THE MYSORE SUGAR COMPANY LIMITED

Non Convertible Debenture Programme CARE A(SO)

Rating: Mysugar is currently setting up a 28MW bagasse based

co-generation plant at a cost of Rs. 763 million which is
CARE has assigned a an ‘in-principle’ “CARE A (SO)”
being part financed by the above stated NCD
[Single A (Structured Obligation)] for the
programme. HUDCO & GOK are the other parties
Rs. 150 million NCD issue of The Mysore Sugar
financing this project. HUDCO has sanctioned a term
Company Ltd (Mysugar) towards part financing a
loan of Rs. 572.60 mn and GOK has contributed Rs. 70
bagasse based Co-generation plant . The NCDs shall
million by way of term loan and equity contribution.
be redeemed at the end of seven years from the deemed
date of allotment, viz. January 15, 2003. The NCDs Operations of the Company
would have a call and put option at the end of five years
Mysugar’s chief products are white crystal sugar, arrack,
from the deemed date of allotment. The NCDs have
rectified spirit and bio mass. Its plant is located at
been issued in three tranches: A (Rs. 11.8 million), B
Mandya where the crushing activities take place for
(Rs. 40 million) and C (Rs. 98.2 million) aggregating to
almost 250 days in a year. The following table
Rs. 150 million, each tranche carrying a coupon rate of
summarises the operational profile:
10.4%, 11% & 11.5% respectively, payable annually. The
NCDs are backed by an unconditional and irrevocable Particulars for FY 2001 2002 2003
guarantee from Government of Karnataka (GOK), A A (Provisional)
received vide Notification No. CI.70 SGF 2002 dated Cane crushed (million T) 8.83 8.50 8.77
April 10, 2002. The rating is subject to execution of a Sugar prod (lakh T) 8.38 8.11 8.37
Tripartite Agreement amongst Mysugar, GOK and the Recovery (%) 9.49 9.55 9.55
Trustees to the NCD issue. Bio Compost (mt) 2914 821 2300
Rectified Spirit (000 KL) 10.90 9.94 7.42
The rating is primarily based on credit enhancement in Sugar Turnover (Rs. mn) 1052.8 992 1229.3
the form of an unconditional and irrevocable guarantee
towards payment of interest and principal owing to Mysugar procures cane from the local farmers around
extremely weak standalone financial position of Mandya. Average procurement price per tonne in 2002-
Mysugar. 03 was Rs.900. Sales are effected in accordance with
the monthly/quarterly releases announced by GoI in
Background respect of levy and free-sale sugar (the current levy :
Mysugar was established in 1933 by the Maharaja of free ratio stands at 10:90).
Mysore, in Mandya, Karnataka and is one of the oldest Mysugar has a license to sell Arrack within Karnataka;
sugar mills in the country. The initial capacity was 400 however, its production is strictly regulated. In addition
tonnes Cane per day (TCD), which, has been expanded, to sugar and arrack, it also sells rectified spirit and
in stages, to the current 5000 TCD. The distinctive biomass generated as by-products during the crushing
feature of Mysugar is that it can operate its plant for process.
almost nine months due to easy availability of sugar
cane across the year. Financial Analysis

Mysugar also has a distillery unit with distillation capacity
of 32-kilo litres per day for production of rectified spirit
used for the production of ‘arrack’. Mysugar is one of
the two entities licensed to produce arrack in Karnataka.
Mysugar had a liquor-manufacturing unit and an acetic
acid plant, which closed down due to difficult business
conditions.
Consistent revisions in state announced prices - SAP
(which is higher than State Minimum Price- SMP) for
cane has led to higher input costs for Mysugar. The
government policy of allowing free import of sugar and
a bumper crop in the previous year has meant lower
realizations. These factors have resulted in Mysugar
incurring continuous losses from FY2001 to FY2003

