ICRA has downgraded the long term rating for the Rs 3.70 billion fund based limits, Rs 267.7 million term loans and Rs 16.3 million unallocated limits of Emmsons International (EIL) from BB- with negative outlook to B+. The rating committee has reaffirmed the short term rating assigned to the non fund based limits of Rs 3.75 billion of EIL at A4.

The rating action takes into account the persisting high debt levels (consolidated gearing of 7.2 times as on Mar. 31, 2013) of the company as the stake sale in the substantially debt funded Indonesian coal mining project has not materialised as yet.

Further the rating action factors in the decline in EIL's turnover in FY2013 and limited growth in the same in current year so far. The profitability of the company continues to remain modest (operating margins of 2.8% in FY2013) owing to its trading nature of business and high competitive intensity in the industry.

Further given decline in its scale of operations, the increased interest cost has resulted in decline in its net margins from 1.1% in FY2012 to 0.1% in FY2013; however during current year company has witnessed slight improvement in its net margins.

ICRA has noted that the company is in the process of selling a part of its stake in the Indonesian coal mining project to raise funds to pay off part of its debt/fund its planned capex for the project.

ICRA will closely monitor the developments in this regard. Further, ICRA also takes note of the sizeable repayment obligations faced by the company during FY2015 onwards. Apart this, going forward improvement in its capital structure and other debt coverage indicators will be the key rating sensitivity. 

Shares of the company declined Rs 0.35, or 1.04%, to settle at Rs 33.20. The total volume of shares traded was 14,158 at the BSE (Tuesday).