Ellenbarrie Industrial Gases Ltd.

Brickwork Ratings has upgraded the ratings for the Bank Loan Facilities of Rs. 25.00 Crs. of Ellenbarrie Industrial Gases Ltd (“EIGL” or the “company’), and has removed the ratings from the Issuer Not Cooperating category.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (03 Sep 2020)	Present
Fund Based	33.78	0.00	Long Term	BWR B+ /Stable Downgrade/ISSUER NOT COOPERATING*	BWR BB + /Positive Upgrade
Fund Based	(0.00)	(12.50)	Long Term	BWR B+ /Stable Downgrade/ISSUER NOT COOPERATING*	BWR BB + /Positive Upgrade
Non Fund Based	21.50	25.00	Short Term	BWR A4 Reaffirmation/ISSUER NOT COOPERATING*	BWR A4 + Upgrade
Grand Total	55.28	25.00	(Rupees Twenty Five Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

BWR has Upgraded the rating of the long term bank loan facilities of EIGL for Rs. 12.50 Crores (sublimit of the short term facility) to BWR BB+ with a Positive outlook, and the rating of their short term bank loan facilities for Rs.25.00 Crores to BWR A4+, while simultaneously removing the ratings from the Issuer Not Cooperating category. The upgrade in the rating factors in the experienced promoters, upcoming new Air Separation Unit in Kurnool (AP), the present debt free nature of the Company, diversified product profile and clientele, comfortable financial profile and debt-protection metrics, as well as adequate liquidity. However the ratings are constrained by sluggish revenue growth during FY21, the uncertainty about whether demand for medical oxygen will be sustained at current levels going forward, likely deterioration in debt coverage due to the proposed capex, project execution risk, intense competition from large players, dependence on the end-user industry, and regulatory restrictions.

The outlook has been revised to ‘Positive’, considering the recent improvement in the company’s financial performance, profitability and the ongoing expansion project of a new Air Separation Unit in Kurnool (AP). The rating outlook may be revised to ‘Stable’ if the company is not able to improve its operating income or sustain its operating margin, debt protection metrics and liquidity position in FY22.

For arriving at the ratings, Brickwork Ratings has relied upon the Audited Financial statements of FY21, Unaudited Financial statements 6MFY22. as well as Projections for FY 22 and FY23. other information as available in the public domain, together with information / clarifications provided by the company and its bankers.

KEY RATING DRIVERS

Credit Strengths:

Long track record of the company and experienced promoters :
The Company has an established track record of more than four decades in the industry since inception. Moreover the promoters have extensive experience in running the business. The Company is also supported by a professional team to look after its day to day operations.
Upcoming new Air Separation Unit in Kurnool (AP) :
The Company is in the process of building a new Air Separation Unit (“ASU”) located in Kurnool, Andhra Pradesh, India. The contract has been awarded by Jai Raj Ispat Limited (JIL) to supply gas for 17 years. The Project would strengthen the Company’s presence in the southern region of the country. The new plant will consist of an ASU plant capable of producing 340 tpd of gaseous oxygen (“GOX”), 150 tpd of gaseous nitrogen (“GAN”) , 170 tpd of liquid oxygen (“LOX”), 70 tpd liquid nitrogen (“LIN”), 21 tpd liquid argon (“LAR”). This plant is expected to be commissioned by May 2023. Contract to supply industrial gases to JIL for 17 years provides healthy revenue visibility in coming years.
Debt free Company :
With separation concluded during July 2021 after buyback of 51% stake by the promoters of the Company from Air Water Inc, the Company is presently a 100% Indian-owned industrial and medical gas company. The Company also received one time compensation from Air Water Inc which was utilised for prepayment of all long term borrowings by July 31st 2021 making the company zero debt company.
Diversified product profile and clientele :
The company manufactures various types of industrial gases which caters to different industries like steel, oil & gas, pharmaceutical, aerospace & defense, food & beverage, healthcare etc. The ratings also take cognisance of the fact that the company has a decade long business relationship with reputed players like Aurobindo Pharma Limited, Divis Laboratories Limited, Inox Air Products Private Limited etc. Company’s long association with such a reputed and strong clientele ensures low counterparty credit risk.
Comfortable debt-protection metrics and TNW during FY21 :
Credit metrics of the company were comfortable as reflected from ISCR of 4.44 times during FY21, as against ISCR of 1.53 times in FY20. Improvement in ISCR is on account of significant decline in interest cost of Rs.10.40 Crs in FY21 as against interest cost of Rs.16.44 Crs in FY20. Total Debt/TNW and TOL/TNW also remained comfortable at 1.07 times in FY21 (FY20: 1.36 times) and at 1.70 times (FY20: 2.13 times) respectively. The Tangible Net Worth of the company increased to Rs.123.93 Crs in FY21 as against Tangible Net Worth of Rs.100.13 Crs in FY20, on account of ploughing back of profit.

