Rating Rationale
August 19, 2020 | Mumbai
BLS Ecotech Limited
 
 
Rating Action
Total Bank Loan Facilities Rated Rs.168.79 Crore
Long Term Rating CRISIL BBB+/Stable
Short Term Rating CRISIL A2
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
 
Detailed Rationale

CRISIL ratings on the bank facilities of BLS Ecotech Limited (BEL; part of the BLS group) continue to reflect BEL's established market position in the recycled polyester staple fibre (RPSF) industry and comfortable financial risk profile. These strengths are partially offset by business being susceptible to intense competition, volatility in raw material prices, and regulatory guidelines and risk related to the large debt funded project in Kairos Textile Industries Ltd (KTIL) in United Arab Emirates.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of BEL and its 100% subsidiary, KTIL. Both these companies, collectively referred to as the BLS group, have fungible funds, and share business transactions and the same management.
 
Unsecured loans estimated at Rs 4.52 crore as on March 31, 2020, from promoters invested in KTIL have been treated as neither debt nor equity as these are expected to remain in business over the medium term.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position in the RPSF industry: BEL is one of the top three players in manufacturing RPSF in India, as reflected in installed capacity of 54,000 tonne per annum (capacity utilisation at 94%) and operating income of Rs 335 crore in fiscal 2020; followed by operating profitability of 9-10% in the last two fiscals. This is supported by promoters' experience of more than two decades and healthy relationship with customers and suppliers. Furthermore, recent capacity addition through wholly owned subsidiary is expected to strengthen the group's reach in the export market.
 
* Comfortable financial risk profile: Networth and gearing are estimated at Rs98 crore and 1.16 times, respectively, as on March 31, 2020. Net cash accrual to adjusted debt (NCAAD) and interest coverage ratios remain adequate, at 0.17 times and 3.71 times, respectively, in fiscal 2020. Though the gearing has slightly increased in fiscal 2020, it is expected to improve over the medium term, on account of reduction in long term debt and no major capex plans going forward.
 
Weaknesses:
* Susceptibility of profitability to intense competition, fluctuations in raw material prices and regulatory guidelines: The price of RPSF is benchmarked against the price of virgin PSF, which is linked to crude oil price. RPSF price is at a discount (15-20%) to virgin PSF price. Any downward movement in crude oil price makes RPSF less attractive vis-a-vis virgin PSF.
 
Further, profitability is also susceptible to volatility in raw material prices, which is dependent on demand supply situations in market and competition from smaller players with increasing capacity additions.  This has reflected in fluctuating operating profit margin between at 9%-13.40% over the four fiscals through 2020.
 
While BEL's established relationship with the domestic suppliers will support the procurement domestically, CRISIL believes profitability will remain susceptible to the raw material price fluctuation and government regulations in the medium term and will remain a key rating sensitive factor.
 
* Risk related to the large debt funded project: The group has expanded its capacities through a new manufacturing facility of 45 metric tonne per day (MTPD) in United Arab Emirates with a project cost of around Rs 68.2 crore. The project is funded by bank loan of Rs 45.6 crore and rest from internal sources. Entire funding has been done. The plant is ready and operations are expected to start from October 2020. Part delay witnessed due to the current COVID scenario. However, timely operationalisation of the project with no further cost overruns and sales from new facility with achievement of optimum capacity utilisation will be the key monitorable factors.
Liquidity Adequate

Liquidity is adequate. Cash accrual is estimated at over Rs 15 crore and Rs 20 crore respectively for fiscal 2021 and 2022, against debt obligation of Rs 6.26 crore and 11.50 crore, respectively. Working capital limit of Rs 55 crore was utilised at an average of 84% in the 12 months ended June 2020. Further, company has availed moratorium on its term loan obligation as announced by the RBI, which has given financial flexibility to some extent. Liquidity will be supported by healthy cash accrual from the business, over the medium term.

Outlook: Stable

CRISIL believes the group will continue to benefit from its promoters' industry experience.

Rating Sensitivity factors
Upward factors
* Improved scale of operations by 15% from the new plant in subsidiary company.
* Sustained improvement in operating profitability leading to higher cash accruals
* Improvement in working capital cycle
 
Downward factors
* Decline in scale of operations by 10% on a sustainable basis
* Lower-than-expected cash accrual, exerting pressure on liquidity
* Any further delay in commercial operation of the project in KTIL.
About the Group

BEL, incorporated in 2007, is part of the New Delhi-based BLS group, which has been operational since 1954. It manufactures RPSF from recycling of polyethylene terephthalate bottles. Operations are managed by Mr Madhukar Aggarwal and his son, Mr Nimit Aggarwal.
 
KTIL is a wholly owned subsidiary of BEL, established in the United Arab Emirates in 2017, to manufacture polyester staple fiber.

Key Financial Indicators
Particulars Unit 2020* 2019
Revenue Rs Cr 335.19 394.9
Profit after tax Rs Cr 6.77 6.27
PAT margin % 2.0 1.6
Adjusted debt/adjusted networth Times 1.16 1.13
Interest coverage Times 3.71 2.7
*Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity date Issue size
(Rs cr)		 Complexity level Rating assigned with outlook
NA Cash Credit NA NA NA 55 NA CRISIL BBB+/Stable
NA Letter of Credit NA NA NA 05 NA CRISIL A2
NA Long Term Loan NA NA Oct-2023 37.9 NA CRISIL BBB+/Stable
NA Proposed Long Term Bank facility NA NA NA 20.89 NA CRISIL BBB+/Stable
NA Standby Letter of Credit NA NA Mar-2028 50 NA CRISIL BBB+/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
BLS Ecotech Limited Full Consolidation Common management and line of business, in addition to financial fungibility
Kairos Textile Industries Limited
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  113.79  CRISIL BBB+/Stable  17-08-20  CRISIL BBB+/Stable  25-06-19  CRISIL BBB+/Stable  15-03-18  CRISIL BBB+/Stable      CRISIL BBB/Stable 
Non Fund-based Bank Facilities  LT/ST  55.00  CRISIL BBB+/Stable/ CRISIL A2  17-08-20  CRISIL BBB+/Stable/ CRISIL A2  25-06-19  CRISIL BBB+/Stable/ CRISIL A2  15-03-18  CRISIL A2      CRISIL A3+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 55 CRISIL BBB+/Stable Cash Credit 40 CRISIL BBB+/Stable
Letter of Credit 5 CRISIL A2 Letter of Credit 20 CRISIL A2
Long Term Loan 37.9 CRISIL BBB+/Stable Long Term Loan 37.9 CRISIL BBB+/Stable
Proposed Long Term Bank Loan Facility 20.89 CRISIL BBB+/Stable Proposed Long Term Bank Loan Facility 20.89 CRISIL BBB+/Stable
Standby Letter of Credit 50 CRISIL BBB+/Stable Standby Letter of Credit 50 CRISIL BBB+/Stable
Total 168.79 -- Total 168.79 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process

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