India Ratings & Research (Ind-Ra) has upgraded Adhunik Industries (AIL) long-term issuer rating to 'BBB-' from 'BB+'. The outlook is stable.

The upgrade reflects the dip in AIL's net leverage in FY14 to 3.09x due to the EBITDA margin improving to 8% and net debt declining to Rs 1,083 million on repayment of debt. The ratings also factor in the increase in capacity utilisation to 71% in FY14 and EBITDA per ton to Rs 2,720.

The ratings are, however, constrained by the continuing low interest cover at around 1.35x in FY14 despite the decline in debt due to an increase in interest cost. AIL's business is highly working capital intensive with a net cash conversion cycle of around 100 days, reflected in maximum use of working capital limits at around 95% for the 12 months ended July 2014.

The ratings also remain constrained by the highly competitive and commoditised nature of the iron and steel business. Further AIL is exposed to volatility in the prices of raw material and finished goods, due to the lack of backward integration.