By Soumya Awasthi

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

KEY RATING DRIVERS

Dominant Business Position in Amines as Reflected in Margin Improvement: The company has been exhibiting improving trend in EBITDA margins over the past three years (1HFY17: 23.7%, FY16: 20.3%, FY15: 16.9%, FY14: 14.9%).  Ind-Ra believes BAL has competitive business position backed by its purchasing and pricing power in its basket of products such as amines, its derivatives and speciality chemicals.

Revenue Growth Backed by Volume Growth:
BAL registered a volume growth of 22%mainly on account of growth across the core products – methyl amines, DMAHCL and Morpholine. Start of production at Di-methyl formamide (DMF) plant contributed 3,764 tonnes in FY16. However, revenue growth remained at only 5% (FY16: INR6.35bn; FY15: INR6.05bn) on account of drop in key raw material prices which resulted in lower selling prices given the commoditised nature of the business, particularly amines.

Improved Credit Metrics:
BAL has robust credit metrics with net adjusted leverage (adjusted debt net of cash/EBITDAR) improving to 1.2x in FY16 (FY15: 2.2x) and interest coverage (EBITDA/gross interest) to 6.4x (3.3x). Improved EBITDA, shorter working capital cycle and scheduled repayment of term debt with no major capex led to the stronger credit profile. While the net leverage continued to remain at 1.2x in 1HFY17, Ind-Ra expects higher working capital requirement with regard to the DMF and Acetonitrile plant which will lead to increase in leverage in the near-term.

Robust Liquidity:
BAL’s robust liquidity is reflected in its consistently positive free cash flow generation over FY14-FY16. Average peak utilisation of the firm’s cash credit account was around 70% for the 12 months ended October 2016. Ind-Ra expects the company’s strong operating cash flow generation ability to enable BAL to maintain positive free cash flow despite ongoing capex pertaining to Acetonitrile plant in FY17.

Imports Weakening the Performance of (new) DMF Plant:
Due to imports from the international market, the company’s capacity utilisation of the DMF plant has remained at low levels (<20%) since FY16. In the absence of any import restrictions in the form of anti-dumping duty or any other regulatory measures, weak performance of DMF plant will continue.

Support to Loss Making Subsidiary:
BAL has extended support to one of its subsidiaries- Balaji Greentech Products Limited (BGPL- IND B-/Stable) by way of equity and preference capital to meet the latter’s debt repayment commitments. During FY16, BAL gave advances of INR143m for capital goods to the subsidiary as its performance continue to remain weak. As the company has plans for amalgamating BGPL, the agency has factored in the cash outflow for meeting the BGPL’s working capital obligations in the near-term.


RATING SENSITIVITIES

Positive: Volume growth from successful operations at the DMF and acetonitrile plant and no substantial support to any of the group companies while maintaining the net leverage below 1.5x 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 2.5x could lead to a negative rating action.


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. It has also added a capacity of 30,000mtpa in FY14 for the production of DMF. The company has plans for amalgamating BGPL.  The land and buildings will be used for chemical business where in BGPL has applied to Ministry of Environment and Forests for new products.

BAL’s ratings are as follows:

- Long-Term Issuer Rating: upgraded to ‘IND A’ from ‘IND A-’’; Outlook Stable
- INR 443.6m term loans (reduced from INR1,046.7m) : upgraded to ‘IND A’ /Stable from ‘IND A-/Stable
- INR1,800m fund-based limits (reduced from INR1950m) : upgraded to ‘IND A/Stable’ from ‘IND A-/Stable and ‘IND A1 from ‘IND A2+’
- INR1,200m non-fund-based limits (reduced from INR1,650m) : upgraded to ‘IND A1’ from ‘IND A2+’



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

    Soumya Awasthi

    Analyst
    India Ratings and Research Pvt Ltd 6-3-339, Ozone Complex, 1st Floor Punjagutta Main Road Hyderabad 500082
    +91 40 40100019

    Media Relation

    Archana Tiwari

    Sr. Manager – Corporate Communications & Investor Relations
    +91 22 40001729