Dwarikesh Sugar Industries Limited

Instrument Amount Rating Action In Rs. crore December 2016 Term Loan 163.93 [ICRA]A- (Stable); upgraded from (earlier 243.19) [ICRA]BBB- (Positive) Cash Credit 285.00 [ICRA]A- (Stable); upgraded from (earlier 260.00) [ICRA]BBB- (Positive) Non Fund Based Limits 5.00 [ICRA]A- (Stable); upgraded from (earlier 3.00) [ICRA]BBB- (Positive) Unallocated Limits 146.06 [ICRA]A- (Stable); upgraded from (earlier 93.80) [ICRA]BBB- (Positive)

ICRA has upgraded the long term rating to [ICRA]A- (pronounced ICRA A minus) from [ICRA]BBB- (pronounced ICRA triple B minus) for Rs. 163.93 crore term loans (earlier Rs. 243.19 crore), Rs. 285.00 crore cash credit facilities (earlier Rs 260 crore), Rs. 5.00 crore non fund based facilities (earlier Rs 3 crore) and Rs. 146.06 crore unallocated limits (earlier Rs. 93.80 crore)1 of Dwarikesh Sugar Industries Limited (DSIL). The outlook on the long term rating has been revised to ‘Stable’ from ‘Positive’ .

The three notch rating upgrade factors in a substantial funds infusion (by way of equity infusion of Rs. 59.4 crores) which has been used for prepaying long-term debt liability, thus resulting in a significant correction in the company’s capital structure. This apart the rating upgrade factors in a sustained improvement in the sugar recovery rates, which has resulted in an improved cost structure as well as the continued favourable outlook for DSIL’s core sugar business. This outlook is driven by ICRA’s expectations of steady sugar price arising out of of a significant decline in the domestic sugar production in SY2017 wrt SY2016; as well as moderate increase in sugarcane prices (by Rs 25/qtl) determined by Govt of Uttar Pradesh for the current sugar year. ICRA has also favourably factored in efforts made by the company in maintaining liquidity by securing periodic infusion of funds from promoters and ensuring adequacy of working capital limits to support its working capital intensive operations. The rating continues to factor in DSIL’s satisfactory crushing performance, healthy recovery rates and the forward integration into cogeneration and distillery businesses, which provides alternate revenue streams and reduces the impact of the cyclicality of the sugar business to an extent.

These strengths are however tempered by risks arising out of factors such as high volatility in sugar prices, the inherent cyclicality in the sugar business; agro-climactic risks related to cane production; and government policies on cane pricing and import and export policies. In this context ICRA notes that the SAP in the state of UP is still not linked to sugar prices. This apart, ICRA notes that inspite of the current deleveraging, DSIL’s overall gearing levels are likely to remain high in relation to the rating assigned, because of the substantial capex incurred in the past and relatively high working capital requirement inherent in this business.

Company Profile Dwarikesh Sugar Industries Ltd., promoted by Mr. Gautam R. Moraraka was incorporated in 1994 by setting up a 2500 TCD Sugar plant in the sugar rich belt of Uttar Pradesh at Bundki village in Bijnor District. The Company has been raising its crushing capacity regularly and the same has since been increased to 21500 TCD. The company currently has three plants viz. Dwarikesh Nagar (DN), Dwarikesh Puram (DP) & Dwarikesh Dham (DD). DN & DP are located in Bijnor District of Uttar Pradesh and DD is located in Bareilly District in Uttar Pradesh. Besides, the Company has Cogeneration facilities of 17 MW at DN, 33 MW at DP & 36 MW at DD unit. Out of the above, Company exports 8 MW from DN, 24 MW from DP & 24 MW from DD unit to State Grid. The Company at its DN unit has a distillery of 30000 litres per day, which is capable of manufacturing Industrial Alcohol & Ethanol. The Company’s present production capacities are outlined in the following metrics:

1 100 lakh = 1 crore = 10 million  For complete rating scale and definitions, please refer to ICRA’s website www.icra.in or other ICRA Rating Publications.

Units Sugar Capacity Distillery (KLPD) Cogeneration Supply to state (TCD) capacity (MW) grid (MW) Dwarikesh Nagar (DN) 6500 30 17 8 Dwarikesh Puram (DP) 7500 33 24 Dwarikesh Dham (DD) 7500 36 24 Total 21500 30 86 56

Recent Results In H1 FY2017 (6 month period), DSIL reported an operating income of Rs. 529 crore and net profit of Rs. 69.3 crore as against operating income of Rs. 355 crore and net loss of Rs. 16.69 crore in H1FY16. During September 2016, DSIL also mobilised equity funds of Rs 59.4 crore in DSIL via a QIP (Qualified Institutional Placement), post which the company has prepaid a significant chunk of its term loan.

December 2016

For further details please contact: Analyst Contacts: Mr. Sabyasachi Majumdar (Tel. No. +91 124 4545304) [email protected]

Ms. Avneet Kaur (Tel. No. +91-124-4545319) [email protected]

Relationship Contacts: Mr. L. Shivakumar, (Tel. No. +91 22 6114 3406) [email protected]

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