ICRA has upgraded the rating assigned to the Rs. 160 crore term loans (enhanced from Rs. 21.85 crore) and the Rs. 41 crore long-term fund-based limits (enhanced from Rs. 15.375 crore) of Ester Industries Limited (EIL) from LBBB (pronounced L triple B) to LBBB+ (pronounced L triple B plus). ICRA has also assigned an LBBB+ (pronounced L triple B plus) rating to the Rs. 13.4 crore long-term non-fund based limit of EIL. Further, ICRA has assigned a “stable” outlook on the long-term rating. ICRA has also upgraded the rating assigned to the Rs. 45 crore short-term fund based limits (enhanced from Rs. 42.625 crore) and the Rs. 54 crore short-term non-fund based limits (enhanced from Rs. 29.83 crore) of EIL from A3+ (pronounced A three plus) to A2 (pronounced A two).

The revision in ratings reflects the improvement in the financial risk profile due to buoyant profitability driven by favourable supply-demand balance in favour of producers and the company's own operational initiatives, which in turn have led to improvement in its capital structure and coverage indicators. ICRA notes that the robust demand growth along with closure of certain capacities globally and weak raw material prices have resulted in buoyant profitability for the domestic polyester film producers which may continue in the near to medium term; however, increase in domestic surplus due to planned expansions by various polyester film companies could put pressure on realisations and margins beyond the medium term. The ratings upgrade has also favourably factored in the proportion of value-added products in the total revenues of EIL, thereby leading to an improvement in its business risk profile. The ratings continue to factor in fairly long track record of EIL in the polyester film business, locational advantages like access to low cost grid power, use of alternative feedstock like rice husk, proximity to major raw material sources and markets in northern India. The ratings are, however, constrained by EIL's relatively smallsized operations in the flexible packaging business, the cyclicality inherent in the domestic and global packaging film industry and the company's history of financial distress. The ratings also take into account the primarily debtfunded large capex plan of EIL to double its existing Uttarakhand-based capacity and project implementation risks, that are partly mitigated by the advanced stage of the project without cost or time overruns. ICRA notes that the company has recently announced its plan to set up another polyester film line of 30,000 MTPA capacity at an estimated capital expenditure of Rs. 175 crore. The company is yet to finalise the location and the funding pattern of the project and ICRA will evaluate the impact of this project on the credit risk profile of EIL as and when there is more clarity on the funding mix for the project.