Fitch rts India's Uttam sugar's bank loans 'B(ind)/F4(ind)'

The assigned ratings reflect USML's stretched financial profile given its recently completed debt restructuring. The company underwent substantial capex, over FY05-FY08, of around INR5.2bn to expand its sugar production facilities; this was primarily debt-funded and led to total adjusted debt rising to INR4.9bn at FYE08 (FYE05: INR1.5bn; also note that in 2008, USML changed its financial year from earlier 1 Oct - 30 Sep to 1 Jan - 31 Dec.

The reported results for FY08 pertain to the 15 month period ending Dec 08). Profitability suffered significantly during the downturn in the sugar industry over FY07-FY08 - Op. EBITDAR margins dropped to 8%-11% (FY05-FY06: 26%-29%). Also, high interest costs on the back of piled-up debt led to USML incurring net losses during FY07 and FY08, while financial leverage (total adjusted net debt/Op. EBITDAR) reached 15.2x and 14.8x (annualised) respectively. The ratings are also constrained by the cyclical nature of the sugar industry and the significant influence of the Indian government's regulations and policies on sugar and sugarcane pricing, as well as on imports/exports.

The agency notes that the company's major capex plans are now complete and no substantial capex is envisaged in the medium-term, with the exception of ongoing INR750m capex on cane crushing capacity expansion and power-cogeneration facility over 2009-10. USML's recent diversification into power-cogeneration and ethanol production improved profitability - in CY09, it reported total sales of INR4275.67m (FY08: INR3751m) and net income was INR266.4m (net loss of INR437.6m in FY08). Fitch's has a Positive Outlook on India's sugar industry in 2010 (for more information, please refer to the Special Report, entitled "Indian Sugar Outlook" published February 4, 2010).

Negative rating triggers would include higher-than-anticipated debt-funded capex, and a failure to adhere to Corporate Debt Restructuring terms and conditions. While a sustained improvement in revenues and profitability, and continued deleveraging leading to substantial improvement in financial leverage could have a positive impact on ratings.

USML is a listed company with four sugar plants across the states of Uttar Pradesh and Uttaranchal, and a total cane-crushing capacity of 22750tonnes crushed per day (TCD) - expand. The company recently set up a 75klpd ethanol distillery, and is in the process of increasing its cane crushing capacity to 25250TCD and augmenting its power-cogeneration capacity.

Applicable Criteria available on Fitch's website at www.fitchratings.com: "Corporate Rating Methodology", dated 24 November 2009.

Fitch Ratings has recently made significant enhancements to both the content and format of its credit research on EMEA and AsiaPac region corporates.

source: reuters