The leading global ratings agency Fitch Ratings has affirmed a low default risk on India-based Bhushan Power and Steel's (BPSL) long-term ratings, with a stable outlook on the back of the company's improved business profile and profitability.
"Fitch Ratings has affirmed ... BPSL's national long-term rating at 'A-(ind)' with a stable outlook," reads Fitch's statement.
Accordingly, BPSL's EBITDA margins improved to 26.5 percent at the end of March 2010 (FY 2010-11), from 16.4 percent in FY 2006-7, due to lower input costs and benefits accruing from the third phase of its greenfield backward integration project in Orissa to manufacture 1.5 million mt per year of steel, which was completed in October 2009. "The ratings derive comfort from the successful project execution track-record of the company," Fitch said.
Fitch notes that BPSL is implementing the fourth phase of the Orissa project. The total project cost is estimated at INR 59.95 billion (about $1.357 billion). The company will derive substantial benefits given operational efficiencies and reduction in freight costs by having both upstream and downstream facilities in one location. The fourth phase is running as per schedule and the company has already commissioned the electric arc and ladle furnace (combined capacity: 0.824 million mt per year) and the hot rolled coil mill (capacity: 0.8 million mt per year), which will further boost its revenues and profitability from FY 2012-13 onwards.
Fitch said that its ratings are constrained by BPSL's relatively high financial leverage (net debt/ EBITDA) and the lack of captive raw material linkages. The company is yet to sign mining lease agreements for the Jamkhani Coal Block in Orissa. The agency notes that BPSL will be better-positioned to derive benefits given the reduction in input costs once the mines are operational.
BPSL, formerly known as Bhushan Limited, is a closely-held public limited company with plants at Chandigarh, Dera Bassi (Punjab), Kolkata and Sambalpur (Orissa).