Crisil Downgrades Pearl Polymers Fixed Deposits

The pioneer in PET packaging in the country Pearl Polymers (PPL)  has been downgraded by Credit Rating Information Services of India (CRISIL) for a deterioration in financials.

The fixed deposit programme of PPL has been downgraded to FA+ from FAA- as the decline in profitability and an increase in gearing has resulted in interest coverage eroding the companys capital structure over the last two years.

The revised rating indicates adequate safety on timely payment of principal and interest.

PPL is the largest manufacturer of polyethylene teraphthalate (PET) bottles, jars and containers in India. The company introduced PET as a packaging medium in 1985 and subsequently commenced marketing PET containers in the retail market under the Pearlpet brand name.

 

The companys net sales increased by 29.6 per cent to Rs 85.39 crore in 1995-96 from Rs 60.16 crore in 1994-95. The demand for PET containers is estimated to be growing at about 30 to 40 per cent per annum. \However, despite the companys strong business position, the capital structure has deteriorated over the last two years.

Gearing (total debt/tangible networth) has risen from 0.95 times as on March 31, 1995 to 1.53 times as on March 31, 1996. PPLs operating profitability (OPBDIT/operating income) declined significantly from 17.6 per cent in 1994-95 to 11.9 per cent in 1995-96 on account of a sharp increase in PET chip prices, which is the companys primary raw material.

The decline in profitability and an increase in gearing has resulted in a dip in interest coverage (PBDIT/interest and finance charges) from 3.44 times in 1994-95 to 2.18 times in 1995-96.

PPL, at present, has the largest installed capacity in the country and is currently undertaking a capacity expansion. It plans to increase its capacity from about 128 million bottles per annum (mbpa) to 198 mbpa. The company will be funding the expansion through a high debt-equity ratio programme. This will have a bearing on the future interest cost as interest coverage in future is likely to be under pressure.

PPL promoted Pearl Engineering & Polymers (PEPL) in 1992 to have a captive PET chip supply.

Its total investment in PEPL as on March 31, 1996 is about Rs 7 crore. PEPL has, however, been witnessing financial problems since inception.