Rationale

 The rating action for the debt programmes of Dalmia Bharat Sugar and Industries Limited (DBSIL) factors in the expectation of healthy growth in revenues and operating profits, as well as strengthening of debt protection metrics in FY2022. DBSIL's revenue growth would be driven by healthy sugar exports under maximum admissible export quota (MAEQ) of SY2021 and open general licence (OGL) on the back of firmed up global sugar prices, higher distillery volumes and improved domestic sugar realisations. Further, higher sucrose diversion towards B-heavy molasses/juice-based ethanol is expected to result in improved blended distillery realisations, coupled with lower sugar inventory and in turn, lower working capital debt levels. Moreover, DBSIL is in process of expanding its crushing and juice/molasses-based distillery capacities and set up grain-based distilleries, which is likely to strengthen its operational profile and improve revenue diversification. The ratings continue to factor in DBSIL's geographically diversified operations with a crushing capacity of 36,500 tonnes of cane per day (TCD) across UP and Maharashtra, providing buffer against any agro-climatic fluctuations in any one of the states. Further, its forward integration into distillery and cogeneration provides alternate revenue streams and acts as a cushion against the cyclicality from sugar business to some extent. The ratings also take into account its healthy gross recovery rate at 12.57% in FY2021 (12.38% in FY2020), aided by increased proportion of high-yielding cane in the varietal mix and cane developmental activities undertaken by the company. ICRA notes that the introduction of the minimum support price (MSP) for sugar in FY2019 gives some protection against any downside in the operating profits in sugar surplus years compared to the past. Over the medium term, DBSIL's operating profits are likely to remain less volatile than the historical levels, supported by the expected continuation of MSP and the industry's focus on diverting excess cane towards ethanol production. Moreover, DBSIL enjoys strong financial flexibility emanating from its strong parentage, as a part of the Dalmia Bharat Limited (DBL) Group and market value of its investments in the latter. Further, the Group's access to low cost funds at a short notice provides comfort. The ratings, however, remain constrained by the vulnerability of DBSIL's profitability to the cyclical nature of the sugar industry (though the sharp fall in sugar prices is curtailed after the introduction of MSP) and agro-climatic risks related to cane production. Further, the profitability of sugar mills, including DBSIL, are exposed to the policies of the Government of UP (GoUP) and the Central Government on cane prices, sugar international trade, sugar domestic quota, sugar and ethanol pricing and interest subvention loan for distillery capacity expansion. The Stable outlook on the rating reflects ICRA's opinion that DBSIL will continue to benefit from its healthy operational profile. Further, ICRA does not expect the debt levels to increase materially despite planned capex, thereby keeping the debt coverage indicators at healthy levels.