Rating Rationale

July 06, 2023 | Mumbai

Micromax Biofuels Private Limited

Rating reaffirmed at 'CRISIL BB+ / Stable'; Rated amount enhanced for Bank Debt

Rating Action
Total Bank Loan Facilities Rated Rs.142.1 Crore (Enhanced from Rs.124.1 Crore)
Long Term Rating CRISIL BB+/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any
ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale
CRISIL Ratings has reaffirmed its ‘CRISIL BB+/Stable’ rating on the long-term bank facilities of Micromax Biofuels Private
Limited (MBPL).

The rating continues to reflect the extensive entrepreneurial experience of the promoters (through group entities) and rising
demand for fuel-grade ethanol. MBPL is likely to commence operations from August 2023. The rating also reflects project
implementation by Praj Industries Ltd (Praj; ‘CRISIL AA/Stable/CRISIL A1+’) as its engineering, procurement, and
construction (EPC) contractor. Praj is a pioneer in the bioenergy industry. Timely commercialisation, stabilisation and
successful ramp-up of operations will be key monitorables.

The rating factors in majority shareholding (80% shareholding) of Micromax Informatics Ltd (MIL),
part of the Micromax group, and its continued funding support. MIL has infused equity capital of Rs 41.36 crore in the first
quarter of fiscal 2023 and will provide need-based funding support over the medium term. Moreover, the rating considers
the corporate guarantee provided by the parent, MIL, for the facilities of MBPL. These strengths are partially offset by
exposure to project risks and expected leveraged capital structure.
Key rating drivers and detailed description
Strengths
Longstanding presence of the promoters
The experience of the promoters in running leading businesses across multiple domains will help to quickly ramp up
operations over the medium term.

Benefits from rising demand for fuel-grade ethanol

Oil marketing companies (OMCs) will use fuel-grade ethanol for manufacturing ethanol-blended petrol. The government is
targeting to achieve E20 petrol (20% ethanol blended in petrol) by 2025 through the National Policy of Biofuels, 2018. This
initiative has created a huge opportunity for fuel-grade ethanol players, given the wide gap between demand and
supply. Furthermore, the company has entered into long-term agreement for 10 years with OMCs, which will continue to
support the business.

Weakness:
Exposure to project risks
MBPL is setting up a plant to produce ethanol with capacity of 100 kilo litres per day. The project cost is Rs 165.46
crore. The project is scheduled to commence operations in August 2023, wherein land has been acquired and 100% civil
construction work has been completed. The project is partly funded through debt of Rs 124.09 crore. The company’s
financing risk is high, but the promoters’ individual networth supports liquidity. Demand risk is low as the company
has entered agreements with OMCs for purchase of ethanol. Timely completion of the project and successful stabilisation of
operations will remain key rating sensitivity factors.
Liquidity: Stretched
The company is availing debt of Rs 124.09 crore, leading to debt obligation above Rs 12 crore per annum. As the company
is yet to commence operations, timely commencement and sufficient cash
accrual will be key monitorables. The promoters are likely to provide need-based funding support by way of equity or
unsecured loans.
Outlook: Stable
CRISIL Ratings believes MBPL will benefit from the extensive experience of the promoters and their funding support.
Rating sensitivity factors
Upward factors
* Timely implementation of the project and commencement of commercial operations, along with ramp-up of capacity
* Revenue of more than Rs 130 crore and operating margin of around 20%

Downward factors
* Delay in project completion and commencement of operations
* Lower-than-expected sales and operating margin leading to significantly low cash accrual
* Significant, debt-funded capital expenditure weakening the financial risk profile with total outside liabilities to tangible
networth (TOLTNW) ratio of more than 3.75 times
About the company
MBPL (formerly Iotex Systems Pvt Ltd) was incorporated in December 2014. In May 2021, MIL acquired shares of the
company and changed its name to the current name. The company has decided to set up 100 kilo litres per day ethanol unit
in Bihar to produce ethanol which will be supplied to the OMCs under the Ethanol Blending Program.
Key financial indicators
As on/for the period ended March 31 Unit 2022 2021
Operating income Rs crore 0.01 -
Reported profit after tax (PAT) Rs crore 0.49 -
PAT margin % - -
Adjusted debt/adjusted networth Times 10.45 -
Interest coverage Times -5.02 -

Any other information: Not applicable

Note on complexity levels of the rated instrument:

CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where
applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on
available information. The complexity level for instruments may be updated, where required, in the rating rationale
published subsequent to the issuance of the instrument when details on such features are available.

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Annexure - Details of instrument(s)

Date of Coupon Maturity Issue size Complexity Rating assigned
ISIN Name of instrument
allotment rate (%) date (Rs crore) levels with outlook
NA Cash Credit NA NA NA 18 NA CRISIL BB+/Stable
NA Long Term Loan NA NA 31-Mar-33 124.1 NA CRISIL BB+/Stable

Annexure - Rating History for last 3 Years

Start of
Current 2023 (History) 2022 2021 2020
2020
Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount
Fund Based CRISIL CRISIL
Facilities LT 142.1 BB+/Stable -- 05-07-22 BB+/Stable -- -- --

All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 18 State Bank of India CRISIL BB+/Stable
Long Term Loan 124.1 State Bank of India CRISIL BB+/Stable

Criteria Details

Links to related criteria

CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios

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