11/08/2012 (Reuters) - Fitch Ratings has assigned India-based palm oil refiner Pandi Devi Oil Private Limited (PDO) a National Long-Term rating of 'Fitch B+(ind)'. The Outlook is Stable. A list of additional rating actions is provided at the end of this commentary.

The ratings reflect the present unfavourable business environment for the domestic palm oil refiners. The import of refined palm oil in India has become more viable than the import of crude palm oil, as the Indonesian government has revised the export duty structure on palm oil in favour of Indonesian refiners from September 2011. The ratings are constrained by PDO's vulnerability to volatile currency fluctuations, lack of control over its imported supplies - with no backward integration, and the absence of branded products in its portfolio.

The ratings also factor in PDO's volatile and low revenue base, which limits its bargaining power with suppliers and customers. The ratings also reflect the company's high working capital intensity and volatile margins, which negatively impact its coverage and leverage metrics.

The ratings, however, derive support from PDO's over 20 years of experience in edible oil processing, its established industry links, and a favourable demand outlook for edible oil in India.

WHAT COULD TRIGGER A RATING ACTION?

Negative: Future developments that may lead to negative rating action include net interest coverage (operating EBITDA/ net interest) below 1.5x on a sustained basis from FY13 onwards.

Positive: Future developments that may lead to negative rating action include net interest coverage above 2.5x on a sustained basis.

PDO has a 300 tonnes per day (tpd) capacity palm oil refinery in Puducherry. The company sells all its products and by-products to wholesalers. In FY11, PDO reported a turnover of INR1,580m (FY10: INR701m), an operating EBITDA margin of 4 % (4.4%), net interest coverage of 1.5x (FY10: 1.6x) and financial leverage (debt/ operating EBITDA) of 3.6x (1.9x). Unaudited results for 9MFY12 indicate revenue of INR1,137.9m, a net loss of INR1.5m, an operating EBITDA margin of 2.6%, financial leverage of 10.5x and interest coverage of 1.2x.

Fitch has also assigned ratings to PDO's bank facilities as follows:

- INR130m fund-based working capital limits: National Long-Term 'Fitch B+(ind)' and National Short-Term 'Fitch A4(ind)'

- INR623m non-fund-based limits: National Short-Term 'Fitch A4(ind)'