Ratings agency Standard & Poor's (S&P) has said that it has revised its rating outlook on India's printing and writing paper manufacturer Ballarpur Industries Ltd (BIL) to ‘stable’ from ‘negative’ reflecting the company’s improved performance and stability in operations.

"The stable outlook reflects our expectation that BIL's cash flow measures will improve, supported by continued stable demand in the domestic paper market and better operating environment at its overseas operations," said S&P’s credit analyst Yasmin Wirjawan.

The ratings agency said it expects BIL's operating performance to continue to improve because of the company's cost efficiency measures and the stabilisation of its pulp operations at Sabah Forest Industries Sdn Bhd (SFI).

BIL acquired Malaysia's largest paper manufacturer SFI for $261 million in March 2007.

"We expect Ballarpur to complete its paper capacity expansion in 2010, which, in our view, will improve the company's economies of scale and strengthen its cash flows over the medium term," Ms Wirjawan said.

Domestic demand for paper products continues to be strong, and the company's pulp operations have stabilised after a weak performance. SFI's pulp operations have also stabilised over the past two quarters. The demand for paper products has improved in both the domestic and export markets since mid-2009. S&P said it expect the company's capacity utilisation to be high (at about 85%) in the next few quarters, and its proportion of domestic sales, which have higher margins than exports, to remain above 90%.

BIL has completed its paper capacity expansion in India. “We expect the company's profitability and cash flows to improve because of higher capacity and a better product mix. We expect Ballarpur's debt-to-EBITDA ratio, which was above 5x as at 30 June 2009, to improve to about 4x in the near term, supported by rising profit margins and higher production,” the ratings agency added.

— Aaron Rodrigues