| Birla Carbon India Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper programme of Birla Carbon India Private Limited (BCIPL).
The ratings continue to reflect a healthy market position in the domestic carbon black industry, strong parentage, synergistic benefits of being part of the Aditya Birla group, and a strong financial risk profile.
The ratings further take into account the reduction in loans and advances to group companies to Rs 1,414 crore as on May 31, 2021, from Rs 2,245 crore as on March 31, 2020. The amount realised was mainly used to lower debt to Rs 143 crore as on May 31, 2021, from Rs 1,208 crore as on March 31, 2020. Furthermore, such loans and advances are extended to Aditya Birla group companies, and are interest-bearing and repayable on demand. However, any sustained increase in such loans or inability to recall them in a timely manner may adversely affect overall liquidity and hence, remains a key rating sensitivity factor.
Exposure to risks related to the cyclical nature of the automobile industry, and susceptibility of realisations to fluctuation in crude oil prices and foreign exchange (forex) rates partially offset the credit strengths. |
Analytical Approach CRISIL Ratings has considered the standalone assessment of the business and financial risk profile of BCIPL |
Key Rating Drivers & Detailed Description Strengths: * Strong market position in the domestic carbon black industry The company is the second-largest player after Philips Carbon Black Ltd in the domestic market, with a share of 30-35%. It has increased production capacity by 80,000 tonne per annum (tpa) in April 2021, taking the overall capacity to 3,77,000 tpa. The manufacturing facilities are located close to tyre manufacturers, to minimise logistics cost.
Capacity utilisation rate was over 84% in fiscal 2021, marginally lower than 87% in fiscal 2020. The utilisation dropped to 30% in the first quarter of fiscal 2021 due to Covid-19 pandemic-induced lockdowns, but saw healthy recovery from the second quarter. Consequently, the overall sales volume for carbon black, which is primarily utilised in the tyre manufacturing process, declined by just 3% in fiscal 2021 over the previous fiscal. The recovery in sales volume continued in the initial two months of fiscal 2022 as well. While the second wave of the pandemic may marginally moderate the sales volume during the next few months, CRISIL Ratings expects a double-digit recovery in sales volumes in fiscal 2022, supported by the strong market position and stable demand.
* Reputed clientele The company mainly caters to large tyre manufacturers, and draws almost 90% of total revenue from the tyre segment. A large scale of operations, coupled with timely and quality service, supports the maintenance of a healthy relationship with key customers.
* Benefits of strong parentage The company is a wholly owned subsidiary of SKI Carbon Black (Mauritius) Ltd (SKI Carbon Black), which is the holding company for all carbon black business entities of the Aditya Birla group, and operates under the common brand, Birla Carbon. SKI Carbon Black is also one of the world’s largest producers of carbon black, with an installed capacity of around 20 lakh tpa. A geographically diversified business profile enables benefits of marketing under a common brand, and central procurement of feedstock. An in-house research and development centre focuses on yield enhancement through technology initiatives, thereby lowering cost of production and driving process improvements.
* Strong financial risk profile The operating margin was maintained at 17.2% in fiscal 2021 (provisional), marginally higher than 15.7% in the previous fiscal. Further, the gearing remains comfortable and has reduced to 0.3 time as on March 31, 2021, from 0.6 time as on March 31, 2020. This was owing to reduction in debt as receipts from redemption of loans and advances were largely used to lower debt to Rs 613 crore as on March 31, 2021, from Rs 1,208 crore as on March 31, 2020.
Debt protection metrics were healthy, with interest coverage and net cash accrual to adjusted debt ratios of about 5 times and 0.6 time respectively, for fiscal 2021. With healthy cash accrual and lower debt, the net cash accrual to adjusted debt ratio is expected to improve to 4 times in fiscal 2022.
* Moderate working capital cycle Working capital requirement is expected to remain moderate. While raw material and finished goods inventory of average 45 days and 10 days is maintained respectively, raw materials are sourced through 180-day letters of credit. On the other hand, credit of 90 days is provided to customers. Payables increased at the end of fiscal 2021 due to raw materials received at the end of March 2021. Receivables were high due to higher sales in the fourth quarter. .
Weaknesses * Exposure to risks related to removal of anti-dumping duty on carbon black The government of India on November 18, 2015, had imposed an anti-dumping duty on carbon black originating in or exported from China and Russia; this levy was valid till December 2020. On January 5, 2021, the government decided not to impose such duty. Although there was no impact of this on demand, CRISIL Ratings will continue to monitor any effect on the business of the company.
* High susceptibility to cyclicality in the automobile industry Demand for domestic carbon black depends on growth of the tyre industry. Hence, any fluctuation in demand from this industry, owing to slowdown in the automobile industry, can adversely impact revenue from the original equipment manufacturer segment.
* Exposure to volatility in crude oil prices and forex rates Carbon black feedstock (CBFS), derived from crude oil, is a major raw material for carbon black production. Hence, any increase in crude oil prices may drive up CBFS prices, and thus increase the operating cost of players such as BCIPL. However, the company passes on such price hikes to customers, thereby mitigating any risk to profitability. Further, exposure to volatility in forex rates, is largely mitigated by entering into forward contracts.
* Support towards group companies The loans and advances to group companies have reduced to Rs 1,414 crore as on May 31, 2021, from Rs 2,245 crore as on March 31, 2020. Based on discussions with the management, CRISIL Ratings understands these outstanding amounts are interest bearing and repayable on demand; interest is being received in time. Any sustained increase in such loans and advances and inability to recall them in a timely manner, affecting overall liquidity, will be a key rating sensitivity factor. |
Liquidity: Strong Liquidity is supported by healthy cash accrual, estimated at around Rs 430 crore, as against long-term debt repayment of Rs 53 crore, in fiscal 2022. Regular cash flows from customers, along with adequate working capital lines and other short-term loan facilities, also support liquidity. |
Outlook: Stable The credit risk profile should continue to be supported by the strong market position ensuring a steady order inflow, sound operating efficiency and a healthy financial risk profile. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company BCIPL [previously SKI Carbon Black (India) Pvt Ltd], an Aditya Birla group company, is a wholly owned subsidiary of SKI Carbon Black (Mauritius) Ltd. The company manufactures carbon black, which is used mainly in the tyre industry. It also has a cogeneration power plant with a capacity of 98.7 megawatt.
The company started the carbon black business in India in 1988 through Hi-Tech Carbon Ltd, Renukoot (Uttar Pradesh). The second plant was opened in Gummidipoondi, Tamil Nadu, followed by the third plant in Patalganga, Maharashtra. In 2013, Hi-Tech Carbon Ltd demerged from Aditya Birla Nuvo Ltd and SKI Carbon Black India Pvt Ltd was incorporated, which was renamed as Birla Carbon India Pvt Ltd in 2018. The production capacity is currently at 377,000 tpa. |
Key Financial Indicators
*Provisional financials |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
&Interchangeable with Non fund based limits ^Interchangeable with Fund based limits |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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