Bulk tea producer McLeod Russel India Ltd has been handed a rating downgrade by the ICRA.
In a notification to stock exchanges on Wednesday, McLeod Russel said that the long-term rating has been downgraded to ‘BBB-’ (triple B negative) from ‘A’, while the short-term rating has been downgraded to A3 from A2+. The outlook on long term rating is negative.
“The negative outlook underpins ICRA’s expectation that input cost pressure would continue to impact the operating profitability and cash flows from operation, which along with higher debt (on account of exposure to group companies) would keep coverage indicators depressed and liquidity stretched,” said ICRA in its rating rationale.
The company has made “slower-than-expected” progress on its asset monetisation plans and that has delayed the planned deleveraging of its balance sheet.
Recently, McLeod Russel sold 12 gardens in Assam and signed an MoU to sell more estates, both in Assam and Dooars. Post the sale, the company will have a capacity to manufacture around 42 million kg of tea from its own leaves.
“While a majority of the proceeds from the sale of the second tranche of tea estates has been received recently with a delay, MRIL’s overall leveraging remains high. Although MRIL used the proceeds to reduce debt, contrary to ICRA’s expectation, the total debt outstanding still remains high on account of increased exposure to group companies,” said ICRA.
As of September 2018, its debt stood at around ₹1,500 crore. ICRA said that though the company has plans to reduce its debt over the short term, continued exposure to group companies would keep its borrowings elevated at least over the short term.
The outlook could be revised to ‘stable’ in case of a significant increase in prices, relative to costs, thus leading to a healthy operating profitability or ‘higher than expected reduction in exposure to Group companies’, leading to a lower debt burden.
“The quantum and timeliness of the reduction in debt would be a key rating sensitivity. Revision in outlook to positive looks unlikely at present,” it said.