CRISIL reaffirms \'BBB/Stable/P3+\' ratings of Hindustan Insecticides

CRISIL has reaffirmed its ratings on the bank facilities of Hindustan Insecticides Ltd (HIL) at "˜BBB/Stable/P3+'. The ratings have been reaffirmed despite pressure on HIL's liquidity as a result of delays in payment of dues by its parent, the G

CRISIL has reaffirmed its ratings on the bank facilities of Hindustan Insecticides Ltd (HIL) at ?BBB/Stable/P3+?. The ratings have been reaffirmed despite pressure on HIL?s liquidity as a result of delays in payment of dues by its parent, the Government of India (GoI), as GoI is likely to extend about Rs.450 million to HIL by May 15, 2011, thereby alleviating HIL?s liquidity. HIL?s bank limit utilisation was high at 95 per cent as on March 31, 2011, mainly because of its investment of Rs.160 million in Life Insurance Corporation of India towards Employees Group Gratuity scheme; the receipt of dues from GoI will reduce HIL?s bank limit utilisation. CRISIL believes that HIL will keep its bank limit utilisation in check and instead increase its days payables when required. Also, HIL?s capital structure is expected to improve over the medium term, as the company is negotiating with GoI to adjust its debt obligations to GoI against the dues from GoI and a waiver of a loan of about Rs.80 million from GoI.

* Sub-limit: bill purchase/bill discounting of up to Rs.50 Million
^ Sub-limit: bank guarantee/bid bonds of up to Rs.10 Million

The ratings also reflect HIL?s moderate business risk profile marked by low operating profitability and large working capital requirements. These rating weaknesses are partially offset by the support HIL is expected to continue to receive from GoI because of its importance to GoI in controlling malaria in India, initiatives by HIL to diversify its business risk profile mainly through higher exports, and the company?s low gearing.

Outlook: Stable

CRISIL believes that HIL will maintain its business risk profile over the medium term, supported by addition of new agrochemical products to its portfolio and its increasing focus on exports. The receipt of dues from GoI is expected to significantly improve HIL?s cash flows. The outlook may be revised to ?Positive? if there is a more-than-expected increase in HIL?s revenues and increased cash generation by way of enhancement in product profile, alternative revenue streams, realisation of funds from land assets, and substantial reduction in dues from GoI. Conversely, the outlook may be revised to ?Negative? if HIL faces delays in settlement of receivables from GoI, its revenues are lesser than expected, most likely because of adverse changes in regulations related to (DDT) or endosulfan, or if the company?s capital structure weakens because of larger-than-expected debt-funded capital expenditure.