Fitch assign 'BBB-(ind)'/'F3(ind)' ratings to BHSIL

Fitch Ratings has today assigned India-based Bajaj Hindusthan Sugar Industries Limited (BHSIL) a National Issuer rating of 'BBB-(ind)' (BBB minus(ind)). Fitch has also assigned a National Long-term rating of 'BBB-(ind)' (BBB minus(ind)) to BHSIL's long-term outstanding debt of INR150 million and a 'BBB-(ind)' (BBB minus(ind)) to its fund-based cash credit limits of INR7,050m and ratings of 'F3(ind)' to its short-term non fund-based limits of INR1,005m. The Outlook is Stable.

The ratings reflect the support extended by Bajaj Hindusthan Limited (BHL, 'A+(ind)'/Outlook Negative) in the form of a 75% equity stake, a loan of INR3,500m and guarantees to BHSIL. The ratings also factor in BHSIL's completed capex plans bringing its total capacity to 40000tcd (tones crushed per day) for SS08 (Sugar Season 2008 (October - September)) compared to 6000tcd for SS07. However, any significant dilution in BHL's stake in BHSIL would act as a negative rating trigger.

The agency notes that with an increased capacity, BHSIL stands to benefit from the recent upswing witnessed in sugar realisations on the back of lower production estimates for SS08. In addition, the company would also realise revenues from its 160klpd (kilo litres per day) distillery capacity acting as a cushion to cash flows.

Despite the positives, the ratings are constrained by BHSIL's past performance. For FY03-FY07, BHSIL has incurred losses at the net level. EBITDA margins have also not been consistent, and during the pre-acquisition period of FY03-FY05 (April-March), ranged between 13%-21%. During FY07 (Oct-Sept), on account of depressed sugar scenario and high cane costs, EBITDA earned was negative. The ratings also factor in BHSIL's high financial leverage in FY07, mainly due to capex plans undertaken for an increase in capacity and decrease in profitability on account of a depressed sugar environment. However, the agency notes that with capex plans complete and no future plans in the pipeline, BHSIL would not see any significant increase in long term debt. BHSIL is also exploring options of raising additional equity which could potentially provide cushion to its financial profile.

The ratings also take into in account the continued uncertainty of the reinstatement of the 2004 Uttar Pradesh Sugar policy which has a major bearing on the credit profile of the company. Reinstatement of the policy which would significantly improve BHSIL's debt profile, as well as an increase in profitability in the coming sugar seasons (FY09) due to the full realisation of benefits from capacity additions would be positive triggers for the ratings. However, decrease in profitability due to high cane costs and underutilisation of capacities on account of scarcity of cane in SS09 would act as a negative trigger to the rating.

BHSIL, formerly known as The Pratappur Sugar and Industries Ltd, is engaged in the manufacturing and sale of sugar. It was taken over by the Bajaj group in December 2005 and subsequently renamed. During FY07, a depressed sugar environment together with high cane prices resulted in BHSIL recording sales of INR675m and a negative net profit of INR251m, compared to sales of INR410m and a net profit of INR7m for the six months ending 30 September 2006. The EBITDA for FY07 stood at negative INR250m compared to INR31m six months ending 30 September 2006. For H1FY08, BHSIL saw sales of INR794m, an EBITDA of INR242m translating into a margin of 30%; however on account of high interest costs and depreciation charges, the net profit was negative.

Sourced From: Sampark Public Relations Pvt Ltd