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(provisional). The provisional results for FY’03 also
indicate a total erosion of the company’s networth.
Weak finances have led to Mysugar defaulting on debt
servicing. Overdues to banks and institutions as on July
31, 2003 are estimated at Rs. 27.6 million.
Mysugar has approached GOK to consider granting it a
subsidy with retrospective effect to the tune of Rs. 160
million towards meeting the price differential caused by
a higher SAP.
Mysugar expects to turn the corner once its co-
generation project is completed. It expects to achieve
considerable reduction in its power costs owing to
captive production of power as also shore up its income
base through sale of surplus power to Karnataka Power
Transmission Corporation Ltd. (KPTCL).
Overall, owing to the poor financials of the company,
the rating is mainly based on the guarantee provided
by GOK.
Financial Results
(Rs. mn)
For the year ended/as on March 31 2001 2002 2003 (Prov)
Since the rating factors in GOK’s credit support, a review
of its finances is discussed in the subsequent
paragraphs.
Economic Structure of Karnataka
Karnataka is the eighth largest state in India in terms of
area and is the second largest state in Southern India.
The state shares boundaries with five states viz.
Maharashtra and Goa in the north, Kerala & Tamil Nadu
in the south and Andhra Pradesh in the east. Karnataka
ranks ninth amongst all states in terms of population.
Population growth at 1.6% is below the national average
of 1.9% as per 2001 census. Karnataka’s per capita income
at Rs. 18,041 for FY’01 is well above the national average
of Rs. 16,707 and is ranked eighth amongst all states.
Karnataka also ranks first in terms of real growth in
NSDP. Its NSDP grew at a CARG of 7.8% in real terms
vis-à-vis 6.2% growth in Net Domestic Product (NDP)
of India. Services sector has been the chief contributor
to the faster growth rate attained by the state. However,
growth rate has slowed down during 2000-01 & 2001-
02 due to drought, which has affected the agriculture
sector adversely.

Working Results The sectoral mix of NSDP over the past eight years has
Total Income 1788.5 1677.6 1502.4 witnessed a marked change with services at 51%
PBILDT 92.9 116.1 -52.5 accounting for the maximum portion of NSDP. The share
Depreciation 11.1 13.8 14
of primary sector, which accounted for 38% in 1993-94,
PBIT 81.8 102.3 -66.5
Interest 97.8 106.5 100 has fallen to 26% in 2001-02. The share of industrial
PAT -16.1 -4.3 -166.5 sector has remained stagnant at 23%.
Dividend (%) nil Nil nil
Net Cash Accruals -5 9.5 -152.5 Government’s Finances
Financial Position
Equity Capital 67.3 67.3 87.3
GOK has been witnessing increased revenue deficits
Tangible Net worth 148.5 143.3 -3.1 during the period 1998-99 & 2002-03, which is a pointer
Total Capital Employed 237.9 309.3 141.7 to its deteriorating fiscal health. RD as a percentage of
Key Ratios RR has almost doubled from 10.8% in 1998-99 to 20.1%
Profitability (%) for 2002-03RE. The unprecedented rise in RD has
Increase in Net Sales 28.3 -4.1 12.9 fuelled higher fiscal deficits. RD as a percentage of GFD
Increase in PBILDT 10.3 25 -145.2
PBILDT/Inc. from Operations 5.2 6.9 -3.5
has witnessed erratic movements over the years and
PAT/Income from Operations -0.9 -0.3 -11.1 currently stands at 59. GFD as percentage of NSDP
ROI 10.6 11.4 -8.7 had grown to 5.3 for FY’02 now stands reduced to
RONW -10.2 -2.9 N.M. 4.4 for FY’03(RE).
Solvency
Overall Gearing 4.7 5.8 N.M. Revenue expenditure has grown at a CARG of 13%.
Interest coverage (times) 0.8 1.0 -0.7 Developmental Expenditure however, grew at a slower
Current ratio (times) 1.0 1.0 0.8
Ave. collection period (days) 4.7 3.9 1.7 rate of 11% vis-à-vis 16% growth in Non Developmental
Turnover Ratios Expenditure. Growth in developmental expenditure is
Capital Turnover Ratio 2.1 1.9 1.9 attributable to increased subsidies doled out to the
Fixed Assets Turnover Ratio 7.4 6.0 4.9 power sector, chief beneficiary being KPTCL in 2000-01
Working Capital Turnover Ratio 3.0 2.7 3.3 & 2002-03. Key drivers to growth in Non Developmental

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Expenditure during the period 1998-99 & 2002-03 have strict discipline over the use of ways and means
been Debt Servicing mainly due to sharp increases in advances; however, it was compelled to utilize this
interest and pension expenditure, which have grown at source extensively during 2002-03 RE mainly to meet
17 & 18% respectively. the urgent subsidy requirements of the power sector.

