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-CRISIL hikes rating on Hemkund Duplex & Boards' bank facilities.

BANKING AND CREDIT NEWS-December 22, 2010--CRISIL hikes rating on Hemkund Duplex & Boards' bank facilities(C)2010 M2 COMMUNICATIONS

22 December 2010 - CRISIL on Tuesday raised the rating on the long-term bank facilities of Hemkund Duplex & Boards Pvt Ltd to B-/stable from C.

The agency issued the following press release:

Rs.33.5 Million Term Loan (Enhanced from Rs.33.4 Million) B-/Stable(Upgraded from 'C')

Rs.35.0 Million Working Capital Demand Loan B-/Stable(Upgraded from 'C')

Rs.50.0 Million Cash Credit B-/Stable(Upgraded from 'C')

Rs.11.5 Million Proposed Long-Term Bank Loan Facility (Enhanced from Rs.1.6 Million) B-/Stable(Upgraded from 'C')

Rs.1.0 Million Bank Guarantee P4 (Reaffirmed)

CRISIL has upgraded its rating on the long-term bank facilities of Hemkund Duplex & Boards Pvt Ltd (HDBPL) to 'B-/Stable' from 'C', while reaffirming the short-term rating at 'P4'. The upgrade is driven by HDBPL's improved liquidity, with regularity in the company's cash credit limits; its cash credit facility was not overdrawn during the 12 months through September 2010. The company's working capital cycle has also improved, with reduction in inventory holding period to 30 to 45 days from 160 to 260 days in the past. The rating upgrade also factors in maintenance of the operating margin at 13 per cent for past 2 years.

The ratings reflects HDBPL's weak financial risk profile, marked by a small net worth, a high gearing, and weak debt protection metrics, limited financial flexibility, and a small scale of its operations. These weaknesses are partially offset by the benefits that the company derives from its promoters' extensive experience and the healthy prospects for growth in the duplex board industry.

Outlook: Stable

CRISIL believes that HDBPL will continue to benefit over the medium term from its promoters' extensive experience and the healthy prospects for growth in the duplex board industry. The outlook may be revised to 'Positive' if HDBPL significantly increases its revenues and net cash accruals, while maintaining its debt protection metrics. Conversely, the outlook may be revised to 'Negative' if the net cash accruals decline sharply, thereby weakening HDBPL's ability to service debt, or if the company is unable to maintain the improvement in its working capital cycle or there is significant delay in disbursement of insurance claim.

About the Company

HDBPL was incorporated in 2002 by acquiring the assets of Mansarovar Paper & Industries Ltd, a manufacturer of coated duplex boards, which was referred to the Board for Industrial and Financial Reconstruction (BIFR). HDBPL was promoted as an equal joint venture by the Chadha and Chhabra groups. However, in 2005, the Chadha group acquired the Chhabra group's entire stake in the company. The company's plant in Moradabad (Uttar Pradesh) has capacity to produce 50 tonnes per day of duplex boards. HDBPL incurred a loss of stock worth Rs.73 million because of an outbreak of fire at its godown in May 2009; the company is still to receive the insurance claim amount.

HDBPL reported a profit after tax (PAT) of Rs.2.7 million on net sales of Rs.207.5 million for 2009-10 (refers to financial year, April 1 to March 31), against a PAT of Rs.4.5 million on net sales of Rs.212.6 million for 2008-09.

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Publication:M2 Banking & Credit News (BCN)
Date:Dec 22, 2010
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