Corporate Credit Research

India

Sugar Industry in a Sweet Spot, but Cane Pricing Issues

Linger
Sugar Prices to Remain Firm for Majority of SS 2017-18
Special Report

In This Edition

Sugar Prices to Remain Firm: India Ratings and Research (Ind-Ra) expects sugar prices to
remain firm for majority of SS 2017-18, despite higher production and depressed global prices.
Sugar prices will continue to be supported by high import duties and depleted sugar stocks.

According to India Sugar Mills Association (ISMA), the sugar production would increase to 25.1
million tonnes in SS 2017-18 (SS 2016-17: 20.3 million tonnes) on the back of normal
monsoons and higher cane acreage in the key sugarcane producing states of Uttar Pradesh,
Karnataka and Maharashtra. However, depleted opening stocks will prevent any sharp
correction in sugar prices.

Furthermore, Ind-Ra does not expect the depressed global prices on account of surplus global
stocks to impact Indian sugar millers. In July 2017, the government raised the import duty on
sugar to 50% from 40% to prevent cheap imports. Owing to the high fixed cost of production for
Indian players, the government will have to continue to resort to protectionist measures, in the
form of higher import duties, in the current environment of depressed global prices to safeguard
the interests of Indian sugar millers.

Stable Financial Profile for Key Sugar Producing States: Ind-Ra estimates Uttar Pradesh
would record its highest ever production while Maharashtra and Karnataka to stage a recovery
in SS 2017-18. Also, the operating margins and credit profile of sugar millers in these three
states are expected to remain stable in SS 2017-18 on account of stable sugar realisations and
no-to-minimal impact of cane costs. However, the financial profile of Tamil Nadu based millers
is expected to be impacted on account of higher FRP, lower production and recovery in SS
2017-18.

Millers to be able to Pay Higher Cane Costs on Stable Sugar Prices: For SS 2017-18, FRP
on sugarcane has been increased to INR2,550/MT (SS 2016-17: INR2,300/MT). Also, some of
the states declare their own cane prices (SAP) which are typically higher than FRP. While the
current prices are remunerative for sugar millers to pay the FRP/SAP, any adverse fluctuation
in sugar prices would impact the ability of millers to pay such prices.

Maharashtra and Karnataka are the only states in India to have adopted a revenue sharing
formula which provides pricing stability. The formula has been adopted by some of the major
sugar producing countries across the world.

Financial Improvement for Sample Set of Companies: In FY17, the financial performance of
Ind-Ra’s sample set of companies improved significantly primarily on account of higher sugar
realisations.

www.indiaratings.co.in 15 November 2017

 Corporate Credit Research
Ind-Ra’s Outlook on Sugar Industry for SS 2017-18
Normal Sugar Production & Firm Prices Support Stable Outlook
Ind-Ra has maintained a stable outlook on the sugar sector for SS 2017-18. The agency’s
previous sugar outlook report was published in April 2017. The outlook is supported by normal
sugar production estimated for SS 2017-18 and expectation of stable sugar prices.

Normal Monsoons & Higher Cane Acreage to Drive Higher Sugar

Output
ISMA estimates sugar production to increase to 25.1 million tonnes in SS 2017-18 on the back
of normal monsoons and higher cane acreage in the key sugarcane producing states of Uttar
Pradesh, Karnataka and Maharashtra.

Figure 1

Estimated Production in Key Sugar Producing States (SS 2017-18)

(million tonnes) 2016-17 (P) 2017-18(E)
12

10

0
Uttar Pradesh Maharashtra Karnataka Gujarat Tamil Nadu
Source: ISMA, Media reports, Ind-Ra

Domestic Prices to Remain Stable despite Higher Volumes & Depressed

Global Prices
Ind-Ra does not expect a sharp correction in sugar prices, due to high import duties, depleted
sugar stocks and an increase in FRP.

Figure 2

Global Production to Move towards Surplus after Two Consecutive Seasons

of Deficit
(million tonnes) Production Consumption
185
180
175
170
165
160
155
2013-14 2014-15 2015-16 2016-17 2017-18
Source: USDA, Ind-Ra

According to USDA estimates, the global centrifugal sugar production is estimated to increase
by about 5% yoy to 180 million tonnes in the marketing year (MY) 2017-18. On the other hand,
global consumption is estimated to remain near MY 2016-17 levels at 172 million tonnes. As a
result, the global sugar stocks are expected to move towards surplus after two consecutive
years of deficit.

