“The revision in outlook reflects a belief that the credit risk profile of Ell will improve over the medium term with the sustenance of operating performance driven by benefits of a diverse product portfolio and timely commissioning of the ongoing projects.
Operating performance improved significantly over the past two fiscals driven by continuation of favourable demand-supply dynamics in the packaging film business and maturing of products. The operating profit before depreciation, interest and taxes (OPBDIT) margin increased to 23.7% during fiscal 2021 from 11.0% during fiscal 2019. Cash accruals increased to Rs139cr from Rs64cr,” company shared CRISIL’s rating rationale.
It further said, the engineering plastics and speciality polymers segments have also seen healthy improvement in demand over the past six months. Therefore, despite the expected decline of margins in packaging films business, the overall OPBDIT margin of Ell is expected to sustain at around 15% over the medium term benefitting from a diverse product portfolio.
Product mix and diversification should improve since the company is adding the capacities of value-added products, speciality polymers and engineering plastics for Rs225cr, which is expected to be completed by the first quarter of fiscal 2023. Furthermore, scale of packaging films business is expected to improve with the new greenfield BOPET (biaxially-oriented polyethylene terephthalate) line (48,000 tpa in Telangana) commissioning in the middle of next fiscal. The progress of the project implementation would remain a monitorable.
The ratings continue to factor established market position along with long track record in packaging films business, healthy operating efficiency supported by strong capacity utilisation and diversified product profile. These strengths are partially offset by susceptibility to volatile raw material costs and realisations driven by demand-supply dynamics and large, debtfunded ongoing projects.
At around 9.35 am, Ester Industries Ltd was trading at Rs137.05 per piece up by Rs1.1 or 0.81% from its previous closing of Rs135.95 per piece on the BSE.