Nitco heads for CDR

Weak rupee makes import costs balloon, hitting margins, loan repayment burden

Spiralling import costs due to the rupee’s dip hit the bottom lines of many companies in 2011-12, weakening their financial profile significantly. Ceramic tile maker Nitco Ltd is one such company.

It is a major player in vitrified tiles, which it imports from China. A weak rupee made its imports costly and dented its profitability. As a consequence, it is going in for restructuring of its debt, to bring down the burden of repayment.

Vivek Talwar, managing director, said a 20 per cent fall in the value of the rupee against the dollar since September 2011 had resulted in problems.

BALANCING ACT A snapshot of Nitco’s five-year performance
Rs  crore	2007-08	2008-09	2009-10	2010-11	2011-12
Gross sales	651	674.66	465.33	728.55	958.51
Finance costs	13.94	23.55	15.65	28.09	75.11
Net profit/loss	51.02	24.97	-8.71	26.3	-55.44
Note: '- ' indicates loss                 Source: Company’s annual report and BSE website

Senior public sector bank executives said many companies across sectors have been affected by the weak rupee. Their import bill and and foreign loan repayment burden went up in 2011-12. Lenders would look at a package including giving more time for repayment and a payment holiday.

Nitco’s total liabilities rose to about Rs900 crore at the end of March from Rs596 crore at the end of March 2011. Its long-term borrowings went up to Rs300.6 crore at end-March 2012 from Rs244.2 crore a year before. Major lenders to the company include Punjab National Bank, State Bank of India and Syndicate Bank. Talwar said the company had been sourcing vitrified tiles from units in China. It has since up a unit in Morbi, Gujarat, for making these. The plant is expected become operational in October.

Gross sales grew to Rs959 crore in FY12 from Rs729 crore in FY11. But, the bottom line took a knock, with loss of Rs55 crore in FY12 as against net profit of Rs26 crore in FY11. The pressure on profits will continue for the next two to three quarters, he said.

Rating agency CARE, in a report this March, said the ratings continue to derive strength from the company’s track record, strong brand name and wide distribution network. The ratings are constrained by the competitive and fragmented nature of the tile industry and Nitco’s dependence on suppliers abroad, in the backdrop of regulatory uncertainties.

Further, the ratings are constrained due to considerable repayment obligations in the short to medium term. They also take cognizance of increase in the financial leverage and low capacity utilisation for ceramic manufacturing facilities during FY11.