Sugar Industry in a Sweet Spot, but Cane Pricing Issues Linger 2

November 2017
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Figure 3

Global & Indian Sugar Surplus/Deficit Scenario

(million tonnes) Global surplus/deficit India surplus/deficit
15
10
5
0
-5
-10
-15
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Note: The surplus/deficit is computed as Production for the year – Consumption for the year. It does not factor in the
stocks (opening stocks) available for the season
Source: USDA, Agricoop, ISMA, Ind-Ra

The expectation of a significant sugar surplus globally has exerted downward pressure on
sugar prices, with the raw sugar futures prices (March 2018 expiry) falling to a low of 13.51
cents/ pound in June 2017 from 20.6 cents/ pound in October 2016. On 10 November 2017,
the raw sugar future prices (March 2018 expiry) were trading at 14.96 cents/pound.

Raw Sugar Futures Prices (March 2018 expiry)

Figure 4

Source: ICE, Ind-Ra

However, higher import duties prevented cheap imports from flooding the Indian market. Owing
to high fixed cost of production for Indian players, the government will have to continue to
resort to protectionist measures, in the form of higher import duties, in the environment of
depressed global prices to safeguard the interests of Indian sugar millers.

Sugar Industry in a Sweet Spot, but Cane Pricing Issues Linger 3

November 2017
 Corporate Credit Research
Figure 5
Regulatory Support
SS 2014-15 SS 2015-16 SS 2016-17

Sugar production during the season increased to around 28.5 million
tonnes, the highest in the last 10 years. The surplus sugar production
coupled with sufficient opening inventory resulted in depressed global
Season prices which resulted in significant cane arears. As a result, the
Review government raised the import duty first to 25% and later to 40% during
the season. Further, the government extended export incentives and
export quotas to move the surplus stock out of country .
Incentive on exports of raw sugar Mandatory Export of sugar
Owing to the surplus sugar production in SS 2014-15), the sugar stocks
available at the start of SS 2015-16 were significantly higher at around 9
million tonnes. Further, normal production estimated for the season
would have resulted in the country having sugar stocks far exceeding
the demand. As sugar millers were not able to meet the export quota
allotted to them and cane arrears mounted, the government allowed an
export linked subsidy of INR4.5/quintal. After the subsidy was
disbursed, the government rolled back the export incentives and
increased the export duty.
Owing to the poor rainfall and droughts in the major sugar growing
regions of India, the production dwindled down to 20.3 million tonnes.
The higher demand in relation to supply resulted in a drawdown of
inventory. To keep the prices in check as well as safeguard the interests
of Indian sugar millers, imports were allowed in restricted quantities and
the import duty was increased to 50% as global prices declined.

Owing to the surplus sugar available in the country,

Government extended incentives
towards marketing & promotion
services for raw sugar production
and notified incentives at
INR4,000/MT for export of up to
1.4 million tonnes by 30
September 2015.
the government decided to give mandatory export
quota of 4 million tonnes of sugar for SS 2015-16
which was distributed among all sugar millers on the
basis of average sugar production of the preceding
three years. The millers were allowed to export any
form of sugar, i.e. raw sugar, white sugar & refined
sugar.
Discontinuance of Cane Subsidy
To discourage sugar exports,
cane subsidy linked with sugar
exports was discontinued
Relaxation of Mandatory exports
The condition of mandatory sugar
exports was relaxed
Increase in import duty
Import duty was increased to 50%
from 40% due to a sharp decline
in global prices.

February 2015 September 2015 May 2016 September 2016 July 2017

August 2014 April 2015 December 2015 June 2016 June 2017 September 2017

Increase in Import duty Increase in Import duty Cane subsidy Increase in export duty Duty-free imports Imports at concessional rate

Import duty was increased to - Export-linked cane subsidy of INR4.5/quintal - Export duty of 20% was - Owing to the shortfall in - Imports of 0.3 million
- Import duty was increased to 40% from 25%
25% was announced after millers were unable to imposed on any form of domestic production, tonnes was allowed for
- The time period for the re-export of sugar after
exhaust the 4 million tonnes export quota, sugar. duty-free imports of 0.5 southern millers at a
sugar import (under advance authorisation)
and cane arrears mounted. million tonnes of sugar concessional rate of
reduced to six months from 18 months
- Most of the subsidy was disbursed to eligible was allowed. 25% .
- Withdrawal of scheme of Duty Free Import
millers; estimated to be INR5,250 million.
Authorisation for sugar

Source: Government Data, Ind-Ra

Ind-Ra expects the imports of raw sugar to be restricted during SS 2017-18 as domestic sugar
stocks (production and opening inventory) would be sufficient enough to meet the demand. The
government may allow imports of specified quantities of raw sugar at concessional rates only in
the event of a significant surge in sugar prices.

