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CRISIL Downgrades Ester Industries' Credit Rating

Ester Industries Limited has received a revised credit rating from CRISIL Ratings Limited. The ratings have been downgraded due to a weak operating performance over the past few quarters and a challenging demand-supply scenario in the flexible packaging industry.

Detailed Breakdown of the Credit Rating Revision

Credit Rating Details CRISIL has downgraded the ratings for Ester Industries' credit facilities. The revised ratings reflect the company's financial performance and outlook.

Previous vs. Revised Ratings:

• Fund-Based Long Term:
  • Previous Rating: CRISIL A/Negative
  • Revised Rating: CRISIL A-/Negative
• Fund-Based Short Term:
  • Previous Rating: CRISIL A1
  • Revised Rating: CRISIL A2+

Non-Fund Based Facilities:

• Revised Rating: Included in the overall rating revision

Reason for Downgrade The downgrade in ratings is attributed to the weak operating performance of Ester Industries over the last several quarters. The flexible packaging industry has experienced an oversupply, leading to a sharp correction in product prices and impacting the company's margins.

Rating Rationale and Outlook

Rating Rationale CRISIL Ratings' rationale highlights several key points:

• Operating Performance: Ester Industries' operating performance has been under pressure due to the addition of 45% capacity in the BOPET industry, leading to oversupply.
• Revenue and Margins: The company's revenue declined by 21% in fiscal 2023 and 17% in H1 fiscal 2024. Operating margins have fallen from 17.6% in fiscal 2022 to -1.9% in H1 fiscal 2024.
• Debt and Cash Flow: The debt to EBITDA ratio stood at 8.3 times as on March 31, 2023, with cash accruals expected to be lower than previously estimated.

Outlook: Negative CRISIL Ratings believes that Ester Industries' operating performance may continue to be impacted in the near to medium term. The outlook may be revised to 'Stable' if there is significant improvement in profitability and revenue growth.

Key Rating Drivers:

• Strengths: Established market position, diversified product profile
• Weaknesses: Susceptibility to volatile raw material costs, large debt-funded projects, and stabilization of new capacity

Annexure Details

Bank-wise Facility Ratings:

• Bank Guarantee: CRISIL BBB/Negative (Bank of India)
• Fund-Based Facilities: CRISIL BBB/Negative (HDFC Bank Limited, Bank of India, Bank of Baroda)
• Letter of Credit & Bank Guarantee: CRISIL A3+ (Bank of India, Bank of Baroda, HDFC Bank Limited)
• Term Loan: CRISIL BBB/Negative (Bank of Baroda, Bank of India, Oldenburgische Landesbank AG, HDFC Bank Limited)

Key Financial Indicators:

• Operating Income (FY 2023): Rs 1119 crore
• PAT (FY 2023): Rs 137 crore
• Debt to Net Worth: 1.10 times
• Interest Coverage: 2.78 times

Conclusion

The downgrade in CRISIL ratings for Ester Industries reflects the company's current challenges in the flexible packaging industry. The management's focus will be on improving operating performance and stabilizing the newly commissioned projects to achieve a stable financial outlook.