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.
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