Cane Pricing Continues to be the Achilles Heel for Sugar Players

The regulatory overhang in terms of the cane pricing policy continues to weigh heavily on sugar
players. The Commission for Agricultural Costs and Prices (CACP) determines FRP for
sugarcane based on the cost of production, inter-crop price parity, recovery, expected sugar
prices, transportation costs & premium and a host of other factors. Such pricing is not linked to
actual sugar prices, which are determined by market forces.

Furthermore, few states such as Uttar Pradesh, Tamil Nadu, Punjab, Uttarakhand and Haryana
determine their own SAP which are not linked to sugar recovery and typically higher than FRP.

Figure 6

Sugar Prices not Moving in Tandem with FRP

Cane prices Average ex-mill sugar prices - 9% recovery
Average ex-mill sugar prices - 9.5% recovery Average ex-mill sugar prices - 10% recovery
Average ex-mill sugar prices - 11% recovery Average ex-mill sugar prices - 12% recovery
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Note: Cane prices are on a per tonne basis and do not include the premium for a higher recovery. Sugar prices
represent all-India average ex-mill sugar mill prices at various recovery rates.
Source: Ind-Ra, ISMA, Agricoop

Sugar Industry in a Sweet Spot, but Cane Pricing Issues Linger 4

November 2017
 Corporate Credit Research
Figure 7

SAP (State Advised Prices) Higher than the FRP

Uttar Pradesh Punjab
(per tonne) Haryana Tamil Nadu
FRP - 9.5% recovery level
3500
3000
2500
2000
1500
1000
500
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Note: Tamil Nadu and Punjab have not yet declared SAP (1 November 2017)
Source: CACP, Agricoop, Media Reports, Ind-Ra

For SS 2017-18, CACP has determined FRP payable for sugarcane at INR2,550/tonne for a
minimum recovery of 9.5%, which is about 11% higher than FRP (INR2,300/tonne) payable for
similar recovery levels in SS 2016-17.

Uttar Pradesh, which is the highest sugar producing state in India, also hiked the prices
payable on a general variety of sugarcane by 3.3% to INR3,150/ tonne for this season (SS
2016-17: INR3,050/tonne). While some of the other SAP declaring states have not yet
announced cane prices for the season, Ind-Ra expects SAP to remain higher than FRP as
seen in the previous sugar seasons.

Delinking of Cane and Sugar Prices results in Volatile Margins

While FRP and SAP have been rising steadily, sugar prices have been volatile, reflecting the
market conditions. The delinking of cane and sugar prices has already proved to be
catastrophic for the industry; with the industry being saddled with huge cane arrears in SS
2013-14 and SS 2014-15 on account of depressed sugar prices.

Figure 8

Cane Costs as a % of Average Ex-mill Sugar Prices

(%) Cane costs as a % of average ex-mill sugar prices for a minimum recovery of 9.5%
100

80

60

40

20

0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 (P)
Note: Cane costs refer to FRP+ premium for recovery greater than 9.5%
Source: Ind-Ra estimates

Lower sugar prices coupled with a higher FRP resulted in cane costs accounting for about 93%
of the average all-India ex-mill sugar realisations in SS 2014-15. Subsequently, the share of
cane costs in overall sugar realisations has declined on account of higher sugar prices. As a
result, the industry continues to be vulnerable to any adverse fluctuation in sugar prices.

On the other hand, some of the major sugar producing countries in the world have adopted a
revenue sharing formula which provides stability in terms of pricing. Maharashtra and
Karnataka are the only states in India to have adopted a revenue sharing formula, with 75% of
the revenue realised from the sale of sugar to be shared with farmers or alternatively 70% of
the revenue realised from the sale of sugar and by-products, whichever is higher.

