| BLS Ecotech Limited | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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| This Rating Rationale is published solely to update the bank-wise facility details as provided by the rated entity; other sections are same as the previous Rating Rationale dated March 15, 2022. |
Detailed rationale CRISIL Ratings on the bank facilities of BLS Ecotech Limited (BEL; part of the BLS group) continues to reflect the BLS group's established position in the recycled polyester staple fibre (RPSF) industry and above-average financial risk profile. These strengths are partially offset by exposure to intense competition, susceptibility of profitability to volatility in raw material prices, changes in regulatory guidelines and risks related to stabilisation of operations following the large debt-funded project in KTIL in the UAE.
CRISIL Ratings had earlier downgraded the ratings on the bank facilities of BEL to ‘CRISIL BBB/Stable’ from ‘CRISIL BBB+/Stable’ vide rating rationale dated 15th March, 2022. |
Analytical approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of BEL and its 100% subsidiary, KTIL. Both the companies, together referred to as the BLS group, have fungible funds, and common business transactions and management.
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Key rating drivers and detailed description Strengths: Established position in the RPSF industry: BEL is one of the top three players in manufacturing RPSF in India, as reflected in installed capacity of 54,000 tonne per annum (capacity utilisation at 74%) and operating income of Rs 254 crore in fiscal 2021. Its operating profitability was 8.4-10% in the past three fiscals. The strong market position is supported by the promoters' experience of more than two decades and healthy relationships with customers and suppliers. Furthermore, recent capacity addition in KTIL will strengthen the group's reach in the overseas market.
Above-average financial risk profile: Networth and gearing were healthy and estimated at Rs 95.4 crore and 1.53 times, respectively, as on March 31, 2021. Net cash accrual to adjusted debt and interest coverage ratios were adequate, at 0.08 time and 2.53 times, respectively, in fiscal 2021. Though gearing increased slightly in fiscal 2021 to 1.53 times from 1.23 times in fiscal 2020, it is expected to improve over the medium term, on account of reduction in long-term debt and no major capital expenditure.
Weaknesses: Susceptibility of profitability to intense competition, volatility in raw material prices and regulatory guidelines: The price of RPSF is benchmarked against the price of virgin PSF, which is linked to crude oil price. RPSF price is at a discount (15-20%) to virgin PSF price. Any downward movement in crude oil price makes RPSF less attractive compared to virgin PSF.
Profitability is also susceptible to volatility in raw material prices, which depend on demand and supply, and to competition from smaller players with increasing capacity addition. Operating profit margin fluctuated between 8.4% and 13.40% over the four fiscals through 2021.
While BEL's established relationships with domestic suppliers will support the procurement domestically, CRISIL Ratings believes profitability will remain susceptible to volatility in raw material prices and changes in government regulations and will remain a key rating sensitivity factor.
Exposure to risks related to stabilisation of operations following large debt-funded project: The group has expanded capacity by setting up a manufacturing facility with capacity of 45 tonne per day (TPD) in the UAE at a cost of Rs 68.2 crore. The project was funded through bank loan of Rs 45.6 crore and through internal sources. Though the plant commenced operations in October 2020, it had to temporarily pause operations till March 2022. There has been a delay in ramping up of commercial operations because of the pandemic as well as challenges in receiving its electricity connection. Timely stabilisation of operations at the plant with no major teething issues, and achievement of optimum capacity utilisation will be key monitorables. |
Liquidity: Adequate Bank limits of Rs 55.0 crore were utilised at 94.5% on average for the 12 months through December 2021. Estimated cash accrual of Rs 13.2 crore in fiscal 2022 are likely to be sufficient against debt repayment of Rs 11.98 crore. BEL availed of the moratorium on its term loan obligation under the Reserve Bank of India's Covid-19 Regulatory Package, which provided some financial flexibility. It has also availed emergency credit lines, which should support the liquidity further. Timely disbursement of these limits along with pre-payment of debt obligation for its subsidiary unit shall remain a key monitorable. |
Outlook Stable CRISIL Ratings believes BEL will continue to benefit from the extensive experience of its promoters, and established relationships with clients. |
Rating sensitivity factors Upward factors * Volumatic revenue growth of 25% for the existing unit along with growth from the new plant * Sustained increase in operating profitability leading to higher cash accrual * Improvement in the working capital cycle * Bank limit utilisation declining to below 80% on a sustainable basis * Further decrease in operating margin, resulting in weaker cash accrual and exerting pressure on liquidity * Increase in gross current assets to over 170 days on a sustained basis |
About the company Incorporated in 2007, BEL is part of the New Delhi-based BLS group, which has been operational since 1954. The company manufactures RPSF by recycling polyethylene terephthalate bottles. Operations are managed by Mr Madhukar Aggarwal and his son, Mr Nimit Aggarwal.
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Key financial indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
& - Cash Credit Limit has Rs. 5 crore Letter of Credit sublimit % - Cash Credit Limit has Rs. 10 crore Letter of Credit sublimit |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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