ICRA assigns A1 plus for Essel Mining's CP

THE A1 PLUS rating assigned by ICRA to the Rs. 10 crore commercial paper programme of Essel Mining and Industries (EMIL), indicating highest safety in the short term. The prospect of timely payment of debt/obligation is the best. The rating takes into account the relatively stable cash flow from the mining division, favourable liquidity position primarily arising from its portfolio of investments, comfortable financial risk profile and the company's status as a member of the AV Birla group of companies. These strengths are, however, tempered to some extent by the low profitability of its two other businesses, that is, ferro-chemicals and packaging. The rating also factors in the proposed cessation of all trading activities with effect from 2000-01; the latter had been responsible for the significant decline in EMIL's profitability in 1999-2000.

EMIL, a closely held company of the AV Birla group, is engaged in three diverse businesses - mining of iron ore, manufacture of ferro alloys, namely, ferro-molybdenum and ferro-vanadium used in the steel industry, and the manufacture of high density polyethylene (HDPE)/low density polyethylene/polypropylene woven sacks catering primarily to the packaging needs of the fertilizer industry. The mining division contributes to only around 37 per cent of the manufacturing turnover of EMIL (1999-2000) but is the largest contributor to its profitability.

The risk profile of this division continues to be relatively comfortable because of the high quality of its iron ore reserves and the diverse customer base. While the depressed market conditions in the final end-user industry, that is steel, is an area of concern, the company's ability to export iron ore (mainly through MMTC) and its continuing attempt to improve its operating efficiency through higher mechanisation levels, act as mitigating factors.

The business risk profile of the ferro alloy division is characterised by its small scale of operations, the weak prospects for the domestic alloy steel industry in the short term, threat of imports and large volatility in prices of both end-products and major raw materials. The operating profits of this division had witnessed a considerable decline in 1999-2000 following a big drop in the realisations of both key products - ferro molybdenum and ferro vanadium.

The profitability of the packaging division, although somewhat more stable than the latter, remains depressed because of the commodity nature of the business and the high level of competition from the unorganised sector. However, offtake risks are low on account of an assured offtake from a group company, Indo-Gulf Fertilisers.

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Section  : Business
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