(The following statement was released by the rating agency)
Aug 21 - Fitch Ratings has affirmed Calderys India Refractories Limited’s (CIRL) National Long-Term Rating at ‘Fitch AA-(ind)'. The Outlook is Stable. A list of additional rating actions is provided at the end of this commentary.
The affirmation reflects CIRL’s position as India’s second-largest refractory manufacturer, as well as its stable revenue streams and EBITDA margins (FY12 (year end March): 18.4%, FY11: 17.7%), which are both driven by replacement demand for refractories from the steel and cement sectors. The ratings also factored in the company’s conservative financial profile, which is supported by high cash and cash equivalents of INR445m, a negative net debt, and high interest cover of 82.02x in FY12.
The company does not have any large capex plans over the near-term, thus debt protection ratios are likely to remain strong. However, CIRL plans to set up a manufacturing unit at Gujarat in FY15 with total investments of around INR350m which is likely to be funded through internal accruals.
The ratings are also strengthened by CIRL’s operational synergies with its parent France’s Imerys SA (a leading global industrial minerals company). Fitch expects the company to continue deriving synergies from the parent through better sourcing arrangements for raw materials and more efficient manufacturing technologies.
The ratings are, however, constrained by the volatile prices of raw materials (especially alumina and bauxite), which are partially offset by CIRL’s ability to pass through part of price increases to its customers. The ratings are further constrained by competition from unorganised sector and lower import duties on refractory products. Other concerns emanate from volatility in the domestic steel sector which accounted for around 35%-40% of CIRL’s revenue over FY11-FY12.
CIRL was formally known as Ace Calderys Limited. In FY12, CIRL recorded revenue of INR5,747m, up 15% yoy, with EBITDA of INR1,056m (FY11: INR883m).
Negative: Future developments that may lead to negative rating action include substantial debt-funded acquisitions and capex at CIRL resulting in net debt/EBITDA exceeding 1.5x on a sustained basis.
Fitch has also affirmed CIRL’s bank loan ratings as follows:
- INR200m cash credit facility (fully interchangeable with working capital demand loan): affirmed at National Long-Term ‘Fitch AA-(ind)’ and National Short-Term ‘Fitch A1+(ind)’
- INR200m fund-based limits: affirmed at National Short-Term ‘Fitch A1+(ind)’
- INR500m non-fund-based limits: affirmed at National Short-Term ‘Fitch A1+(ind)'