India Ratings & Research (Ind-Ra) has upgraded Raj Rayon Industries (RRIL) Long-Term Issuer Rating to 'B+' from 'D'. The outlook is stable.
The upgrade reflects the successful implementation of RRIL's corporate debt restructuring (CDR) programme on Mar. 27, 2014. The repayments of the restructured loans will begin in FY16 except for Technology Upgradation Fund Scheme (TUF) loans where timely repayments are on-going following the restructuring of the debt incurred to set up the company's continuous polymerisation (CP) plant. The upgrade also reflects the timely interest payment of RRIL's working capital facility. However, the company’s liquidity position remains stretched as evident from the 95.6% utilisation of its fund-based working capital facilities over April 2014-October 2014. The company’s liquidity position is likely to remain weak as interest and principal repayments on restructured loans will commence from October 2015.
RRIL's credit metrics remain weak as the quantum of debt in the capital structure is high. The company incurred operating losses and its cash flow from operations (CFO) and funds flow from operations (FFO) turned negative in FY14 (year end March), thus impacting its debt servicing ability. This can be attributed to intense competition in the polyester chips segment, weak demand, slow debtor realisations, CP plant shutdown due to shortage of raw materials in the domestic market for manufacture of polyester chips, and reliance on high-cost imports impacted by the Indian rupee depreciation. The company was unable to pass on the increased cost to its customers due to the economic slowdown. The increase in low-margin fabric trading and a decline in the sale of high-margin yarn also affected RRIL’s financials. Ind-Ra expects CFO to continue to be negative until the business operations stabilise and the operating performance improves with fully functional manufacturing plant.
To utilise the surplus backward capacity of polyester oriented yarn (POY), RRIL undertook direct polymer melt POY spinning (DPM POYS) project which converts the direct polymer melt produced by a CP plant into POY. This is likely to increase the POY producing capacity to 122,238MTPA from 46,891MTPA and save power, labour and other associated costs of making polyester chips. The company incurred a total capex of Rs 626.5 million for this plant, of which Rs 450 million was financed by bank loans, and the remaining by way of internal accruals, preference share capital and unsecured loans. RRIL will have to rely on CFO and sales from its new facility to repay its debt.
RRIL's CP plant, which was discontinued in November 2013, was restarted at end-October 2014. The company's polyester texturised yarn and fully drawn yarn plants have been running partially at low capacity. In the five months of production in FY15, the company aims to earn revenue of Rs 6,000 million and EBITDA margins of 5%-6%, aided by low raw material prices and its domestic availability. The company has no further capex planned.
Shares of the company gained Rs 0.01, or 1.82%, to trade at Rs 0.56. The total volume of shares traded was 36,483 at the BSE (1.22 p.m., Friday).
