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CARE Ratings Upgrades ASAHI SONGWON COLORS' Bank Facility Ratings
Team Finance Saathi
18/Jan/2025
What's covered under the Article:
- CARE Ratings upgraded ASAHI SONGWON COLORS' long-term and short-term bank facilities.
- Improved financial performance and operational growth led to the rating upgrade.
- The company anticipates sustained growth and stable profitability moving forward.
Asahi Songwon Colors Limited (ASCL), a leading player in the pigment industry, has announced a significant upgrade in its credit rating by CARE Ratings Limited. The rating revision reflects the company's strengthened financial position and improved operational metrics over the past few quarters.
Overview of Rating Revision:
CARE Ratings has upgraded the ratings for the company's various bank facilities as follows:
- Long-Term Bank Facilities: From CARE A- (Stable) to CARE A (Positive).
- Long-Term/Short-Term Bank Facilities: From CARE A- (Stable)/CARE A2+ to CARE A (Positive)/CARE A1.
- Short-Term Bank Facilities: From CARE A2+ to CARE A1.
These upgrades are based on ASCL's improved financial performance, reflecting a solid turnaround and positive outlook.
Key Drivers of the Upgrade:
The rating upgrade is primarily driven by sustained improvement in ASCL’s operating performance, backed by higher product realisations, stronger demand in the pigment industry, and better capacity utilisation. Specifically, ASCL’s blue pigment business saw a notable increase in capacity utilisation, which stood above 85% in H1FY25, compared to 60% in FY24. Similarly, the azo pigment segment also experienced growth, reaching 66% capacity utilisation.
This operational growth was mirrored by a 39% year-on-year increase in the company’s scale of operations in H1FY25. Moreover, ASCL’s profit before interest, lease rentals, depreciation, and taxation (PBILDT) margin saw significant improvement, rising to 9.9% in H1FY25 from just 2.3% in H1FY24.
ASCL’s debt protection metrics also improved, with the interest coverage ratio rising to approximately 3.3x in H1FY25 (up from 1.6x in FY24), and total debt-to-PBILDT improving sharply to 3.6x in H1FY25.
Outlook and Future Projections:
CARE Ratings has revised the outlook for ASCL from Stable to Positive, reflecting expectations of continued growth and improved cash flow generation. The company’s API business also contributed to the overall profitability, supported by the ramp-up of operations and benefits from backward integration.
The positive outlook suggests that ASCL’s financial health is expected to remain robust, with sustained healthy PBILDT margins and gradual debt reduction. CARE Ratings also expects the company to maintain healthy operating profitability through FY25, with projected PBILDT ranging between 55-60 crore.
However, the ratings are subject to the company’s ability to further diversify its revenue base and manage profitability volatility stemming from raw material price fluctuations and foreign exchange risks. Despite these challenges, ASCL’s diversification in both product lines and markets, coupled with an experienced management team, positions the company favorably for long-term growth.
Conclusion:
This rating upgrade marks a major milestone for Asahi Songwon Colors, showcasing its resilience and improvement despite industry challenges. The company’s stable outlook is a testament to its strong management and strategic initiatives aimed at enhancing operational efficiency and profitability.