ICRA reaffirms `LA+` & `A1+` ratings of Shree Renuka Sugar

Credit rating agency, ICRA has reaffirmed the LA+ rating assigned to the Rs 10.5 billion fund based limits and Rs 8.38 billion term loans and the A1+ rating assigned to the Rs 3,224 billion non-fund based limits of Shree Renuka Sugars (Q,N,C,F)* (SRSL).

ICRA has also reaffirmed A1+ rating to enhanced amount of Rs 5 billion of the commercial paper programme of SRSL. The ratings have been removed from rating watch with negative implications and a stable outlook has been assigned to the long-term rating.

The rating action takes into account the steady financial performance of the company during sugar year (SY) 2009-101 in spite of the downturn in the sugar industry, which is likely to be sustained given the fact that international sugar prices have revived, which is likely to result in satisfactory profit levels for the company given that the company`s sugar units (both cane sugar and refining) can access the international markets readily.

Further, while the company has made large equity investments (to the tune of around Rs 15 billion) in two large Brazilian sugar/ethanol companies2 (which had resulting in ICRA putting its ratings under watch), since a significant part of the investments have been funded through internal accruals and equity infusion, this is unlikely to strain SRSL`s capital structure- thus ICRA estimates SRSL`s gearing at less than 1 times as on September 30, 2010.

ICRA`s LA+ and A1+ratings favourably factors in the company`s significant size of sugar operations, healthy operational performance and substantial forward integration into cogeneration and distillery businesses, which will continue to provide alternate revenue streams and some cushion against cyclicality in the sugar business.

These strengths are however tempered by the risks arising out of the inherent cyclicality and agroclimatic factors in the sugar business and vulnerability to government policies governing cane pricing and sugar release mechanism.

The company`s funding policies while growing through capital expenditure (capex) and acquisitions will remain a key rating driver.

Currently, ICRA does not have access to the audited accounts of either VDI or Equipav.

However based on management discussions, ICRA understands that the total long-term debt of these two entities is around Rs. 7.5 billion and Rs 30 billion respectively and that the two companies have satisfactory cost structures.

This coupled with the current improvement in sugar prices makes it unlikely in ICRA`s opinion that SRSL would have to extend any further support to these companies.

However, the magnitude of support that may have to be provided by SRSL would remain a key rating sensitivity.

Shares of the company gained Rs 1.55, or 1.86%, to settle at Rs 84.80. The total volume of shares traded was 1,035,434 at the BSE (Monday).

source: myiris