Credit rating agency, ICRA has upgraded the rating assigned to the Rs 218.50 million term loans and the Rs 153.75 million long-term fund based limits of Ester Industries (Q,N,C,F)* (EIL) from LBBB- to LBBB, indicating moderate-credit-quality.

ICRA has also upgraded the rating assigned to the Rs 426.25 million short-term fund based limits and the Rs 298.30 short-term non-fund based limits of EIL from A3 to A3+, indicating moderate-credit-quality.

The revision in ratings reflects the improvement in the business risk profile because of operational initiatives to improve the cost structure as well as increase in the proportion of value-added products in the company`s revenues.

The ratings also take into account improvement in the financial risk profile due to improvement in the profitability driven by favourable supply-demand balance in favour of producers and the company`s own operational initiatives, which in turn has led to improvement in capital structure and coverage indicators of the company.

The ratings continue to factor in fairly long track record of EIL in the polyester film business, locational advantages like access to low cost grid power, use of alternative feedstock like rice husk, proximity to the major raw material and to the markets in Northern India.

However, the ratings are constrained by EIL`s relatively small-sized operations in the flexible packaging business, the cyclicality inherent in the domestic and global packaging film industry and the company`s history of financial difficulties and debt restructuring.

The ratings also take into account primarily debt-funded large capital expenditure (capex) plan of EIL to double its existing Uttarakhand based capacity, and the project implementation risks.

Further, ICRA expects an increase in domestic surplus due to planned expansions by various polyester film players, which may put modest pressure on realisations and margins over the medium term. Any material time and cost over run on the project will be a key rating sensitivity.

Shares of the company gained Rs 0.3, or 1.28%, to settle at Rs 23.75. The total volume of shares traded was 243,993.00 at the BSE (Thursday).