Crisil has assigned an FAA rating to the proposed fixed deposit programme of Ford Credit Kotak Mahindra Limited. The rating indicates high safety regarding timely payment of interest and principal. The rating is supported by the Ford parentage, strong systems, financial control and asset liability management practices of Ford worldwide, past experience and organisational infrastructure support of Kotak Mahindra Finance Limited (KMFL). The rating, however, also factors in the risk associated with the cyclic nature of the auto sector in general and financing of Ford Vehicles in particular.

FCKM, a subsidiary of Ford Credit International Incorporated, USA, is a joint venture between FCI, KMFL and Mahindra & Mahindra to exclusively finance Ford vehicles manufactured by Mahindra Ford (India) Limited (MFIL), and extend financial support to Ford dealers. FCI, which has been set up by the Ford group to invest in international markets, is a wholly-owned subsidiary of The Ford Motor Credit Company, USA, which in turn is a wholly-owned subsidiary of The Ford Motor Company, US.

The rating is to a large extent supported by the Ford parentage. Ford has set up FCKM to gain access to the Indian market in line with Ford's global strategy of having a presence in all markets of strategic importance to The Ford Motor Company and to take advantage of the synergy that exists between the manufacturer and financier. FCKM would leverage on its start-up networth of Rs 60 crore and the financial strength and market position of the parents to mobilise resources.

The future performance of FCKM is closely linked to the success of Ford vehicles in India, FCKM would be financing only Ford vehicles and MFIL's inability to achieve projected volumes would have an adverse impact on FCKM to achieve projected disbursement levels and profitability. Focus on car financing would reduce the diversity of income sources and expose the company to the cyclic nature of the auto sector. The relative attractiveness of car financing at present is expected to decrease with declining margins and rationalisation of the risk return profile of the business. Portfolio risk of FCKM is expected to be high in the initial period owing to a significantly large proportion of unseasoned contracts and expected decline in resale price of premium cars such as Ford Escort.

Carbon Everflow Ltd's Rs 7.2 crore NCD programme has been reaffirmed at A+ indicating that the degree of safety regarding timely payment of principal and interest is adequate. The Fixed deposit program of CEL has been reaffirmed at ``FAA'' indicating high degree of safety regarding the timely payment of principal and interest.

The reaffirmation of the rating indicates CEL's continued strength in operations and improved product mix in its Graphite Electrode (GE) division which constituted about 65 per cent of total sales in 1995-96. CEL has been upgrading capacities and modernising its facilities, to produce higher quantities of UHP (ultra-high power) electrodes. Falling import duties as led to increased competition in this market which CEL has tried to overcome by increasing exports (Rs 345 mn in 1995-96). The ability of CEL to increase the production of UHP electrodes and the extent to which the company is able to increase its presence in the exports market will be crucial in the GE division.

Other divisions of CEL include glass reinforced plastic tankspipes (GRP) division which constituted about 26 per cent sales in 1995-96, and the impervious graphite electrode (IGE) division. In its GRP operations, CEL is the sole manufacturer of these products in the organised sector and is dependent on large orders mainly from the government sector. Although sales are expected to be depressed in 1996-97, prospects for 1997-98 are better. The ability of the company to expand its customer base will be crucial for the long term growth of the division. The IGE division manufactures a range of heat and mass transfer equipment made out of impervious graphite for transfer of highly corrosive gases and liquids. CEL has built up considerable strength in this business.

The gearing as at March 31, 1996 was average at 0.63, with the interest coverage high in 195-96 at 6.54.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.