India Ratings downgrades Renuka Sugar

Delay in repayment gets default grade for the sugar firm's debt

India Ratings has downgraded Shree Renuka Sugars Ltd's (SRSL) long-term rating to ‘D’ – default grade – from ‘BB-’ on delays in repayment on loans by end of March 2016. The Outlook on rating the was Negative.

The Sugar company had to pay Rs 410 crore in Fy16 and has obligation to pay Rs 220 crore in Fy17. It is negotiating a restructuring package with lender's.

India ratings has also downgraded rating for non-convertible debemtures (NCDs) to "D". This downgrade reflects the impaired debt servicing capability currently.

There is to a significant deterioration in the consolidated earnings amid poor profitability in its domestic milling and overseas Brazilian operations. This coupled with depreciation in the Brazilian currency (real) has resulted in an increase in debt levels and affected SRSL’s consolidated credit profile.

The company’s operating cash flows and its repayment capabilities have been affected due to muted sugar realisations in FY15, because of a sharp correction in international and domestic sugar prices.

The ratings continue to reflect the vulnerability of sugar companies to government policies relating to cane pricing.

SRSL remains exposed to the cyclicality risk of the sugar industry, climatic conditions. The comparative prices for other remunerative crops also has bearning om company as they determine acreage and sugar production, it added.

The ratings are underpinned by around 20 years of operating experience of SRSL’s founders and its proximity to the sugar producing belt of Maharashtra and Karnataka with high recovery levels (11-12 per cent).