By Prakash P

India Ratings and Research (Ind-Ra) has upgraded Rain Industries Limited’s (Rain) Long-Term Issuer Rating to ‘IND A’ from ‘IND A-’. The Outlook is Positive. The instrument-wise rating actions are as follows.

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

External commercial borrowings

-

-

-

USD50 (increased from USD20)

IND A/Positive

Upgraded

Non-fund-based limits

-

-

-

INR230

WD

Withdrawn (paid in full)

The upgrade reflects an improvement in the credit metrics of Rain in 2017. Meanwhile, the Positive Outlook reflects Ind-Ra’s expectations of its EBITDA margin sustaining above 16.0% and free cash flow turning positive and being consequently utilised for reduction in the overall debt.

KEY RATING DRIVERS

Improved Credit Metrics:  Rain’s credit metrics improved in 2017, though they continue to stay at a modest level. During the period, net adjusted leverage was 2.9x (2016: 4.2x) and interest cover was 3.8x (2.4x). The improvement in the credit metrics was primarily driven by a significant rise in operating EBITDA. Also, Rain refinanced debt maturing in 2018 and 2021 with longer maturity profiles.

Rise in EBITDA Margin: EBITDA margin increased to 20.1% in 2017 (2016: 16.5%) despite a fall in the profitability of Rain’s cement segment. The increase in EBITDA margin was driven by a rise in operational efficiencies in Rain’s carbon segment due to the use of the flue gas desulphurisation plant and the patented Isotropic Coke Experiment (ICE) technology to enable the use of low-grade green petroleum coke to produce acceptable grade of calcined petroleum coke (CPC), as well as the production of blended CPC at its newly completed facilities in Visakhapatnam. Also, Rain’s carbon segment registered a 19.4% rise in blended realisations in 2017, as international prices responded to CPC production curtailments in China.

Moreover, increased capacity in Visakhapatnam enables Rain to cater to the requirements of aluminium smelters in Asia and the Middle East, which are fast-growing geographies. Further CPC capacity expansion by 0.37 million tonnes per annum (funded via internal accruals) is likely to be operational in Visakhapatnam by the end of the first quarter of 2019.


Free Cash Flows Likely to Turn Positive from 2018: Free cash flows turned negative in 2017, increasing the overall debt (2017: INR75.2 billion; 2016: INR75.0 billion). Despite an increase in operating EBITDA in 2017, free cash flows turned negative mainly due to incremental working capital required largely due to higher raw material and product prices in the last quarter of 2017.

Ind-Ra expects Rain’s working capital to stabilise at around the current level and free cash flow to turn strongly positive from 2018. The strong free cash flow is likely to lead to a reduction in the overall debt.


Adequate Liquidity: Rain has an unutilised revolver loan facility of INR6.9 billion as against its principal debt obligations of about INR1.8 billion and capex requirements of about INR4.5 billion in 2018. Also, post the refinancing in March 2017 and January 2018, the major scheduled debt repayment arises in 2025.

Commodity Price Fluctuations: Rain’s profitability is exposed to fluctuations in commodity prices, which depend on demand-supply dynamics.


RATING SENSITIVITIES

Positive: Ability to sustain EBITDA margin resulting in a positive free cash flow leading to net adjusted leverage sustaining below 3.0x could be positive for the ratings.

Outlook Revision to Stable:
Any decline in EBITDA margin and/or any debt-funded acquisition leading to net adjusted leverage increasing above 3.0x could result in the Outlook revision to Stable.


COMPANY PROFILE

Incorporated in 1974, Rain is a holding company with subsidiaries engaged in the manufacturing and trading of cement, CPC, coal tar pitch and downstream products, including resins, modifiers and superplasticisers.

FINANCIAL SUMMARY

Particulars

2017

2016

Revenue (INR million)

113,007

92,582

EBITDA (INR million)

22,703

15,307

EBITDA margin (%)

20.1

16.5

Profit after tax (INR million)

7,636

2,909

Gross interest coverage (x)

3.8

2.4

Net adjusted leverage (x)

2.9

4.2

Source: Rain, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

13 February 2017

21 December 2015

5 September 2014

Issuer rating

Long-term

-

IND A/Positive

IND A-/Stable

IND A-/Stable

IND A-/Negative

External commercial borrowings

Long-term

USD50

IND A/Positive

IND A-/Stable

IND A-/Stable

-

Non-fund-based limits

Short-term

INR230

WD

IND A2+

IND A2+

IND A2+


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, structured finance and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

Ind-Ra is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

Applicable Criteria

Analyst Names

  • Primary Analyst

    Prakash P

    Senior Analyst
    India Ratings and Research Pvt Ltd 4th Floor, D South, TIDEL Park No 4, Rajiv Gandhi Salai, Taramani Chennai 600 113
    044 43401700

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121