Uttam Sugar Mills downgraded to 'Fitch D(ind)'

Fitch Ratings has downgraded India-based Uttam Sugar Mills Limited's (USML) National Long-Term Rating to 'Fitch D(ind)' from 'Fitch B(ind)'. A list of additional rating actions is provided at the end of this commentary.
 
The ratings reflect delays by USML in its debt servicing due to its tight liquidity position. The company has been unable to adhere to the repayment schedule agreed under the corporate debt restructuring package approved in FY10, in a timely manner. However, the company has now established a debt service repayment account to ensure repayment of its financial obligations.
A key positive rating guideline would be timely servicing of debt obligations by the company for the next six months.

In FY11, USML's revenue grew by 38.6% yoy to INR6.8bn and its EBITDA improved to 11% (FY10: 8.8%) on account of an improvement in sugar realization and high revenue from its power segment. Its net cash cycle also improved to 174 days in FY11 (FY10: 239 days), led by a yoy decline of 142 days in inventory days to 244 days in FY11. However, high interest costs led to the company posting a loss of INR146m in FY11 (FY10: a loss of INR441m).

Fitch expects USML's revenue and margins to improve in the near-term from the sale of ethanol for petrol blending from its recently set up ethanol unit as well as from an increase in the number of electricity units sold from its incremental captive capacity.

USML is a listed company with four sugar manufacturing plants across the states of Uttar Pradesh and Uttaranchal. It also owns a total cane-crushing capacity of 23,750 tonnes crushed per day, a co-generation capacity of 96MW and an ethanol distillery capacity of 75,000 litres per day.

USML's bank loan facilities have been downgraded as follows:
- INR2,781.5m term loans: downgrade to 'Fitch D(ind)' from 'Fitch B(ind)';
- INR3,345.9m fund-based working capital limits: downgraded to 'Fitch D(ind)' from 'Fitch  B(ind)'/'Fitch A4 (ind)'; and
- INR237.5m non-fund based working capital limits: downgraded to 'Fitch D(ind)' from 'Fitch A4(ind)'.

Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'Fitch AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.

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