­Long operational track record and established presence in sugar and distillery businesses
Shri Prabhulingeshwar Group (SPG) was incorporated in 1995 by Mr. Jagadeesh S. Gudagunti. The promoters of the group have over four decades of experience in the sugar industry and enjoy wide acceptence among local farmers, facilitating adequate and timely cane procurement and ensuring an adequate crushing period. This has also helped the group improve its scale of operations. The group registered an operating revenue of Rs. 1,128.64 Cr. in FY24 (Provisional) compared to Rs. 912.12 Cr. in FY23. This improvement is backed by an increase in cane crushed during FY24 and capacity expansion in SDL from 140 KLPD in FY23 to 210 KLPD in FY24. Operating profits of the group remained stable, ranging from 13.25 percent to 17.47 percent over the past three years. Acuité believes that the group will continue to benefit from its promoters’ excellence in the sugar industry and diversified revenue streams, their strong understanding of market dynamics, healthy relationships with customers and suppliers, and a positive domestic demand outlook, which will continue to support business growth over the medium term.

Integrated nature of operations
SPG has integrated mix of production capacities, comprising a cane crushing capacity of 12,000 TCD, co-generation power plant with capacity of 41.5 MW and molasses based distillery with capacity of 210 KLPD under Siddapur distillery limited (SDL). Group has increased its distillery capacity to 210 KLPD in FY24 from 140 KLPD in FY23 and 70 KLPD in FY22. The group’s co-generation plant and distillery has adequate capacity to utilise all the molasses through crushing operations thereby resulting in fully integrated operations. In addition the takeover of new sugar plant under GSBPL with existing capacity of 3500 TCD will enhance the total capacity to 15,500 TCD. Group is planning to further enhance the capacity of new plant from current 3500 TCD to 4500 TCD with capital outlay of Rs.50 Cr. in FY2025. Acuite believes that group's scale of operations will further improve through acquisition of new unit and operating performance will continue to be supported by its fully integrated nature of operations.

Strategic growth via new unit acquisition
SPG acquired a sugar manufacturing plant from Shri Shivsagar Sugar and Agro Products Limited (SSSAPL) through NCLT for a cost of Rs. 140 Cr. The group received NCLT approval for the acquisition in May 2024. The acquired plant is located 35 kilometers from SPG’s existing sugar plant. The group already has established relationships with farmers and traders in the region. The plant has been in continuous operation in previous years. The group plans to expand its capacity from 3,500 TCD to 4,500 TCD in FY2025. Acuite believes that timely stabilisation of operations of new plant will be key rating monitorable.

Moderate financial risk profile
SPG's financial risk profile is moderate marked by moderate capital structure and coverage indicators. Group’s net-worth stood at Rs.467.30 Cr. as on 31 March 2024(Prov.) as against Rs.327.60 Cr. as on 31st March 2023. Improvement in net worth is due to accretion of profits to reserves and infusion of unsecured loan (USL) amounting Rs.100 Cr. during FY24. The total debt of Rs.538.37 Cr. as on March 2024 (Prov.) consists of short-term debt of Rs.248.64 Cr, long term debt of Rs.232.65 Cr, USL of Rs.33.50 Cr. and CPLTD of Rs.23.59 Cr. Gearing(debt-equity) stood moderate at 1.15 times as on March 31st 2024 (Prov.) as against 1.72 times as on March 31st 2023 and 1.67 times as on March 31st 2022. The debt protection metrics of interest coverage ratio and debt service coverage ratio are moderate. Interest coverage ratio (ICR) stood at 1.79 times for FY2024 (Prov.) as against 1.54 times for FY2023. The Debt service coverage ratio (DSCR) stood at 1.19 times for FY2024 (Prov.) as against 1.14 times for FY2023. The total outside liabilities to tangible networth (TOL/TNW) stood at 1.96 times as on March 31st 2024 (Prov.) as against 2.80 times as on March 31st 2023. Acuité believes that the improvement in the financial risk profile of the group going forward will remain a key rating sensitivity.

­Working capital intensive nature of operations
The operations of the group are working capital intensive in nature marked by Gross current asset (GCA) days of 291 days in FY2024 (Prov) as against 311 days in FY23. High GCA days are on account of inventory cycle which stood at 245 days in FY24 (prov) and 271 days in FY23. Inventory levels tend to be higher across the industry as sugar productions starts in mid October and ends by mid April, the inventory levels are generally higher by March. Debtors days stood low at 20 days in FY24 (prov) as against 17 days in FY23 and 22 days in FY22. Further the creditor payback period stood at 121 days in FY24 (Prov) as against 148 days in FY23 and 240 days in FY22. Working capital intensive nature of operations has led to moderate utilisation of its working capital limits with an average utilisation of 33 percent in SPSCPL and 77 percent in SDL over the past sixteen months ending July 2024.

Susceptibility to regulatory changes and inherent volatility in sugar prices
The sugar industry is susceptible to movements in sugarcane and sugar prices which results in volatile profitability. While the government policy of FRP/SAP for sugarcane has brought some amount of stability and predictability in input price, open market sugar price remains dependent on the demand-supply scenario. Besides, the government regulates domestic demand-supply through restrictions on imports and exports, sugar release orders and buffer stock limits. Government interventions will remain a driver for the profitability of sugar mills and continue as a key rating sensitivity factor.

Agro climatic risks and cyclical trends in the industry
Profitability of sugar mills will remain vulnerable to the agro-climatic risks related to cane production. Being an agricultural product, the sugarcane crop is dependent upon weather conditions and is vulnerable to pests and diseases that may not only impact the yield per hectare but also the recovery rate. These factors can have a significant impact on the company’s revenue and profitability.