May 21, 2010 - Fitch Rating today has affirmed Ace Calderys Limited's (ACL) National Long-term rating at 'A+ (ind)' with a Stable Outlook. ACL's bank loan facilities have also been affirmed.
The ratings reflect the company's position as India's second-largest refractory manufacturer and its stable revenue streams driven by replacement demand for refractories from the steel and cement sectors; Fitch expects the company's future growth to remain stable, driven by the recent capacity expansions in these sectors. ACL has a diversified revenue base, supplying its products to India's steel, cement and power sectors.
The ratings factor in the company's consistently positive free cash flows from FY 2006 to FY 2009, which the company has used to pay down debt. The ratings also reflect ACL's comfortable liquidity position, reflected in the low utilization of its fund-based working capital limits. The agency notes that it does not have any major capex plans, which coupled with the stable revenue growth, should result in positive free cash flows.
The rating is also strengthened by the relationships of the company's sponsors with France's Imerys as Fitch expects ACL to derive potential synergies through better sourcing arrangements for raw materials and more efficient manufacturing technologies.
Risks to the rating exist from volatility in the prices of raw materials, primarily of alumina. However, this is partly offset by ACL's demonstrated ability to pass on a part of this increase to its end-customers, which has resulted in EBITDA margins fluctuating between 16%-20%. Higher competition coupled with lower import duties on refractory products could expose the company to a certain amount of pricing pressures over the medium term.
Positive rating triggers would include sustained low leverage, coupled with stable revenues and profitability. However, substantial debt-funded acquisitions/capex materially affecting key credit metrics, and sustained net debt/EBITDA exceeding 2.5x on a sustained basis could act as negative triggers.
ACL reported a YoY 28% growth in revenue in FY2009 led by volume and price increase. ACL was able to maintain its EBIDTA margins at 16.2%, with leverage of 0.43x. Liquidity is adequate with cash and bank balances of INR71.80m, and free cash flows of INR 203.6m. In FY08 Imerys, a leading global player in industrial minerals acquired a 99% stake in ACL for INR5, 500m.
The ratings reflect the company's position as India's second-largest refractory manufacturer and its stable revenue streams driven by replacement demand for refractories from the steel and cement sectors; Fitch expects the company's future growth to remain stable, driven by the recent capacity expansions in these sectors. ACL has a diversified revenue base, supplying its products to India's steel, cement and power sectors.
The ratings factor in the company's consistently positive free cash flows from FY 2006 to FY 2009, which the company has used to pay down debt. The ratings also reflect ACL's comfortable liquidity position, reflected in the low utilization of its fund-based working capital limits. The agency notes that it does not have any major capex plans, which coupled with the stable revenue growth, should result in positive free cash flows.
The rating is also strengthened by the relationships of the company's sponsors with France's Imerys as Fitch expects ACL to derive potential synergies through better sourcing arrangements for raw materials and more efficient manufacturing technologies.
Risks to the rating exist from volatility in the prices of raw materials, primarily of alumina. However, this is partly offset by ACL's demonstrated ability to pass on a part of this increase to its end-customers, which has resulted in EBITDA margins fluctuating between 16%-20%. Higher competition coupled with lower import duties on refractory products could expose the company to a certain amount of pricing pressures over the medium term.
Positive rating triggers would include sustained low leverage, coupled with stable revenues and profitability. However, substantial debt-funded acquisitions/capex materially affecting key credit metrics, and sustained net debt/EBITDA exceeding 2.5x on a sustained basis could act as negative triggers.
ACL reported a YoY 28% growth in revenue in FY2009 led by volume and price increase. ACL was able to maintain its EBIDTA margins at 16.2%, with leverage of 0.43x. Liquidity is adequate with cash and bank balances of INR71.80m, and free cash flows of INR 203.6m. In FY08 Imerys, a leading global player in industrial minerals acquired a 99% stake in ACL for INR5, 500m.