Sugar Industry in a Sweet Spot, but Cane Pricing Issues Linger 5

November 2017
 Corporate Credit Research
Figure 9

Revenue Shared by Major Sugar Producing Countries of the World

(%) Revenue sharing % of growers
80

60

40

20

0
Brazil Thailand Australia South Africa Mexico
Note: Revenues to be shared by various countries: Brazil – sugar & ethanol, Thailand – raw/white, Australia –
raw/white/refined sugar and molasses, South Africa – raw/refined sugar and molasses, Mexico – all sugar (mills retain
molasses)
Source: ISMA, Ind-Ra

Figure 10

Cane Arrears Subside with Government Support

Total price payable (LHS) Total price paid (LHS)
(crores) (%)
Arrears as a % of price payable (RHS)
60,000 54
50,000 45
40,000 36
30,000 27
20,000 18
10,000 9
0 0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Note: Cut-off date is 15th March for each year except for 2016-17 which reflects the status as on 31 July 2017
Source: DFPD, Ind-Ra

Owing to depressed domestic prices and higher cane costs, sugar millers were unable to clear
cane arrears in SS 2013-14 and SS 2014-15. The government support in the form of extension
of soft loans, interest subvention on working capital loans and export-linked subsidy has since
aided sugar millers in clearing the arrears.

Cane prices as a % of price payable declined to around 8% of the overall price payable on 31
July 2017 from about 32% on 15 March 2016. Although it is not comparable with the previous
seasons due to the differences in cut-off dates, higher sugar prices have also enabled millers to
settle the cane dues.

Financial profile to be stable for key sugar producing states but

for Tamil Nadu

Figure 11
Key State-wise Scenario
Uttar Pradesh Maharashtra Karnataka Tamil Nadu
Production
Recovery/yield
Sugar prices
Cane pricing
Operating margins
Credit profile
Source: Ind-Ra

Sugar Industry in a Sweet Spot, but Cane Pricing Issues Linger 6

November 2017
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Uttar Pradesh
According to industry estimates, the production in Uttar Pradesh would increase 11%-13% yoy
to around 10 million tonnes in SS 2017-18 on account of higher cane acreage and recovery.
While Uttar Pradesh had one of the lowest productivity/ recovery levels in India, the situation
has improved recently owing to the adoption of high-yielding cane varieties. According to CACP
estimates, the average sugar recovery in Uttar Pradesh increased to 10.6% in 2015-2016 from
9.5% in 2014-2015.

Ind-Ra estimates that the impact of higher cane prices declared for SS 2017-18 on the
operating margins of the Uttar Pradesh based sugar millers would be marginal. The higher
cane costs are expected to be absorbed be higher recoveries on sugarcane.

Furthermore, Ind-Ra expects the credit profile of the Uttar Pradesh based millers to be stable
owing to higher capacity utilisation and recoveries.

Karnataka & Maharashtra

According to industry estimates, the production in Karnataka and Maharashtra would increase
to around 2.9 million tonnes in SS 2017-18 (SS 2016-17: 2.2 million tonnes) and 7.8 million
tonnes (SS 2016-17: 4.2 million tonnes) respectively. Further, Karnataka and Maharashtra
have among the highest sugar recoveries in India.

The two states also have a stable regulatory policy in terms of cane pricing; both the states
have adopted a revenue sharing formula. According to the formula, 75% of the revenue
realised from the sale of sugar has to be shared with farmers or alternatively 70% of the
revenue realised from the sale of sugar and by-products, whichever is higher.

While the current remuneration from the sale of sugar is conducive for the millers to pay above
FRP, it remains to be seen whether the state governments are able to support the millers in the
event of depressed sugar prices.

Accordingly, Ind-Ra expects the margins to remain stable for the two states for SS 2017-18.
However, the plans of the Maharashtra government to revive the defunct sugar mills could
result in higher competition for cane for sugar mills in the same region and thus could put
pressure on the margins.

Additionally, the credit profile of Karnataka and Maharashtra based millers is expected to
remain stable on account of higher production, stable realisations and a stable policy
environment.

Tamil Nadu
According to industry estimates, the production in Tamil Nadu would decline to about 0.8
million tonnes in SS 2017-18 from around 1 million tonnes in SS 2016-17. The state is reeling
from lower capacity utilisation, owing to two successive seasons of poor rainfall and droughts.
Owing to adverse climatic conditions, the recovery from sugarcane is also expected to be
impacted.

