India Ratings and Research (Ind-Ra) has assigned PTC Industries (PTC) a long-term issuer rating of 'IND BBB+'. The outlook is stable.

The company's interest coverage increased to 6.8x in FY15 (FY14: 4.77x) and net leverage reduced to 1.34x (0.79x) because of its lower dependence on debt-funded working capital funds. This was due to an Rs 400 million private equity fund infusion from Pragati India Fund into PTC in April 2014. The net leverage for FY16 would depend on the funding structure of the company’s Rs 820 million capex for a new facility in Lucknow as the financial closure for the project is yet to take place.

The company's utilisation of the fund-based limits was 35.07% on average over the 12 months ended July 2015. Furthermore, the company has large cash and bank balances (FY14: Rs146.91 million; FY15: Rs 13.32 million).

Ind-Ra expects PTC's EBITDA margin (FY15: 17.28%; FY14: 15.3%) to stabilise over the next two to three years. This is because the positive impact of a reduction in raw material and manufacturing expenses (27.08% and 30.7% of FY15 revenue, respectively) on account of improved process efficiency and waste reduction techniques will be offset by increased sales and distribution expenses to support expansion in customer base for large size castings.

Ind-Ra expects PTC's net working capital cycle to remain at similar levels because of its already established procurement and distribution network and management’s over five decades of experience in the foundry business. The company has a long working capital cycle (FY15: 281 days). The inventory days stood at 202 in FY15 due to the long processing time (work in progress: 65.4% of FY15 inventory) and high raw material (32.3% of FY15 inventory) requirements on account of high machining intensity and the large size of finished goods.