| BLS Ecotech Limited | ||||
| Rating reaffirmed at 'CRISIL BBB / Stable' | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable’ rating on the long-term bank facilities of BLS Ecotech Ltd (BEL; part of the BLS group).
The rating continues to reflect the BLS group's established position in the recycled polyester staple fibre (RPSF) industry and above-average capital structure. These strengths are partially offset by exposure to intense competition, susceptibility to volatility in raw material prices, changes in regulatory guidelines and risks related to stabilisation of operations following the large debt-funded project at Kairos Textile Industries Ltd (KTIL) in the UAE. |
Analytical approach CRISIL Ratings has combined the business and financial risk profiles of BEL, its 100% subsidiary KTIL and Mondew Agri Science Pvt Ltd (MASPL), together referred to as the BLS group. BLS and KTIL have fungible funds and common business transactions and management. BLS has provided a corporate guarantee for the debt of MASPL.
Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
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 is 58% on average but improved to 84% between April and October 2022) and operating income of Rs 254 crore in fiscal 2022. Over the seven months through October 2022, the group’s sales stood at Rs 260-265 crore and are likely to grow at a healthy pace for the full fiscal. Operating profitability was 8.2-9.0% 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 capital structure: The above-average capital structure is characterised by networth of Rs 98.6 crore as on March 31, 2022; gearing and total outside liabilities to tangible networth ratio stood at 1.43 times and 1.56 times, respectively. Gearing is expected to improve over the medium term owing to reduction in long-term debt and absence of any major capital expenditure.
Weaknesses Susceptibility to intense competition, volatility in raw material prices and regulatory changes: 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 with 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 8.2% and 10.1% over the four fiscals through 2022.
While established relationships with domestic suppliers will support domestic procurement, 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 its 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 until March 2022. Ramping up of commercial operations was delayed on account of the Covid-19 pandemic as well as challenges in receiving electricity connection at the plant. Timely stabilisation of operations at the plant without any major teething issues and achievement of optimum capacity utilisation will be key monitorables. |
Liquidity: Adequate Bank limit of Rs 55.0 crore were utilised at 90.7% on average over the 12 months through October 2022. Cash accrual, expected at over Rs 20 crore per annum, will sufficiently cover debt obligation of Rs 18.2 crore in fiscal 2023. BEL has also availed of emergency credit lines, which should further support liquidity. |
Outlook: Stable BEL will continue to benefit from the promoters’ extensive experience and healthy relationships with clients. |
Rating sensitivity factors Upward factors
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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 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: |
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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