Liquor stock out of fizz; Ratings remain under not cooperating status

CARE Ratings has reaffirmed and simultaneously withdrawn the outstanding ratings of ‘CARE BB+; Stable; Issuer Not Cooperating / CARE A4+ Issuer Not Cooperating*’ assigned to the bank facilities of Associated Alcohols & Breweries Limited (AABL), with immediate effect.

The action was taken at the request of AABL and with a ‘No Objection Certificate’ received from the banks that have extended the facilities rated by CARE Ratings Ltd.

This raises questions about AABL’s transparency and collaboration with the rating agency.

Strengths and Weaknesses in the Spotlight: 

AABL boasts several advantages. Its experienced promoters, established presence in Madhya Pradesh’s country liquor market, and growing scale of operations offer stability. Additionally, a comfortable capital structure and improving debt coverage ratios paint a positive financial picture.

However, vulnerabilities lurk beneath the surface. AABL’s dependence on volatile grain prices, its concentration in the highly regulated liquor industry, and the ongoing debt-funded ethanol project raise concerns. Notably, profitability dipped in 2023 due to surging grain costs, highlighting the company’s exposure to external factors.

The “Issuer Not Cooperating” Cloud: 

The persistent “Issuer Not Cooperating” tag is a red flag. It means AABL hasn’t fully cooperated with CARE Ratings in providing necessary information for the rating process. This lack of transparency leaves investors with limited visibility into the company’s financial health and future plans, ultimately increasing risk perception.

Looking Ahead: A Balancing Act for AABL: 

AABL stands at a crossroads. While its inherent strengths and improving financials are promising, the issuer non-cooperation issue and vulnerabilities in its business model cast a shadow. To regain investor confidence and secure a stronger rating, AABL must prioritize transparency by actively collaborating with CARE Ratings and proactively addressing its financial and operational risks.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.