ICRA has reaffirmed the 'AA' rating of the Rs 650 million fund based bank facilities of Tata Coffee (TCL). The outlook on the long term rating remains positive. ICRA has also reaffirmed TCL's A1+ rating of the fund based facilities from banks, which are completely interchangeable between long term and short term facilities.

ICRA has withdrawn the AA rating of the Rs 935.2 million non-convertible portion of the partially convertible debenture programme as well as the A1+ rating of the Rs 400 million commercial paper programme of the company. The withdrawal is as per the request of the company since there is no amount outstanding against the same. 

The reaffirmation of the ratings and the outlook take into account the improvement in profits and cash accruals of the domestic operations of the company in the financial year 2012-13 (FY13) and in the in the first nine months of FY14 on the back of healthy realisation of instant coffee aided by the depreciation of the rupee, and higher proportion of sale of freeze dried coffee which is a more value added product. 

The ratings continue to favourably factor TCL's focus on quality and the integrated nature of operations of the standalone entity, which largely mitigates the adverse effects of volatile coffee prices. TCL has recently expanded the capacity at its instant coffee division ICD, which is likely to further strengthen its operating profile not only in terms of increased production of higher value added freeze dried coffee, but also in terms of improvement in the quality of its produce. Although on a standalone basis, the capital structure of the company remains conservative, consolidated gearing remains on the higher side.

During FY13, EOC refinanced its outstanding debt, and the refinanced debt, along with a fresh debt has led to a marginal deterioration in the capital structure - both on a standalone as well as consolidated basis. However, lower interest rate and a favourable repayment schedule are expected to provide liquidity support and keep debt coverage indicators of the consolidated entity at comfortable levels over the medium term.

Moreover, a significant portion of the consolidated debt has is towards group companies of Tata Global Beverages (TGBL), rated at AA+ (stable)/ A1+, the ultimate parent company of EOC. The ratings also factor in the company's exposure to agro climatic conditions for its tea and coffee businesses, notwithstanding steps taken by the company to reduce such risks. The commoditized nature of the instant coffee business, which is also characterised by intense competition, and the sensitivity of operating margins to adverse movements in coffee prices also impact the long term rating.

Shares of the company gained Rs 35.3, or 3.84%, to settle at Rs 954.10. The total volume of shares traded was 247,221 at the BSE (Wednesday).