vertical integration to result in higher profitability and improved cash flows for the company. This is likely to support BILT's debt reduction efforts. Strong Market Position: BILT has a strong market position in the Indian writing and printing paper market, with large shares of the coated paper and uncoated paper (hi-bright) segments. BILT through its subsidiary Sabah Forest Industries Sdn. Bhd. (SFI) has significant share in Malaysia's non-surface sized uncoated paper sub-segment. The strong market shares are, supported by BILT's strong brand presence and large distribution network to cater to the fragmented paper market.
Paper Price Volatility: The volatility in paper and pulp prices impacts the company's profitability. This is reflected in BILT's EBITDA margins improving to 17.7% in FY13 from 16.3% in FY12 (FY11:19.1%). Although the higher level of pulp integration will improve BILT's cost structure, the company will continue to be impacted by volatility in paper prices.
Strategic Linkages with Subsidiaries: Fitch continues to take a consolidated view of BILT. The agency's rating on BIGPH's continues to reflect its strong operational and strategic linkages with its parent, BILT. BIGPH is in the same line of business as BILT and has common treasury and management teams. BIGPH holds a 99.99% stake in Ballarpur Graphic Paper Products Ltd. (BGPPL) and a 97.8% stake in SFI. BIGPH contributes to about 80% of BILT's overall revenue and about 75% to its EBITDA.
Positive: A rating upgrade is unlikely in the forseeable future because it will continue to be constrained by its high debt levels. Future developments that may, individually or collectively, lead to positive rating action on include
* Significant improvement in BILT's profitability resulting in EBITDA margin sustained at over 20%
* Substantial reduction in debt levels resulting in BILT's net leverage falling below 4x on a sustained basis
* Improvement in BILT's liquidity
Negative: Future developments that may, individually or collectively, lead to negative rating action include
* Any weakening in performance or additional capex resulting in BILT's net leverage exceeding 5.5x from FY15 or beyond
* EBITDA fixed charge cover sustained at below 2x (FY13:1.84x)
* Any weakening in liquidity