Revenue Receipts have grown at a CARG of 11% during
the period 1998-99 & 2002-03, due to a healthy growth
of 12% in own tax revenues. Chief contributor to own
tax revenue remains sales tax, which accounts for 34%
of revenue receipts. Non-tax revenues have stagnated
at 21% of Revenue receipts. However, grants from
centre for various plans have grown at a high CARG of
24%. States own non-tax revenues have shown a
negative CARG of 4% during the same period.
Consistent increase in Revenue Deficits has led to
reduction in quantum of resources available for capital
expenditure. Capital expenditure towards development
as a percentage of total capital expenditure has declined
from 71 in 1998-99 to a low 33 in 2002-03 RE. For 2002-
03 RE, Irrigation accounts for the highest chunk of
expenditure at around 60% of total expenditure on
economic services. Though total capital expenditure has
grown at a CARG of 36%, a huge portion of it is due to
growth in non-developmental capital expenditure mainly
towards repayment of internal debt and central loans,
which includes ways and means advances. GOK has a
Capital receipts of GOK have risen at a high CARG of
34% during the period 1998-99 & 2002-03RE mainly
driven by the huge growth in internal debts. A major
portion of this was due to the unprecedented growth in
WMA availed in 2002-03 RE to the tune of 60% of total
internal debt. GOK has not achieved much success in
recovery of loans and advances which has forced the
state to resort to higher borrowings. GOK has however
managed to substitute a major portion of the high cost
debt by refinancing them through market borrowings.
Debt & Liquidity
Increasing Fiscal Deficit has lead to an increase in the
indebtedness of GOK. The outstanding debt has
doubled from a level of Rs. 186 bn. in 1998-99 to Rs.
381 bn. for 2002-03 RE. Outstanding Debt as a
percentage of NSDP at 25% is lower than most states
in India. Accounting for guarantees issued by the state,
the total liability to NSDP ratio is higher at around 29%.
GOK has faced liquidity problems in FY’02 & FY’03 and
to tide over the same, it has availed ways and means

Key Financials of GOK

(Rs. bn)
Head 1998 99 1999-00 2000-01 2001-02 2002-03 2003-04
A A A A RE BE

Revenue Account
Revenue Receipts 112 129 148 153 170 198
Rev. Expenditure 124 152 167 186 204 220
Revenue Deficit (12) (23) (19) (33) (34) (21)
Capital Account
Capital Receipts 36 50 48 74 115 85
Capital Expenditure 24 27 30 41 83 64
Capital Surplus 11 23 18 33 32 22
Agg. Receipts (AR) 148 179 196 227 285 284
Agg. Expenditure (AE) 149 179 197 226 286 284
Primary Deficit (13) (23) (18) (32) (24) (24)
Gross Fiscal Deficit (31) (43) (42) (59) (58) (60)
Overall Surplus / (Deficit) (1) (0) (1) 1 (2) 1
RD/GFD (%) 39.1 54.4 44.1 56 59.1 35.4
RD/NSDP (%) 1.9 2.7 2.0 3.0 2.6 1.4
GFD/NSDP (%) 4.8 5.0 4.5 5.3 4.4 3.9
Interest Expenditure 18 20 24 27 33 36
Interest/RR (%) 14.4 15.6 16.1 17.5 19.6 18.3
Debt 186 223 266 326 381 447

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advances. However, the quantum of WMA availed during
FY’03 was Rs. 36 bn. roughly five times the amount
availed in FY’02. However, GOK has managed to repay
the entire WMA during the year.
Future Prospects
GOK ranks favourably in management of public finances
as compared to most other states. GOK is amongst few
states that has enacted a fiscal responsibility bill (FRB) and
has managed to achieve targets set to control the
indebtedness of the state. It has managed to keep issuances
of guarantees under control as laid down in the FRB.
The drought in the previous year had an adverse impact
on the agriculture and power sector, which in turn fuelled
higher revenue deficits. With improved monsoon in the
current year and current allocations towards new irrigation
projects in place, the agricultural sector is expected to
improve and have a positive impact on allied sectors.
Outlook on services is good owing to resurgence in the US
& European markets, which has a positive rub-off on the
information technology sector. Introduction of VAT is likely
to have a negative impact on sales tax collections, but owing
to delays in its implementation, the state can look forward
to achieving its revenue projections.
Revenue Expenditure projections are greatly dependent
on the performance of the power sector which has a
critical role in deciding the direction of the revenue deficit
in the years to come.

August 2003

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