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Finolex Industries’ rating has been downgraded a notch by rating agency Crisil which feels that the company is exposed significantly to foreign exchange fluctuation risk.
The rating downgrade also takes into account the deterioration in Finolex Industries’ “already modest” debt protection metrics, Crisil has said in a statement.
Finolex Industries has considerable unhedged buyers’ credit “beyond its working capital requirements,” the rating agency has observed. FIL’s buyer’s credit (in foreign currency) utilisation increased significantly to over Rs 850 crore as on September 30, 2012, from about Rs 500 crore as on March 31, 2011. The buyer’s credit utilisation is significantly higher than FIL’s net current asset of about Rs 460 crore as on September 30, 2012.
FIL is one of the larger players in India’s PVC market, with a market share of about 20 per cent. Its large capacity is expected to help it to capitalise on the supply-deficit scenario in the domestic industry. The company’s captive consumption of PVC for its pipes and fittings business provides assured offtake for a part of its output and ensures high operating efficiency.
To cater to increasing demand from its pipes and fittings segment, FIL is expanding its pipes manufacturing capacity by setting up a new pipes plant of 50,000 tonnes in Masara (Gujarat). The company is also planning to expand its current pipes and fittings capacities at Pune and Ratnagiri (both in Maharashtra) by 25,000 tonnes (20,000 tonnes at Pune and 5,000 tonnes at Ratnagiri).
These expansions will be done with an investment of Rs 150 crore and will be largely debt funded. In addition, FIL is also implementing a capex programme of about Rs 40 crore towards increase its existing PVC capacity by 12,000 tonnes.
Crisil believes that supported by its increased capacities, FIL will continue to capitalise on the increasing demand for PVC pipes, driven by good prospects in the agricultural sector and the government’s continued thrust on rural infrastructure and irrigation.
For the first nine months of 2012-13, the company reported a net profit of Rs 56.79 crore on net sales of Rs 1,510 crore.
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