The rating revision factors in the devolvement of several Letters of Credit (LCs) by the company in the month of April and May 2019 and overutilisation of fund based facilities owing to significant delays in the subsidy receipt from Government of India (GoI) and weak liquidity position of the company driven by significant cash loss in April-December period (9MFY2019), ICRA said.
The significant loss was driven by the agri-stress prevalent in parts of the operating territories of ZACL i.e. Northern Karnataka and the Marathwada region resulting in inability of the company to pass on the increase in raw material price to farmers along with a two-month long shutdown undertaken at the urea plant in Q3FY19, the rating agency said.
The rating revision also considers the cash flow mismatches arising from the delay in subsidy receipts from Gol resulting in weak liquidity position. The rating revision also factors in the delay in the process of raising adequate funds to meet the repayment obligations and reduced financial flexibility, it said.
According to ICRA, the company's cash generation will remain weak in the near term given the significant agri-stress prevalent in the operating territory of the company. This coupled with slower than expected subsidy release from Gol will keep its liquidity weak unless the company augments its funding limits.
Zuari Agro Chemicals had posted consolidated net loss of Rs 18 crore in 9MFY2019, as compared to net profit of Rs 154 crore during the period of FY2018.