Rationale

 The assigned rating of The Jute Corporation Of India Limited (JCI) considers the company’s status as a public sector undertaking as well as its position as the nodal agency for providing minimum support price (MSP) to the jute cultivators. ICRA notes that the Government of India (GoI) extends operational support to JCI in the form of orders to supply raw jute to the jute mills. Further, it receives subsidy for meeting fixed overheads, including employee costs, thus supporting its profitability. JCI had to augment MSP operations in FY2024 due to lower market price of raw jute than MSP, leading to a significant growth of around 402% in its gross sales to around Rs. 569 crore on a YoY basis. This, along with a sharp improvement in the operating profit margin (OPM) to 15.3% in FY2024 (provisional [P]) from 2.7% in FY2023 led to a robust growth in the entity’s overall profits and cash accruals in FY2024 (P) on a YoY basis. The market price of raw jute, however, witnessed a rising trend in the recent months. Accordingly, MSP operations are likely to decline substantially in the current fiscal. The rating continues to derive comfort from its strong financial profile, as reflected by a conservative capital structure and comfortable coverage indicators. A substantial unencumbered cash and bank balance of the company also lend strength to its liquidity position and financial profile. The rating, however, continues to be constrained by the company’s exposure to regulatory changes as well as government policies, particularly related to the quantum and timely receipt of subsidy from the GoI. The rating also notes that JCI’s revenues remain vulnerable to fluctuations in jute prices and production. The turnover of JCI would continue to remain volatile in nature as the same depends on jute production and the prevailing market prices of raw jute vis-à-vis its MSP. The Stable outlook on the long-term rating reflects ICRA’s opinion that JCI will continue to benefit because of its position as a nodal agency of the GoI for execution of MSP operations for jute cultivators and generation of healthy cash flow relative to its debt service obligations.