The share price of Zuari Agro Chemicals rallied 5 percent intraday on April 16 after ICRA upgraded the company’s credit ratings.
The stock has surged 100 percent in more than three weeks. It was trading at Rs 90.85, up Rs 2.35, or 2.66 percent, on the BSE at 1316 hours.
ICRA has upgraded its rating on the company's term loans, long- term fund-based limits, long-term unallocated limits and compulsorily convertible debentures (CCDs) to “B” with a stable outlook from “D”.
The rating agency also upgraded rating on short term non-fund based limits and short-term unallocated limits to “A4” from D.
"The ratings upgrade factors in account of regularisation of payment of debt obligations by Zuari Agro Chemicals (ZACL) for a period of more than three months and operationalisation of the urea plant," ICRA said in its note.
After delaying payments for the letter of credits (LCs) begining in April 2019, the company was unable to meet several of its debt
obligations over the next eight months.
"However, the company had been regular in meeting all its debt obligations since the beginning of January 2020. The company was able to meet its dues by utilising nearly Rs 274 crore of unsecured loans provided by the promoters, the release of the subsidy by GoI and collections from the market," the rating agency said.
The company's plants remained shut for most of FY20, with urea plants being operationalised in January 2020.
Earlier, the gas supplier GAIL (India) had cut supplies as Zuari Agro was unable to pay its dues. However, Zuari Agro and GAIL entered into an arrangement whereby the urea subsidy would be deposited in an escrow account from which GAIL’s dues would be paid.
GAIL resumed gas supply and Zuari Agro's plants restarted in January 2020. The NPK plants are expected to be operationalised towards the end of Q1 FY2021, ICRA said.
ICRA also took note of the expected sale of 30 percent stake in Zuari Farm Hub Limited (ZFHL), a wholly owned subsidiary of ZACL to which the assets of specialty fertilisers, retail, crop protection and cropcare business of Zuari Agro have been transferred in March 2020.
"With the stake sale expected to be completed in Q1 FY2021, the proceeds from the stake sale will be used for deleveraging of the balance sheet of Zuari Agro. Besides, there are other monetisation plans in progress, including land parcel sale, possible sale of the fertiliser assets of ZACL which are expected to be completed over a period of next one year and would aid in deleveraging the balance sheet of the company," the rating agency said.
ICRA also said the company's plans for a Rs 400-crore rights issue were on hold following weak market conditions.
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