Sugar companies sweeten balance sheet

Leading firms repay over Rs 1,100 crore to banks

At a time when corporate financial defaults and insolvencies are making headlines, leading players in the sugar industry are repaying and pre-paying debt after a long gap. With profits for many sugar makers hitting a new record last year, companies have got down to debt reduction and are sweetening balance sheets.

Four sugar companies—Balrampur Chini, Triveni Engineering, Dhampur Sugar and Dwarikesh Sugar—together have repaid about Rs 1,100 crore to financial institutions since FY17. The debt reduction process does not end here and with a stable cash flow outlook companies are looking to bring down the debt further. Country's second biggest sugar company Balrampur Chini has repaid Rs 472 crore after it made a record profit of Rs 592 crore last year.

"Given the cash flows we should be in a good position to bring the long-term down to bare bone when the year ends. Some of the loans had a longer repayment period but we decided to prepay it in our interest. The financial ratios will improve and one can look forward to next round of rating improvement," said Tarun Sawhney, vice chairman and managing director at Triveni Engineering & Industries, which has repaid Rs 165 crore. The company is left with a long-term debt of Rs 376 crore at the end of Q1.

Sugar companies have long-term and short-term debt. The long-term debt had been taken in the past for capex. The short-term debt is taken every year for procuring sugarcane and making payment to farmers. This debt is usually nil at the beginning of the crushing season in October every year and peaks when the crushing ends around March. As sugar stocks get liquidated, this debt comes down. Since sugar makers have no significant capex requirements, the long-term debt is expected to be under control.

Dhampur Sugar has repaid Rs 302 crore since April last year. "We have reduced the high cost borrowings and the extra cash flows this year will be mainly used to repay debt," said Arhant Jain, chief financial officer at Dhampur. Dwarikesh Sugar has repaid Rs 179 crore to the banks as of June 30. The company's CFO Vijay Banka said another Rs 33 crore has been repaid in Q2 so far, taking the debt further down to just Rs 89 crore. "Barring Rs 30 crore of interest free loans from government, we will completely repay the rest," he said. Heavy losses or meagre profits during FY12-FY16 had impacted balance sheets of sugar companies, taking away the ability to make timely payments to farmers and service their debt on time.