CRISIL's ratings on the bank facilities of Pondy Oxides & Chemicals Ltd (POCL, part of the Bansal group) continue to reflect the Bansal group?s established market position in the metallic oxides industry, its strong operational capabilities, and above-average financial risk profile, marked by moderate gearing and comfortable debt protection metrics. These rating strengths are partially offset by the Bansal group?s susceptibility to volatility in raw material prices, cyclicality in end-user industries, and intense competition because of the low-entry barriers in the metal recycling and metal oxide manufacturing business, and supplier concentration.

*Interchangeable with bill discounting facility

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of POCL and its subsidiary, Lohia Metals Pvt Ltd (LMPL), together referred to as the Bansal group. This is because the two companies have common promoters, are in the same line of business, and have fungible cash flows. Furthermore, LMPL is being merged with POCL; application for the merger has been filed with the appropriate authorities. The merger is expected to be completed by 2011-12 (refers to financial year, April 1 to March 31), with effect from October 31, 2010.

Outlook: Stable

CRISIL believes that the Bansal group will continue to benefit from its established market position and customer relationships. The outlook may be revised to ?Positive? if the group improves and sustains its operating margin, while also significantly improving its capital structure and debt protection metrics. Conversely, the outlook may be revised to ?Negative? if the group?s revenues and operating margin decline significantly, or if it undertakes a large, debt-funded capital expenditure programme, thereby weakening its capital structure.