ICRA has downgraded the long-term rating outstanding on the Rs. 33.17 crores term loans and Rs. 25.00 crores fund-based limits of Rama Paper Mills Limited (RPML) from LB (pronounced L B) to LC (pronounced L C). ICRA has also downgraded the short-term rating outstanding on the Rs. 0.40 crores non-fund based limits from A4 (pronounced A four) to A5 (pronounced A five).

The rating revision takes into account continued delays in debt servicing by the company over past two years due to stretched liquidity position arising out of time and cost overrun in its completed capacity expansion project and delay in stabilization of the new unit owing to teething problems in the project. The stretched liquidity position is also reflected in frequent overutilization of bank limits, which in turn is attributable to high working capital intensity of its operations on account of high receivable days. While the capital expenditure undertaken by the company during past few years will impart operational advantages, however significant debt raised by the company towards funding of these projects has resulted in weakening of the capital structure (gearing of 2.22 times as on March 2010) and debt coverage indicators. The rating also factors in the RPML‘s significant concentration in newsprint segment, which apart from witnessing cyclicality in prices on account zero duty protection and global economic cycles, has also been affected by significant imports and fragmented nature of domestic industry. These limitations of RPML are partially offset by the long operating history of the company and expected operational improvement arising out of the projects undertaken by the company in the recent past. Going forward, the company‘s ability to consistently operate its new capacity at high capacity utilization, improve its contribution margins by keeping its costs under control, and infuse long term funds will remain key rating drivers. While assigning the rating, ICRA has also taken into view the history of the defaults to Financial Institution (FIs) and waivers taken by FIs as a part of One Time Settlement (OTS) scheme, when it was under the purview of BIFR during 2000-06.