NewsCorporate ActionsDhampur Bio Organics Faces Credit Rating Downgrade Amid Operational ChallengesDhampur Bio Organics Faces Credit Rating Downgrade Amid Operational Challenges
CARE Ratings has downgraded Dhampur Bio Organics' credit ratings, with long-term facilities reduced from A- to BBB+ and short-term from A2+ to A2, affecting ₹1,134.45 crore in banking facilities. The downgrade reflects operational challenges including red rot infestation in Uttar Pradesh, reduced recovery rates from 10.32% to 9.80%, and shortened crushing season from 169 to 145 days. Financial performance shows compressed PBILDT margins from 7.79% to 7.43% and deteriorated net leverage to 8.25x, though the company maintains adequate liquidity and stable outlook for gradual improvement.
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Dhampur Bio Organics Limited has received a credit rating downgrade from CARE Ratings Limited, reflecting the company's ongoing operational challenges in the sugar industry. The rating agency announced the revision on January 13, 2026, citing continued subdued performance and financial pressures affecting the integrated sugar manufacturer.
Rating Downgrade Details
CARE Ratings has implemented significant downgrades across Dhampur Bio Organics' credit facilities, reflecting deteriorating operational metrics and financial performance.
| Facilities: | Amount (₹ crore) | Previous Rating | New Rating | Action |
|---|---|---|---|---|
| Long-term bank facilities: | 1,019.45 | CARE A- Stable | CARE BBB+ Stable | Downgraded |
| Short-term bank facilities: | 115.00 | CARE A2+ | CARE A2 | Downgraded |
| Commercial paper: | - | - | - | Withdrawn |
The downgrade encompasses facilities worth ₹1,134.45 crore, representing a substantial portion of the company's banking arrangements. The commercial paper facility has been completely withdrawn as part of the rating action.
Operational Performance Challenges
The rating downgrade stems from multiple operational headwinds that have significantly impacted the company's performance metrics. Red rot infestation in central and western Uttar Pradesh regions has severely affected sugarcane quality and availability, leading to reduced recovery rates and shortened crushing seasons.
Key Performance Indicators
| Metric: | FY24 | FY25 | Change |
|---|---|---|---|
| Crushing days: | 169 | 145 | -24 days |
| Net recovery rate: | 10.32% | 9.80% | -0.52% |
| Sugar production: | 42 lakh quintals | 31 lakh quintals | -26.19% |
| Sugar sales: | 30 lakh quintals | 35 lakh quintals | +16.67% |
The company's crushing season was significantly shortened from 169 days in FY24 to 145 days in FY25, directly impacting production volumes. Despite lower production, sugar sales increased due to inventory liquidation from previous seasons.
Financial Performance Analysis
Dhampur Bio Organics' financial metrics reflect the operational challenges, with profitability margins remaining under pressure despite slight revenue growth.
Revenue and Profitability Trends
| Parameter: | FY24 | FY25 | H1FY26 |
|---|---|---|---|
| Total operating income: | ₹1,833 crore | ₹1,883 crore | ₹1,089 crore |
| PBILDT margin: | 7.79% | 7.43% | 1.12% |
| Profit after tax: | ₹49 crore | ₹12 crore | -₹35 crore |
| Overall gearing: | 1.04x | 1.14x | - |
The company achieved modest revenue growth of 3.00% in FY25, but profitability deteriorated significantly. PBILDT margins compressed from 7.79% to 7.43%, while profit after tax declined from ₹49 crore to ₹12 crore. H1FY26 results show continued pressure with negative profitability.
Working Capital and Leverage Concerns
The company's financial risk profile has deteriorated due to elevated inventory levels and increased dependence on working capital borrowings. Sugar inventory remained high at 22.20 million metric tonnes as of March 31, 2025, though this reduced to 5.62 million metric tonnes by September 30, 2025.
Debt and Coverage Metrics
| Indicator: | FY24 | FY25 | Trend |
|---|---|---|---|
| Working capital borrowings: | ₹806 crore | ₹844 crore | Higher |
| Net leverage (Net debt/PBILDT): | 7.38x | 8.25x | Deteriorated |
| Interest coverage: | 3.16x | 2.09x | Weakened |
| Operating cycle: | 192 days | 212 days | Extended |
The extended operating cycle and higher working capital requirements have strained the company's financial flexibility, contributing to the rating downgrade.
Industry and Regulatory Factors
The sugar industry faces multiple regulatory and market challenges that have impacted Dhampur Bio Organics' performance. Government policies on ethanol blending, export restrictions, and state advised prices continue to influence operational dynamics.
Key industry factors affecting performance include:
- Restrictions on B-Heavy molasses and syrup use for ethanol manufacturing
- Limited export permissions of only 1.00 million tonnes for Sugar Season 2024-25
- State advised price increase of ₹30 per quintal in Uttar Pradesh for Sugar Season 2025-26
- Ethanol prices remaining unchanged since ESY23 despite rising production costs
Future Outlook and Rating Sensitivities
CARE Ratings maintains a stable outlook, expecting gradual improvement in operational metrics through better monsoon conditions and adoption of disease-resistant sugarcane varieties. The company is implementing measures to address red rot infestation and improve yield through newer cane varieties.
Positive Rating Factors
- Total operating income growth with PBILDT margin above 8.00%
- Reduced reliance on working capital limits
- Net leverage below 4.20x on sustained basis
Negative Rating Factors
- Overall gearing above 1.30x on sustained basis
- PBILDT margin below 6.00%
- Adverse government policy changes affecting operations
The rating agency expects revenue of ₹2,100-2,200 crore for the current year, with PBILDT margins remaining in the 7.70-8.00% range due to higher cane costs.
Historical Stock Returns for Dhampur Bio Organics
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| -3.38% | -2.89% | -1.36% | -27.89% | -29.76% | -55.61% |
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