Credit Risks:

Sluggish revenue growth during FY21, and uncertainty of sustaining the present growth, going forward :
The company reported marginal improvement in the total operating income of Rs. 175.18 Crs (FY20: Rs. 174.33 Crs) in FY21. Sluggish revenue growth in FY21 was mainly on account of the COVID scenario in the Q1FY21. The Company’s operations were adversely impacted by the imposed lockdown by the GOI and as a result its capacity utilization fell to 76% in FY21 as against 80% in FY20. However, June 2020 onwards the Company promptly resumed all operations keeping in mind the social implication for supplying key medical oxygen within the operational area of the company in compliance with MHA guidelines. While this has led to spectacular revenue growth during H1FY22 due to the second wave of Covid, the sustainability of such demand for medical oxygen will be ascertainable only in the future. This is therefore an area of concern at the moment.
Likely deterioration in debt coverage, and project execution risk :
The Company is in the process of building a new Air Separation Unit located in Kurnool, Andhra Pradesh, India. Total estimated project cost for the unit is Rs.224.10 Crs and the same will be funded by means of Term loan of Rs. 145.00 Crs. and from the internal accruals of the Company to the extent of Rs.79.10 Crs. which will impact the gearing and debt coverage metrics. The COD of the proposed project is presently in May 2023, however, given the current conditions, there is considerable risk as regards timely commissioning of the same, which may adversely affect all their projections.
Intense competition from large players :
The Company faces intense competition due to the presence of Indian subsidiaries of the international players like Praxair Inc., Linde AG, Air Liquide SA and other local players like INOX Air Products Ltd and Goyal MG Gases Pvt. Ltd. Intense competition from various industry players is having a negative impact on the profitability of the Company.
Dependence on the end-user industry :
Industrial gases find their application in the oil and gas, iron and steel, healthcare, construction, food and beverage, mining, transportation, and other end-user industries. Thus the demand for the Industrial and medical gases depends on the growth and profitability of user industries. The demand for the Industrial gases was negatively impacted by COVID-19 in 2020. Reduced consumption of carbonated beverages during the COVID-19 situation, negatively impacted the industrial gas market. Furthermore, construction works were also on temporary halt during the lockdown, which led to a decrease in the consumption of industrial gases like argon and hydrogen, which are used for welding purposes while construction. Although the demand for medical gases increased during the pandemic situation, this is not likely to continue at the same levels..
Regulatory restrictions :
The company deals in producing and supplying Industrial gases both in liquid and gaseous forms to Industries and Hospitals. This sector is highly regulated by the government and any adverse change in policy will have a direct impact on the company.

ANALYTICAL APPROACH - Standalone

Standalone

RATING SENSITIVITIES

Positive triggers: The rating can be upgraded if the company achieves a scale up in its revenues, while maintaining its profitability and debt protection metrics.

Negative triggers: The downward pressure on rating could arise in case of a material decline in the revenues and profitability of the company leading to adverse impact on the debt coverage metrics.

LIQUIDITY INDICATORS - Adequate

EBITDA of Rs.46.19 Crs.in FY21 (Rs.25.15 Crs for FY20) was sufficient to cover the interest and finance charges of Rs.10.40 Crs (Rs. 16.44 Crs for FY20). Net cash accruals was Rs.36.64 Crs for FY21 as against Net cash accruals of Rs.123.77 Crs in FY20. The higher cash accrual in FY20 was due to a one time compensation of Rs. from the erstwhile JV partner. Current ratio improved marginally to 0.97 times in FY21 as against 0.98 times in FY20. ISCR was 4.44 times in FY21 as compared to ISCR of 1.53 times in FY20. The average utilization of CC limits in the past 6 months is even less than 10% as confirmed by the bankers. Future cash accruals are expected to be sufficient to cover the interest obligations arising out of short term borrowings.

ABOUT THE ENTITY

Incorporated in 1973, Ellenbarrie Industrial Gases Limited (EIGL) is a manufacturer and supplier of Industrial Gases in Eastern and Southern India both in bulk and packaged form. The company manufactures and supplies industrial oxygen, nitrogen, argon, acetylene, carbon dioxide and other speciality gases from its plants located in Uluberia, Kalyani Panagarh and Kharagpur in West Bengal and in Vizag and Hyderabad in South India. The company has a diversified customer base and caters to different industries like steel, oil & gas, pharmaceutical, aerospace & defense, food & beverage, healthcare etc. The promoters of Ellenbarrie Industrial Gases Ltd., have re-acquired 51% stake in the company in July 2021, from Air Water Inc.(AWI), a Japanese industrial gases Conglomerate. EIGL is now the 100% Indian-owned industrial and medical gas company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	175.18	174.33
EBITDA	Rs.Crs.	46.19	25.15
PAT	Rs.Crs.	24.05	89.42
Tangible Net Worth	Rs.Crs.	123.93	100.13
Total Debt/Tangible Net Worth	Times	1.07	1.36
Current Ratio	Times	1.14	1.31

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	NA	NA	03Sep2020	BWR B+ Stable (Downgrade/ISSUER NOT COOPERATING*)	NA	NA	NA	NA
FB SubLimit	LT	(12.50)	BWR BB+/Positive (Upgrade)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	25.00	BWR A4+ (Upgrade)	03Sep2020	BWR A4 (Reaffirmation/ISSUER NOT COOPERATING*)	NA	NA	NA	NA
Grand Total		25.00	(Rupees Twenty Five Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Analytical Contacts
Ambar Kumar Chauhan Ratings Analyst ambarkumar.c@brickworkratings.com	Anuradha Gupta Director - Ratings anuradha.g@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Ellenbarrie Industrial Gases Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Bank of Baroda	Term Loan - Sanctioned	_	_	0.00
2	Bank of Baroda	Cash Credit - Sanctioned	_	_	0.00
3	Bank of Baroda	Bank Guarantee - Sanctioned	_	_	0.00
4	Bank of Baroda	Sales Invoice Discounting - Sanctioned	_	_	0.00
5	Bank of Baroda	Letter of Credit (Inland/Import) / Buyers Credit - Sanctioned	_	_	0.00
6	HDFC Bank	Bank Guarantee - Sanctioned	_	25.00	25.00
	Sub-Limit (Cash Credit) - Sanctioned	(12.50)
Total			0.00	25.00	25.00
TOTAL (Rupees Twenty Five Crores Only)

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