S&P lowers Ballarpur Ind outlook to negative, affirms 'BB-' rating

SINGAPORE: Standard & Poor's Ratings Services has revised its rating outlook on Ballarpur Industries to negative from stable while affirming its 'BB-' long-term corporate credit rating.

The negative rating outlook on Ballarpur Industries reflects its weakening financial risk profile, higher debt, intense competition, and earnings exposure to paper price volatility. However, these weaknesses are offset to some extent by its favorable domestic market position and growth potential there. Ballarpur is the major player in paper manufacturing in India.

"The company's financial risk profile has weakened as a result of higher debt incurred to fund its capital expenditure," said S&P's credit analyst Yasmin Wirjawan. Ballarpur's debt-to-EBITDA ratio has weakened to 4.1 times in fiscal 2008, from 3.8 times in fiscal 2007.

Ballarpur's margins are directly affected by the volatile paper prices, which are showing signs of softening in the domestic market. Paper prices have fallen to $800- $850 per tonne from $950 per tonne.

Moreover, the Indian paper industry is highly fragmented and is adding sizable capacity in the near future, which could pressure domestic paper prices further.

Ballarpur's Malaysian operation faces strong competition from the local players. "Although it is better placed being self sufficient in its pulp requirements and favorable tax laws, softening paper prices are likely to keep the margins of its Malaysian operation lower than Ballarpur's Indian operations," Ms. Wirjawan said.