ICRA Rating upgraded Indo Rama Synthetics (India)'s (IRSL) bank facilities of the Rs 7.90 billion (enhanced from Rs 7.37 billion) to BB- and A4 from D term and short-term scale. The outlook on the long-term rating is stable.
The revision in the ratings improved liquidity position of IRSL due to initiatives taken by the company, which include increase in capacity utilisation levels due to improved raw material (especially PTA) supplies, renegotiation of PTA prices with one of the leading supplier and correction in mismatch of long-term and short-term finances.
The upgrade also takes into account expansion of raw materials supplier base and marketing initiatives of the management to push up the sales volumes.
The ratings continue to factor in the established track record of more than two decades and long experience of the promoters in the polyester segment; economies of scale driven being the second largest polyester producer in India; and fiscal benefits available to the company.
The ratings are constrained by vulnerability of IRSL's profits to cyclicality of the global polyester industry; low utilisation of IRSL's existing capacities due to oversupply in the domestic market; location disadvantage being away from ports and key domestic customer markets; limited presence in the value added products; sensitivity of profitability to changes in custom duty rates; and high financial risk profile of IRSL with high volatility in the profits and weak debt protection metrics.
ICRA also takes note of the weak debt servicing record and high reliance on non-operating income to meet debt servicing requirement in the past; however, considering limited liquid investments outstanding now, the operational performance of the company will be critical for timely debt servicing.
The ratings also factor in the foreign exchange (forex) fluctuation risk as reflected by high forex losses reported in the last few years; however, the company is in the process of modifying its forex hedging policy. The stability of the profit levels and further improvement in liquidity position are key rating sensitivities.
Shares of the company gained Rs 0.25, or 0.96%, to settle at Rs 26.25. The total volume of shares traded was 44,634 at the BSE (Friday).
