Rationale

The rating reaffirmation for Mawana Sugars Limited (MSL) factors in its forward-integrated operations into distillery and cogeneration that provide alternative revenue streams and act as a cushion against the cyclicality in the sugar business to some extent. ICRA notes that favourable domestic sugar prices and sustained policy backing by the Government, such as the introduction of minimum selling price (MSP), interest subvention loans for ethanol capacity creation/expansion and timely price revisions for ethanol, support the company’s financial profile. Further, the rating draws comfort from the financial profile of the company, reflected in its comfortable capital structure and modest debt coverage metrics. ICRA expects the company to register modest revenue growth and maintain stable margins in the medium term, supported by favourable sugar realisations and comfortable distillery operations even though cane prices have increased during the year. The ratings, however, remain constrained by MSL’s high working capital intensity of operations with NWC/OI at 48% in FY2025 due to the elevated inventory holding. The inventory levels are expected to remain high due to the nature of the sugar business, resulting in high short-term borrowing for the company. Nevertheless, the debt coverage indicators are expected to remain comfortable, driven by stable operating profits and a modest debt level, supported by ethanol production. The ratings factor in the vulnerability of MSL’s profitability to the cyclical nature of the sugar industry and the agro-climatic risks related to cane production. Further, the profitability of sugar mills, including MSL, is exposed to the policies of the state government and the Central Government on cane prices, international trade, 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 MSL will continue to maintain its revenue and profitability, backed by its forward-integrated operations and a comfortable liquidity position.