By Niraj Rathi

India Ratings and Research (Ind-Ra) has affirmed Balaji Amines Limited’s (BAL) Long-Term Issuer Rating at ‘IND A-’. The Outlook is Stable. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS

The affirmation reflects BAL’s year-on-year flat revenue of INR6.0bn and INR3.2bn during FY15 and 1HFY16 (FY14: INR6.1bn; 1HFY15: INR3.1bn) due to lower volumes and a fall in realisations, respectively, although margins improved marginally.  BAL’s volumes fell 3.2% yoy in FY15 while blended realisations declined 13.7% yoy in 1HFY16. The declined realisation was accompanied by a fall in raw material prices reflecting the commoditised nature of BAL’s raw material and final products.

 

BAL’s credit profile has, however, improved with net leverage (Ind-Ra adjusted debt/EBITDA) of 2.2x in FY15 (FY14: 2.8x) and 1.6x in 1HFY16 (1HFY15: 2.1x) and interest cover of 3.3x (2.4x) and 5.2x (3.3x). The improvement in FY15 was due to higher EBITDA margins of 16.9% (FY14: 14.9%) as a result of lower raw material prices. A further improvement in the margins in 1HFY16 to 17.9% (1HFY15: 16.5%) was a result of higher volumes leading to better fixed cost absorption. Working capital debt in 1HFY16 was lower due to lower inventory levels of INR694m (FYE15: INR895m) driven by lower prices as well as quantity.  Ind-Ra expects the inventory levels to remain low in FY16 due to low commodity prices. BAL’s 30,000 tonnes di-methyl formamide (DMF) plant will help improve profitability once it achieves cost competitiveness, as it will improve the utilisation levels of the upstream capacity

 

At 1HFYE16, BAL’s cash and cash equivalent were INR49m. BAL’s ultisaltion of its INR1,750m fund-based working capital limits was moderate at 75%-80% over the six months ended November 2015 and the company also has an unutilised stand-by line of credit of INR200m. BAL’s cash flow from operations was positive over FY13-FY15. Against this, BAL’s has a capex plan of around INR150m.

 

BAL has extended support to Balaji Greentech Products Limited (BGPL) by way of equity and preference capital to meet the latter’s debt repayment commitments. During FY16, BAL has infused INR54.8m to pre-pay the outstanding term debt of BGPL as its performance remained weak. Hence, Ind-Ra has factored in the debt servicing requirement of BGPL in BAL’s cash flow. However, BAL has not guaranteed BGPL’s debt. 


RATING SENSITIVITIES

Positive:  The successful operations of the DMF plant and no substantial support to any of the group companies while maintaining the net leverage below 2.5x could lead to a rating upgrade.

Negative: Additional debt-funded capex or a decline in the EBITDA margins leading to the net leverage being sustained above 3.5x (1HFY16: 1.6x) could lead to a rating downgrade. 


COMPANY PROFILE

Established 1988, BAL is one of India's leading manufacturers of aliphatic amines and its derivatives and speciality chemicals. At end-FY15, the company operated manufacturing plants with an aggregate capacity of 153,000mtpa. 


BAL’s ratings are as follows:
- Long-Term Issuer Rating: affirmed at ‘IND A-’; Outlook Stable
- INR1,046.7m term loans (reduced from INR1,010m): affirmed at Long-Term ‘IND A-’ ;  Outlook Stable
- INR1,950m fund-based limits (increased from INR1,820m): affirmed at ‘IND A- ;  Stable /‘IND A2+’
- INR1,650m non-fund-based limits (reduced from INR1,700m): affirmed at ‘IND A2+’
- Proposed INR180m fund-based working capital limits: Provisional ‘IND A-’/ Provisional ‘IND A2+’ ratings withdrawn as the company did not proceed with the instrument as envisaged



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Niraj Rathi

    Associate Director
    India Ratings and Research Pvt Ltd 6-3-339, Ozone Complex, 1st Floor Punjagutta Main Road Hyderabad 500082
    +91 40 67661912

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121