By Samarth Dayama

India Ratings and Research (Ind-Ra) has affirmed Sungro Seeds Private Limited’s (SSPL) Long-Term Issuer Rating at ‘IND BB+’. The Outlook is Stable. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loan

-

-

28 April 2021

INR72 (reduced from INR131.25)

IND BB+/Stable

Affirmed

Fund based working capital limits

-

-

-

INR365 (increased from INR250)

IND BB+/Stable

Affirmed

Non-fund-based working capital limits

-

-

-

INR10

WD

Withdrawn (paid in full)

 Fund-based working capital limits^

-

-

-

INR85

IND BB+/Stable

Assigned

^The final ratings have been assigned following the receipt of executed financing documents by Ind-Ra.

KEY RATING DRIVERS

The affirmation reflects SSPL’s continued elongated working capital cycle due to its working capital-intensive nature of operations. In FY18, the company's net cash conversion cycle elongated to 442 days (FY17: 326 days), on account of an increase in the inventory holding period to 486 days (411 days). As per the management, the net cash conversion cycle is likely to have improved in Fy19, although remained stretched, on account of an increase in the creditor days, driven by its longstanding relationships with the suppliers. Ind-Ra expects the net cash conversion cycle to remain elongated on account of higher inventory days.

The ratings continue to factor in the company’s medium scale of operations as indicated by revenue of INR949 million in FY19 (FY18: INR983 million, FY17: INR992 million). The company reported EBITDA profit of INR80 million in FY19 (FY18: EBITDA loss of INR16 million), with an EBITDA margin of 8.4%. As informed by the management, the EBITDA turned positive in FY19 mainly on account of a reduction in the operating expenses. In FY19, interest coverage (operating EBITDA/gross interest expense) was 2.7x and net leverage (total adjusted net debt/operating EBITDAR) was 12.1x. FY19 financials are unaudited.

However, the ratings are supported by SSPL’s high value readily monetisable assets (RMAs) worth INR1,200 million and comfortable external debt/RMA ratio of 0.8x as on 31 March 2019. The company also earned income from the sale of investments and property of about INR48 million in FY19 (FY18: INR773.821 million, FY17: INR254.756 million).

The ratings also benefit from SSPL’s healthy liquidity position as indicated by 32.8% average use of its working capital limits during the 12 months ended May 2019.

The ratings also continue to be supported by the promoters’ more than two and a half decades of experience in the seed industry.


RATING SENSITIVITIES

Negative:  Inability to monetise the assets or any decline in the operating revenue or EBITDA margins, leading to deterioration in the credit metrics will be negative for the ratings.

Positive:
An improvement in the operating revenue and EBITDA margins, leading to improvement in the credit metrics, all on a sustained basis, will be positive for the ratings.


COMPANY PROFILE

Established in 1991, SSPL is involved in the research and development, and production of seeds. The company is a part of the Barwale group, which owns Maharashtra Hybrid Seeds Company Limited (‘IND A-’/Negative) one of the largest seed producing company in India. SSPL produces both hybrid and open pollinated seeds. SSL has an established presence in the industry across multiple states in India.


 

FINANCIAL SUMMARY

Particulars

FY19 (Unaudited)

FY18*

Revenue (INR million)

949

983

Operating EBITDA (INR million)

80

-16

EBITDA margin (%)

8.42

n.m.

Interest coverage (x)

2.7

n.m.

Net leverage (x)

12.1

n.m.

Source: SSPL, Ind-Ra

*Restated

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

23 May 2018

21 February 2017

19 February 2016

Issuer rating

Long-term

-

IND BB+/Stable

IND BB+/Stable

IND BB/Stable

IND BB(suspended)

Term loan

Long-term

INR72

IND BB+/Stable

IND BB+/Stable

IND BB/Stable

IND BB(suspended)

Fund-based working capital limits

Long-term

INR450

IND BB+/Stable

IND BB+/Stable

IND BB/Stable

IND BB(suspended)

Non-fund based working capital limits

Short-term

INR10

WD

IND A4+

IND A4+

IND A4+(suspended)


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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For more information, visit www.indiaratings.co.in.

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