The long-term rating has been downgraded from [ICRA]BB+ (pronounced ICRA double B plus) to [ICRA]BB- (pronounced ICRA double B minus).† The Outlook on the long-term rating is revised from Stable to Negative. The Rating Committee of ICRA has also downgraded the short-term rating  from [ICRA]A4+ (pronounced ICRA A four plus) to [ICRA]A4 (pronounced ICRA A four).

The reason for such revision in brief is as under:

The downward revision in the ratings considers the losses that the company would incur again in FY2020 at the operating level due to the absence of a commensurate uptick in realisation to absorb the increased labour cost. Adjustment for arrear salary and related benefits for the period April 2018 to October 2019 has adversely impacted its profitability in 9M FY2020 and resulted in a net loss of Rs. 8.28 crore compared to net loss of Rs. 5.29 crore in 9M FY2019. 

Continuing losses over the years led to a significant deterioration in the company’s profitability and coverage indicators. The liquidity position of the entity has also weakened significantly over the years due to the cash losses suffered since FY2017. The same is likely to remain weak unless there is a meaningful recovery in tea realisation, given the sizeable debt servicing obligation the entity has in the coming years. ICRA also notes the 21 days lockdown announced by the Government of India (GoI) following the outbreak of COVID-19, which is likely to result in production loss. As a result, the same would have a bearing on the quality and realisation and negatively impact the business profile of all the tea growers in FY2021, including WTL.  

Meanwhile, the ratings continue to draw comfort from the company’s premium quality tea that commands a higher price over the average market realisation. Besides, comfortable yield of WTL’s tea estates mitigates the risks associated with the fixed-cost intensive nature of the tea plantation business to some extent. ICRA has also taken into consideration the sale of one of the tea estates (MoU entered in Q3 FY 2020) for ~Rs. 19 crore and the expected receipt of the balance sale proceeds of ~Rs.16 crore in FY 2021, which would support the company’s liquidity position to some extent in the near term.  The ratings, however, also factor in the risks associated with tea for being an agricultural commodity, which depends on agro-climatic conditions and the inherent cyclicality of the fixed-cost intensive tea industry that lead to variability in profitability and cash flows of bulk tea producers like WTL. As Indian tea is essentially a price taker in the international market, low global prices affected domestic realisations to some extent as well. ICRA also notes that WTL’s significant exposure in an associate company, which is not value accretive to WTL at present, reduces its overall business returns. The Negative outlook on the [ICRA]BB- rating reflects ICRA’s opinion that the cash accruals from the company’s core operations will continue to remain inadequate to service its debt obligations. Accordingly, the liquidity position of WTL would continue to remain poor in the near term, at least.

 

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