While the state government has not yet declared SAP, even the existing level of
INR2,850/tonne for a 9.5% recovery is not remunerative for Tamil Nadu based sugar millers.,
Owing to lower capacity utilization and recoveries, the private millers in the state have defied
paying the SAP and have challenged the same in the High court. Currently, the private millers
are paying an additional price of INR125/MT over the FRP.

Accordingly, Ind-Ra expects the Tamil Nadu based millers to have a weak credit profile in SS
2017-18, owing to higher FRP, lower capacity utilisation and recoveries.

Sugar Industry in a Sweet Spot, but Cane Pricing Issues Linger 7

November 2017
 Corporate Credit Research
SS 2016-17 – Season in Review
Major Sugarcane Growing Regions Experience Poor Rainfall and Droughts;
Sugar Production Impacted
According to Indian Sugar Mills Association (ISMA), the sugar production in the country is
estimated to have declined by about 19% yoy to 20.3 million tonnes in SS 2016-17, impacted
by the poor rainfall and droughts in major sugarcane growing regions of India.

Figure 12

Sugarcane and Sugar Production in India

(million tonnes) Sugarcane (LHS) Sugar (RHS) (million tonnes)
400 30
320 24
240 18
160 12
80 6
0 0
2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17 (P)

2017-18 (E)
Note: Production is for the sugar season
Source: Agricoop, ISMA, Ind-Ra

Maharashtra, which was the largest sugar producer in India in SS 2015-16, was majorly
impacted; where sugar production is estimated (source: ISMA) to have nearly halved to 4.2
million tonnes in SS 2016-17.

Lower sugar production was also witnessed across other western and southern states of
Gujarat, Karnataka, Andhra Pradesh, Telangana and Tamil Nadu.

The supply, in part, was supported by Uttar Pradesh where the production increased 28% yoy
to 8.8 million tonnes in SS 2016-17, on the back of higher cane yields and sugar recovery.

Figure 13

Key State-Wise Sugar Production

(million tonnes) 2012-13 2013-14 2014-15 2015-16 2016-17 (P)
12

10

0
Uttar Pradesh Maharashtra Karnataka Gujarat Tamil Nadu
Source: CACP, ISMA, Ind-Ra

On the other hand, the consumption is estimated to have increased by 3% yoy to 25.5 million
tonnes in SS 2016-17. According to industry estimates, bulk consumers accounted for about
60% of the overall sugar consumption in India.

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November 2017
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Average Ex-mill Sugar Prices Surge On Lower Domestic Production;
Government Takes Steps To Support Prices

Figure 14

Domestic Average Ex-mill Sugar Prices

(per tonne) Average Ex-Mill sugar prices
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0

Sep 14

Sep 15

Sep 16
Jan 15

Jan 16

Jan 17
May 14

May 15

May 16

May 17
Mar 15

Mar 16

Mar 17
Jul 14

Jul 15

Jul 16

Jul 17
Nov 14

Nov 15

Nov 16
Source: ISMA, Ind-Ra

Owing to an imbalance in demand-supply, the all-India ex-mill sugar prices increased to an

average of INR35,600/tonne in the first 10 months of SS 2016-17 from an average of
INR30,500/tonne in SS 2015-16.

The lower sugar production coupled with restricted imports due to high import duties resulted in
a drawdown from the inventory/ buffer stock, which propped up sugar prices.

The import duty was reserved at 40% to safeguard the interests of Indian sugar players, who
had surplus sugar stocks in SS 2014-15. In July 2017, the import duty was further raised to
50% on account of depressed global sugar prices, which was due to surplus global stocks.

According to Ind-Ra estimates, the higher import duties made it unviable to convert imported
raw sugar to white sugar (around INR37/kg) as against the domestic ex-mill sugar prices
(INR35-36/kg) in July 2017.

Figure 15

Import Price Parity (July 2017)

(per tonne)
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Landed cost of Freight cost Import duty Transportation cost Conversion of
raw sugar raw to white
Source: Ind-Ra estimates

Consequently, the price differential between domestic sugar prices and global sugar prices
widened in the second half of SS 2016-17.

However, to boost supplies and keep sugar prices in check, the government imposed stock-
holding limits and allowed imports of specified quantities of raw sugar at concessional rates.

In June 2017, the government allowed duty-free imports of 0.5 million tonnes of raw sugar.
Under the tariff rate quota benefit extended, the southern, eastern and western regions
imported 0.3, 0.15 and 0.05 million tonnes of sugar, respectively. In September 2017, the
government allowed imports of another 0.3 million tonnes of raw sugar at a concessional duty
rate of 25% for southern millers.

