CRISIL reaffirms ratings on Nirma Limited

CRISIL has reaffirmed its "˜AA/Stable/P1+' ratings on Nirma Ltd's (Nirma's) outstanding debt programme and bank facilities. The ratings continue to reflect Nirma's healthy financial risk profile and established market position in the deterge

CRISIL has reaffirmed its ?AA/Stable/P1+? ratings on Nirma Ltd?s (Nirma?s) outstanding debt programme and bank facilities. The ratings continue to reflect Nirma?s healthy financial risk profile and established market position in the detergent and soda ash businesses. These rating strengths are partially offset by the company?s exposure to intensifying competition in the detergent business, limited track record in the healthcare business, and the growing share of the soda ash business, which is vulnerable to price fluctuations and cyclicality, in the company?s revenue mix.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Nirma and its wholly owned subsidiaries, Searles Valley Minerals Operations Inc and Searles Valley Minerals Inc (the two subsidiaries together are referred to as SVM).

Nirma has a comfortable gearing, and healthy debt protection measures. Nirma?s gearing improved from 0.69 times as on March 31, 2009 to 0.48 times as on March 31, 2010. It is estimated to have improved further as on March 31, 2011; debt levels net of liquidity are around Rs. 12 billion. Nirma?s cash accruals will be sufficient to meet its capital expenditure needs and debt repayment obligations over the medium term.

Nirma?s business risk profile continues to be supported by its established market position in the domestic detergent business. Further, with the acquisition of SVM, Nirma has enhanced its capacity in soda ash to 1.9 million tonnes per annum (mtpa) and has become the seventh-largest producer of soda ash globally. Nirma will, over the medium term, benefit from its strong market position in the detergent and soda ash business.

Nirma, however, faces challenges in its detergent business because of intense competition from local players. Nirma?s domestic business also faced cost side pressures during nine months ended December 31, 2010; its operating margin declined to 14 per cent during this period as against 20 per cent during nine months ended December 31, 2009.

Outlook: Stable

CRISIL believes that Nirma will maintain its financial risk profile over the medium term on the back of its healthy cash generation ability. The outlook could be revised to ?Positive? in case of a significant and sustainable increase in the company?s market share in the detergent and soap segments, coupled with improvement in the operating efficiency of SVM. Conversely, increased competitive pressure in the detergent and soap segments, resulting in a decline in Nirma's market share, and higher reliance on debt for funding expansion, could result in a revision in outlook to ?Negative?.