TEXT-Fitch affirms ratings of Ballarpur Industries; outlook neg

(The following statement was released by the rating agency)

May 25 - Fitch Ratings has today affirmed India's Ballarpur Industries Limited's (BILT.BO: Quote, Profile, Research) (BILT) National Long-term rating at 'AA-(ind)'. Fitch has also affirmed the ratings of BILT's non convertible debenture of INR1000m at 'AA-(ind)', Short-term debt of INR500m at 'F1+(ind)', commercial paper program (within working capital limits) of INR1000m at 'F1+(ind)', term loans of INR845m at 'AA-(ind)' and fund and non-fund based working capital limits aggregating INR3000m at 'AA-(ind)/F1+(ind)'. The agency has assigned 'AA-(ind)'/'F1+(ind)' ratings to BILT's enhanced fund based and non-fund based working capital limits of INR500m. The Outlook is Negative.

This rating action commentary updates the rating commentary published on 30 January 2009.

The Negative Outlook reflects Fitch's expectation that the financial leverage will remain high in the medium term as commissioning of significant new capacities by BILT at the consolidated level and lower growth in paper demand are likely to result in lower utilisation levels; debt levels are expected to remain high. Though the assigned ratings are compatible with the company's healthy profitability and the strengthening of its business profile in the long term, a delay in the improvement of financial leverage might lead to a ratings downgrade.

Leverage (Net Debt/EBIDTA) of above 4x of BILT's FYE09 consolidated financials due either to a decline in profitability or higher than anticipated debt would lead to a downgrade. Financial leverage below 4x of FYE09 consolidated financials with signs of improvement thereafter could cause the Outlook to be revised to Stable.

BILT, part of the Avantha Group, was incorporated in 1945 as Ballarpur Paper & Straw Board Mills Limited. The company restructured its operations in FY08 by forming a separate company, BGPPL, with ownership of three production facilities. According to 9MFY09 results, BILT's consolidated revenues rose by 3.1% to INR21bn whereas profitability (EBIDTA) declined by 9.7% to INR4.8bn yoy. BILT's financial performance was adversely impacted by its subsidiary, SFI, Malaysia which incurred significant losses on account of inventory liquidation at low prices during January-March 2009.