TEXT-Fitch rates Bajaj Eco Tech Products Ltd bank loan fac

(The following statement was released by the rating agency)

July 28 - Fitch Ratings has today assigned a National
Long-term Issuer rating of 'BBB-(ind)' (BBB minus(ind)) to
India's Bajaj Eco Tech Products Limited (BEPL), as well as
Long-term and Short-term debt ratings of 'BBB-(ind)' (BBB
minus(ind)) and 'F3(ind)', respectively, to its INR750m fungible
fund-based working capital limits. The Outlook is Stable.

BEPL's ratings reflect the favourable demand supply position
and outlook for the particle board (PB) and medium density fibre
(MDF) board industry in India, as well as the high capital
intensity of the business providing significant entry barriers.
As per estimates, the PB and MDF industry presently faces a
demand supply mismatch, with demand exceeding supply and is
pegged at INR2bn-INR2.5bn with an expected year on year growth
rate of 20%. The ratings also take into account the successful
completion of its PB and MDF facilities and the support it
continues to enjoy from its parent - Bajaj Hindusthan Limited
(BHL, 'A+(ind)'/Negative Outlook) - by way of unsecured loans.
The key raw material for BEPL viz. bagasse is sourced from BHL
providing forward integration to its operations on a consolidated
basis.

Fitch notes that the company has recently commenced
operations and is in the initial stages of establishing its
product with end users. Any demand risk for BEPL is mitigated on
account of the substantial amount of imports of the product in
the country; most of the demand (70% of domestic demand) is
currently being met through imports from the Southeast Asian
countries. However, the agency views that the company would
continue to remain exposed to risks of product acceptability and
the expansion of its operations to ensure adequate cash flows for
debt servicing. In this light, the agency notes that successful
tie-ups with customers and a consistent inflow of revenues and
profitability would be a positive trigger for the rating, while a
delay in ramping up operations and/or weakening of support from
the parent company could act as potential negative triggers. In
addition, the ratings reflect the concerns of the threat from
cheaper imports as well as the expected decrease in cane acreage
by industry experts, which may reduce the availability of bagasse
from BHL.

BEPL, a 100% subsidiary of BHL, was established in April 2006
and focuses on the manufacture of PB and MDF used in making
furniture, wood panels and laminated flooring. The company has a
total of three plants located in Uttar Pradesh, all bagasse based
with a capacity of 2,10,000m3 p.a. Operations of the company have
just commenced in April 2008 and would be fully operational for
FY09 (Sept-Oct). The total cost incurred for setting up the
plants was to the tune of INR2.9bn, funded through a 1.4:1 debt
to equity ratio.