LA minus for H&R Johnson's NCD

THE INVESTMENT Information and Credit Rating Agency (ICRA) has retained the LA minus (LA minus) rating assigned to the Rs. 25 crore NCD programme of H&R Johnson India (HRJ). The rating indicates adequate safety. The rating takes into account the positive outlook for the ceramic tile industry and the strong market position of HRJ. However, the rating for HRJ is constrained by intense competition in the industry, the company's high level of gearing and pressure on its liquidity due to significant repayment obligations in the next couple of years.

The company is a market leader in the ceramic tile industry with a strong brand image, multi-locational manufacturing facilities and a wide retail reach. The acquisition of EID Parry's wall tile manufacturing facilities at Karaikkal during 1999-2000 has given HRJ a stronger foothold in the south. The company has also started producing floor tiles at its Kunigal plant to cater to the southern market.

The company is now trying to procure the raw materials locally, wherever possible. This strategy of regionalisation will help HRJ to improve supply logistics and reduce costs.

The shift towards natural gas, which is a cheaper fuel vis-a-vis LPG and propane, at the Pen plant would further reduce costs in future and help HRJ to improve its operating margins. HRJ plans to produce more value-added products in the future, so as to improve realisations.

Following growth in the housing sector, the demand for ceramic tiles is also expected to grow and HRJ is planning to expand its capacity at the Pen plant to meet the increasing demand. The imports of vitrified granito tiles have been opened up with effect from April 1, 2000 and imports of ceramic tiles will be opened up from April 1, 2001. This is likely to intensify competition.

HRJ's sales increased by about 30 per cent in 1999-2000 due to an increase in both volumes and realisations. While HRJ increased its market share significantly in the vitrified tile segment, it maintained its share in the floor and wall tile segments.

The operating profit margins have improved from 16.7 per cent in 1998-99 to 21.50 per cent in 1999-2000 because of the cost control measures and increased realisations for the company's products. As on March 31, 2000, the gearing of the company stood at 1.99 times. The high gearing is due to the debt taken by HRJ to finance the Pen project and acquisition of the plant at Karaikkal. A substantial portion of long-term debt is to be repaid during the next two years, which will put a strain on the company's liquidity.

Corporate Bureau

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