ICRA revises rating of Everest Industries Limited

ICRA Limited, vide its letter dated April 21, 2023, has reaffirmed the Long-Term Rating (Fund-based/Cash Credit) at "[ICRA]A+" ("ICRA A plus") with Stable Outlook and downgraded the Short-Term Rating (Non-fund based limits) to "[ICRA] A1" ("ICRA A One") from "[ICRA] A1+" (ICRA A One Plus).

Further, for the enhanced amount, credit rating of "[ICRA]A+" with Stable Outlook has been assigned for long-term facilities and credit rating of "[ICRA] A1" has been assigned for short-term facilities.

The revision in the short-term rating of Everest Industries Limited (EIL) to [ICRA]A1 from [ICRA]A1+ factors in the depletion in company's liquidity in FY2023, driven by increased inventory holding due to raw material supply constraints following the Russia-Ukraine war. Its free cash balances declined to around Rs. 16 crore as on December 31, 2022 from Rs. 165.1 crore as on March 31, 2022. Further, the company is also undertaking a capex program of Rs. 312 crore which is expected to be funded by debt of around Rs. 250 crore and balance outflow of around Rs. 62 crore from internal accruals is expected towards capex by June-2024.

The reaffirmation of the long-term rating continues to factor in EIL's established position in the domestic fibre cement (FC) industry, backed by its strong brand, distribution capabilities and the geographical spread of its plants. EIL's revenues are diversified with presence in the FC segment and non-asbestos products such as boards, panels and steel buildings/preengineered building (PEB) segment. The PEB segment reported improved performance in 9M FY2023 both in terms of revenue growth and PBIT margins, which were impacted in FY2021 and FY2022 due to the Covid-19 pandemic. Consequently, the share of PEB segment in the overall revenue increased to 31% in 9M FY2023 from 23% in FY2022, while the PBIT margins improved to 7.6% in 9M FY2023 from -0.4% in FY2022.

The ratings, however, remain constrained by the vulnerability of EIL's revenues and margins to the regulatory risks associated with the threat of ban on use or manufacture of asbestos-related products as well as on the mining of asbestos in asbestos producing countries. It imports fibre, one of the key raw materials. Therefore, EIL's margins remain exposed to fluctuations in key raw material prices and foreign exchange (forex) rates. It is undertaking capex in Gudipalli, Andhra Pradesh for setting up a new manufacturing facility for PEB segment, which would increase the capacity to 1,14,000 MTPA from 72,000 MTPA. The plant is anticipated to be operational by March 2024. The company is also setting up a new boards and panels plant in Chamarajanagar District, Karnataka, which would increase the capacity of boards and panels segment to 3,01,000 MTPA from 2,10,000 MTPA. This plant is expected to be operational by June 2024. The total cost of both the plants is Rs. 312 crore, which is likely to be funded by 80% debt of around Rs. 250 crore and internal accruals of Rs. 62 crore. Consequently, the leverage metrics are estimated to moderate with projected Total Debt/OPBITDA of 2.8 times as on March 31, 2024.

The Stable outlook on the rating reflects ICRA's expectations that EIL will continue to benefit from its strong market position in the domestic FC industry and maintain comfortable coverage metrics.

Shares of Everest Industries Limited was last trading in BSE at Rs. 839.45 as compared to the previous close of Rs. 840.00. The total number of shares traded during the day was 561 in over 150 trades.

The stock hit an intraday high of Rs. 842.05 and intraday low of 823.60. The net turnover during the day was Rs. 467101.00.

Source : Equity Bulls

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