levy obligation at 20%. Losses on account of the sugar division were somewhat offset by the profitability in chemicals and industrial fibre segment, though margins declined in other divisions as well. Industry Outlook & Prospects Sugar being an essential commodity and on account of the higher weightage in the Wholesale Price Index (WPI), the entire value chain of the sugar industry is kept under the tight control of the central and state government. The sugar industry in India is regulated right from cane procurement to cane pricing, allocation of cane area to distribution of sugar by the central government and the respective state government. Sugarcane is the prime raw material for producing sugar in India. The Indian sugar industry is characterized by cyclical nature with strong linkages with sugarcane production and sugarcane arrears. During SS 2008-09, the Indian sugar industry entered the strongest up cycle (lowest stock to use ratio) in the history of 50 years after witnessing a supply glut in the previous two sugar seasons in a row (SS 2006-08). Even though the sugar production in India has improved in SS 2009-10, the sugar-deficit situation has continued in the country. The shortfall in the sugar production was mainly on account of the fall in the sugarcane acreage in the country. In SS09-10, six states together accounted for almost 94% of the total sugar produced in India. Maharashtra produced the highest amount of sugar of about 7.1 mn tonnes followed by Uttar Pradesh (UP) with 5.2 mn tonnes. These two states together accounted for almost 65% of the total sugar produced in India. CARE Research expects the sugar demand and supply situation to improve in the SS 2010-11, led by the remunerative sugarcane prices translating into higher acreage under sugarcane and thereby higher sugar production. During SS2009-10, farmers were handsomely paid for the sugarcane production, which is expected to increase sugarcane acreage. During the year, some sugar mills in UP paid in the range of Rs.240-265 per quintal of sugarcane to farmers. CARE Research expects sugar production to be 25 mn tonnes and 26 mn tonnes respectively in SS 2010-11 and SS 2011-12. CARE Research expects the sugar consumption at 23.7 mn tonnes in SS2010-11 and expects it to reach 24 mn tonnes in SS 2011-12. Prospects: Stable sugar prices (currently selling at Rs.3050/quintal) alongwith lower cane prices currently being paid (Rs.205/quintal compared to last year's cane price of Rs.250/quintal) augur well for DSILs prospects in the near term. Financial Results For the period ended / as at Mar.31, Working Results Net Sales Total Operating income PBILDT Interest 2008 (12m, A) 557.1 588.0 19.3 28.0 2009 (12m, A) 798.5 834.2 87.3 35.2 2010 (12m, A) 837.6 866.7 92.4 23.3

For the period ended / as at Mar.31, Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity share capital Networth Total capital employed Key Ratios Growth Growth in Total income (%) Growth in PAT (after D.Tax) (%) Profitability PBILDT/Total Op. income (%) PAT / Total income (%) ROCE (%) Average cost of borrowing (%) Solvency Long Term Debt Equity ratio (times) Overall gearing ratio(excluding acceptances) (times) Overall gearing ratio (including acceptances) (times) Interest coverage(times) Long Term debt/Gross cash accruals(years) Total debt (including acceptances)/Gross cash accruals(years) Liquidity Current ratio(times) Quick ratio(times) Turnover Average collection period (days) Average creditors (days) Average inventory (days) Operating cycle (days) 2008 (12m, A) 14.7 -7.6 -4.6 6.1 16.5 168.3 475.1 2009 (12m, A) 17.1 43.4 28.5 59.7 17.4 206.7 500.6 2010 (12m, A) 19.1 57.2 38.9 72.3 17.4 250.7 549.9

-ve -ve 3.28 -ve 4.70 10.34 0.80 1.83 1.89 0.69 16.29 52.19 1.22 0.29 17 66 167 118

41.88 721.79 10.47 3.42 16.11 11.71 0.57 1.42 1.51 2.48 1.51 5.22 1.06 0.31 19 70 148 98

3.90 36.45 10.66 4.49 15.32 7.85 0.39 1.19 1.27 3.97 0.99 4.39 1.06 0.26 27 79 158 106

DISCLAIMER CAREs ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.

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