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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 106.82 | ACUITE BB | Stable | Upgraded | - |
| Total Outstanding | 106.82 | - | - |
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Rating Rationale |
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Acuité has upgraded its long term rating to 'ACUITE BB' (read as ACUITE Double B) from ‘ACUITÉ BB-’ (read as ACUITE Double B Minus) on the Rs. 106.82 Cr. bank facilities of Shreebalaji Biosolutions Fuels LLP (SBF LLP). The outlook is ‘Stable’.
Rationale for Upgrade The rating upgrade considers the completion of plant construction in September 2023 and the commencement of manufacturing of ethanol in October 2024. The firm achieved a turnover of ~Rs. 84.33 Cr in FY2024. The rating further considers the experienced management and longterm off-take agreements with the (Oil marketing companies) OMC’s. However, the rating is constrained by a below-average financial risk profile and intensive working capital operations. |
| About the Company |
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Shreebalaji Biosolutions Fuels LLP (SBF LLP) is a limited partnership firm headquartered in Madhya Pradesh and was incorporated in 2021. The firm was set up to manufacture ethanol from maize and broken rice. The firm supplies ethanol to the OMCs in the nearby vicinity. The firm is managed by the partners, Mr. Manish R. V. Singh and Mr. Madhav Mittal. The operations started in October 2023. The total installed capacity of ethanol is 40800 KLR per annum, and DDGS (Dried Distillers Grain Solids) is 13600 MT per annum.
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| Unsupported Rating |
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Not applicable
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| Analytical Approach |
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Acuité has taken a standalone view of the business and financial risk profile of SBF LLP to arrive at the rating
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| Key Rating Drivers |
| Strengths |
| Experienced management with a secured offtake agreement with OMC’s
SBF LLP was started by Mr. Manish R.V.Singh and Mr. Madhav Mittal, who have experiences in versatile industries for more than two decades. The firm is headquartered in Madhya Pradesh and was incorporated in 2021. The firm is engaged in the manufacturing of ethanol from maize and broken rice. The construction was completed in September 2023, and manufacturing started in the month of October 2023. The total installed capacity of ethanol is 40800 KLR per annum, and DDGS (Dried Distillers Grain Solids) is 13600 MT per annum. The firm has already entered into an off-take agreement with OMC's for a term of 10 years. The agreement hosts a purchase commitment of 2.31 Cr liters of ethanol per year from the firm. Additionally, the agreement stipulates that the OMC’s shall pay the value of the order received from SBF within 21 days from receipt of the delivery of ethanol. Acuité believes that SBF's strong management will benefit the firm over the long term. Further, secured off-take has mitigated the supply risk and demand risk to a certain extent, and this will help the firm in the nascent years to establish itself in the industry. Commencement of operations with moderate capacity utilisation. The construction of the plant was completed in September 2023 and manufacturing of ethanaol was started in the month of October 2023. The firm achieved a turnover of Rs.83.47 Cr in FY2024 (E) with an operating margin of 13.36 percent and a PAT margin of 6.19 percent. Further, the firm has outstanding order book of Rs.39.00 Cr to be completed by the first quarter of FY2025. The total installed capacity of ethanol is 40800 KLR per year and DDGS (Dried Distillers Grain Solids) is 13600 MT per year. Further, the firm achieved 54.82 percent and 80.94 percent of capacity utilisation for ethanol and DDGS respectively for 6MFY2024. Acuite believes that the scale of operations will improve strongly over the medium term, supported by further improvement in capacity utilisation. Favorable regulatory regime The Government of India has been encouraging the EBP program so much that it has scaled up the targets of blending from 10% to 20%. The timeline to achieve the 20% blending has been set for 2030. To facilitate the achievement of new blending targets, a "grid” which networks distilleries to OMC depots and details quantities to be supplied has been worked out. State-wise demand profile has also been projected, keeping in view distances, capacities and other sectoral demands. Thus, SBF is likely to benefit from the Government’s active participation in the EBP programme since it is located at a distance of 6 kilometres from the nearest OMC depot. Acuite believes that the industry scenario is likely to remain conducive over the medium term, thereby leading to quick stabilisation of operations. On the flip side, with an increase in the number of manufacturers, the competitive pressures may exert pressure on projected profitability levels. |
| Weaknesses |
| Below -average financial risk profile
The financial risk profile of the firm is below -average, marked by high gearing (debt to equity ratio), moderate net worth, and debt protection metrics. The tangible net worth of the firm stood at Rs.11.45 Cr as of March 31, 2023. The partner’s infused capital is Rs.7.23 Cr in FY2024, and its net worth is estimated to be Rs.22.55 Cr. The total debt of Rs.76.05 Cr consists of longterm loan availed from the State Bank of India. In FY2024, the remaining amount of the term loan of Rs.30.76 Cr was disbursed. The total debt stands at Rs.126.50 Cr including long term and short term debt as on March 31, 2024. The gearing ratio stood at 6.64 times as of March 31, 2023. Further, TOL/TNW stood at 6.68 times as of March 31, 2023. The debt protection metrics are moderate, with an estimated Interest coverage ratio (ICR) of 1.85 times and Debt service coverage ratio (DSCR) of 1.63 times as of March 31, 2024. Acuite believes that the financial risk profile of the company continues to be below -average as the firm is in the initial phase of operations. Intensive working capital operations The firm’s working capital operations are intensive in nature, with an estimated GCA of 132 days as of March 31, 2024. The inventory and debtor days are estimated at 44 days and 35 days, respectively as of March 31, 2024. The firm procures the raw materials from traders and mills (open markets) across states like Uttar Pradesh, Bihar, West Bengal, and Madhya Pradesh. The payment is made within 7-15 days. The payments from the OMC’s will be received within 21 days from the date of billing. The creditors’ days are estimated at 32 days as of March 31, 2024. Further, the average bank limit utilisation for fund-based facilities stood at 78.32 percent for the last 5 months ended March 2024. Acuite believes that the firm's working capital operations will remain in similar range over the medium term. |
| Rating Sensitivities |
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| Liquidity Position: Adequate |
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The firm's liquidity position is adequate, with a moderately high utilization of fund based working capital limits.
The net cash accruals for FY2024 are estimated at Rs.3.87 Cr. The term loan repayment starts on 01.07.2024. Further, Acuite expects that the firm will generate sufficient net cash accruals against its current maturities of long-term debt in FY2025. Unencumbered cash and bank balances stood at Rs.0.13 Cr in FY2023 and are estimated to be at Rs.2.55 Cr in FY2024. The fund-based bank limit utilisation stood moderately high at 78.32 percent for the five months ended March 2024. Acuite believes that the firm's liquidity position will remain adequate over the medium term on account of sufficient NCA generation. |
| Outlook: Stable |
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Acuité believes the outlook on SBF will remain ‘Stable’ over the medium term on the back of long-standing experience of the management with a secured offtake agreement with OMC’s and commencement of operations with moderate capacity utilisation. The outlook may be revised to ‘Positive’ if the company is able to generate high than expected revenues and profitability with improvement in the leverage ratios. Conversely, the outlook may be revised to ‘Negative’ in case the firm registers lower than-expected revenues and profitability or any significant stretch in its working capital management or any deterioration of its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 0.00 | 0.00 |
| PAT | Rs. Cr. | 0.00 | (0.07) |
| PAT Margin | (%) | 0.00 | 0.00 |
| Total Debt/Tangible Net Worth | Times | 6.64 | 0.00 |
| PBDIT/Interest | Times | 0.00 | (49.16) |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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