ICRA has downgraded the long term rating assigned to the term loans and fund based facilities of Malu Paper Mills Limited (MPML) aggregating to Rs. 42.25 crore (reduced from Rs. 55.00 crore) and Rs. 24.75 crore respectively from LB+ (pronounced L B plus) to LB (pronounced L B). ICRA has reaffirmed the short term rating assigned to the non-fund based limits of MPML aggregating to Rs. 16.20 crore at A4 (pronounced A four).

The downgrade in ratings takes into account the delays by MPML in the past in meeting its debt obligations due to stretched liquidity profile and deterioration in the financial risk profile with net losses reported in FY 2009 and FY 2010 and highly leveraged capital structure. The ratings are further constrained by the cyclical nature of the industry and vulnerability of the profitability margins to any adverse price fluctuations of waste paper (being key raw material) and newsprint paper. With downward trend witnessed in the newsprint industry during FY 2009 and FY 2010 that led to sharp decline in realisation levels, the utilisation level of the 49,500 TPA newsprint unit (which was commissioned in March 2008) was adversely impacted. While the company is expected to benefit from the improving demand and realisation levels for newsprint as well as product diversification initiatives taken during FY 2011, the high interest and depreciation burden is expected to keep the net profitability at lower level. The ratings however favourably factor in the long track record of the promoters in the business, the improved capacity utilisation levels for kraft paper production aided by healthy demand indicators and the commencement of writing and printing paper production in the current fiscal that would widen the product portfolio of the company.