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November 2017
 Corporate Credit Research
Additionally, the government imposed stock holding limits towards the end of August 2017,
whereby no producer is allowed to hold any stock of sugar in excess of quantities at the end of
the month as mentioned below:

a) September 2017: 21% of the total sugar available with them during 2016-17 sugar season.
b) October 2017: 8% of the total sugar available with them during 2016-17 sugar season.

Opening Stock for SS 2017-18 Significantly Below Buffer Stock Typically

Maintained

Figure 16

Domestic Stocks Available at the Start of the Season

(million tonnes) Opening stock
10

0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18(E)
Source: ISMA, Ind-Ra

Ind-Ra estimates the opening stock available for SS 2017-18 to have dwindled down to around
4 million tonnes from 7.5 million tonnes available at the start of the SS 2016-17. As against a
buffer stock equal to three months of consumption typically maintained, the sugar stock
available at the start of SS 2017-18 is enough only to meet two months of consumption.

Financial performance of Sample Set Companies Improves

primarily on Higher Sugar Realisations
Earnings & Profitability

Figure 17

Operational Performance
(billion) Revenues (LHS) Operating margins (RHS) (%)
420 15

400 12

380 9

360 6

340 3

320 0
FY13 FY14 FY15 FY16 FY17
Source: Company data, Ind-Ra

The revenues of the sample set companies (hereafter referred to as SS in this section)
increased about 6% yoy to INR418 billion in FY17, primarily driven by companies with
presence in Uttar Pradesh which benefitted from higher sugar production and realizations
during SS 2016-17.

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November 2017
 Corporate Credit Research
The median operating margins of SS companies increased to 14.14 % in FY17 (FY16: 6.96%),
primarily on the back of higher sugar realisations. Also, the FRP (payable on sugarcane) fixed
by the central government remained unchanged at INR2,300/tonne for a minimum recovery of
9.5% in SS 2016-17 (SS 2015-16: INR2,300/tonne).

However, few states determine their own cane prices (state advised prices) which were either
unchanged or increased at different rates for SS 2016-17. Uttar Pradesh had the highest SAP
price at INR3,050/tonne in SS 2016-17.

Credit profile

Figure 18

Credit Metrics
(x) Interest coverage (LHS) Net leverage (RHS) (x)
3.5 12
3.0 10
2.5
8
2.0
6
1.5
4
1.0
0.5 2
0.0 0
FY13 FY14 FY15 FY16 FY17
Note: Net leverage excludes companies which have negative EBITDA (The companies excluded; FY17: 1, FY16: 2,
FY15: 12, FY14:5, FY13: 2)
Source: Company data, Ind-Ra

The credit profile of SS companies improved significantly in FY17 with the median net leverage
declining to 3.5x (FY16: 7.6x) and median interest coverage increasing to 3.1x (1.2x). This can
be primarily attributed to their better operational performance and lower working capital
requirements (lower sugar production & remunerative sugar prices).

Liquidity profile

Figure 19

Liquidity Ratios
(x) CFO/interest (LHS) Working capital cycle (RHS) (days)
2.0 180

1.6 144

1.2 108

0.8 72

0.4 36

0.0 0
FY13 FY14 FY15 FY16 FY17
Source: Company data, Ind-Ra

The liquidity profile of SS companies also improved in FY17 on account of the reasons given
above. The median cash flow from operations/interest coverage of SS companies increased to
1.74x in FY17 (FY16: 0.99x) and the median working capital cycle improved to about 142 days
(153 days).

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November 2017
 Corporate Credit Research
Appendix

Figure 20
Issuer Ratings
Issuer Rating/Outlook (Current) Rating/Outlook (FYE17)
The Seksaria Biswan Sugar Factory IND A/Stable IND A-/Positive
Limited
Vishwaraj Sugar Industries Limited IND BBB/Stable IND BBB/Negative
K.M. Sugar Mills Limited IND BB+/Stable IND BB/Stable
Shree Durga Khandsari (Sugar) Mills IND BB+/Stable IND BB/Stable
Sant Muktai Sugar and Energy IND B/Stable -
Shree Basaveshwar Sugars Ltd IND D IND D
Shree Renuka Sugars Limited IND D IND D
Source: Ind-Ra

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Sugar Industry in a Sweet Spot, but Cane Pricing Issues Linger 13

November 2017