CRISIL has revised its ratings on Khatema Fibres Limited’s (Khatema Fibres’) term loan facility to ‘D’ from ‘BB/Stable’, and on the company’s cash credit facility to ‘C’ from ‘BB/Stable’. This follows delays in debt servicing on the term loans by the company. The rating on the company’s letter of credit facility has been reaffirmed at ‘P4’.

Khatema Fibres’ business is highly working capital intensive, primarily because of its dependence on imported waste paper and the long lead time between the placing of an order and receipt of raw material. The company maintains a very high inventory level, exceeding 170 days. High working capital requirements, limited flexibility to stretch creditors, and inadequate cash buffers, have also led to delays in the repayment of short-term borrowings by two to three days in the past. The restricted financial flexibility was further aggravated by the fact that raw material consignments of the company were held up at seaports which adversely impacted the production and the subsequent cash flow generations for the company leading to delays in term loan repayments.

About Khatema Fibres
Khatema Fibres was promoted by Mr. R C Rastogi in 1985. The company manufactures a range of industrial papers such as bleached and unbleached kraft liner boards, coloured kraft paper for applications such as packaging, electrical insulation, carry bags, and poster paper. It also makes newsprint and speciality papers such as crepe tissue. The company is held closely by the promoter’s family and friends. For the year ended March 31, 2007, Khatema Fibres reported a net profit of Rs.77.9 million on net sales of Rs.1085.2 million, as against a net profit of Rs.93 million on net revenues of Rs.903.8 million in the previous year.