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-CRISIL raises Shabnam Petrofils rating to BB+.

BANKING AND CREDIT NEWS-October 26, 2010--CRISIL raises Shabnam Petrofils rating to BB+(C)2010 M2 COMMUNICATIONS

26 October 2010 - India's rating agency CRISIL on Monday upgraded its rating on the bank facilities of Shabnam Petrofils Pvt Ltd to BB+ from BB.

The agency issued the following press release:

Rs.60.0 Million Cash Credit Facility BB+/Stable (Upgraded from BB/Stable)

Rs.115.0 Million Proposed Long-Term Bank Loan

Facility BB+/Stable (Upgraded from BB/Stable)

CRISIL has upgraded its rating on the bank facilities of Shabnam Petrofils Pvt Ltd (SPPL) to 'BB+/Stable' from 'BB/Stable'.

The rating upgrade reflects the expected increase in SPPL's scale of operations with its recently concluded capacity enhancement programme, and the stabilisation of its capacities.

CRISIL also believes that the company's capital structure will be better than expected, due to the shelving of a part of unrelated capital expenditure (capex) for windmills which was expected to cost Rs.270 million. Further, SPPL's lower-than-earlier-expected capex in 2009-10 (refers to financial year, April 1 to March 31), led to lower gearing than CRISIL's earlier expectations. SPPL increased its capacities to 75 tonnes per day (tpd) by 2009-10, from 40 tpd in 2008-09; this capex was undertaken at a cost of Rs.91 million against earlier estimation of Rs.143 million, resulting in better-than-expected capital structure with gearing of just under 0.4 times as on March 31, 2010. The company's debt protection metrics and gearing are expected to remain satisfactory driven by absence of any large, debt-funded capex for the near term.

The rating reflects SPPL's low operating margin and small scale of operations in intensely competitive industry, and its vulnerability to volatile raw material prices on account of the commodity nature of products. These rating weaknesses are partially offset by the longstanding experience of SPPL's promoters, established customer relations and small working capital requirements.

Outlook: Stable

CRISIL believes that SPPL will benefit over the medium term from its promoters' extensive industry experience and adequate liquidity. The outlook may be revised to 'Positive' if the company improves its operating margin through venture into higher value added and forward-integrated operations. Conversely, the outlook may be revised to 'Negative' in case of deterioration SPPL's capital structure driven by a larger-than-expected debt-funded capex or working capital borrowings.

About the Company

SPPL, set up in 2002 by Mr. Rafiq Memon and his family in Surat (Gujarat), manufactures partially oriented yarn (POY) and grey fabric. The company procures polyethylene terephthalate (PET) chips, the basic raw material for POY, from the local market, and processes it into POY. SPPL had a POY production capacity of 40 tpd in 2009-10; the capacity has increased to 75 tpd in April 2010.

SPPL reported net profit of Rs.5 million on net sales of Rs.915 million for 2009-10, against net profit of Rs.3 million on net sales of Rs.823 million for 2008-09.

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Publication:M2 Banking & Credit News (BCN)
Geographic Code:9INDI
Date:Oct 26, 2010
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