Rating Watch -- Tata Yodogawa's FD rating reaffirmed

Monday, November 24 1997

Rating Watch -- Tata Yodogawa's FD rating reaffirmed

The `FAA' rating assigned to the fixed deposit programme of Tata Yadogawa has been reaffirmed. The rating indicates that the degree of safety regarding timely payment of interest and principal on the instrument is strong.

The ratings reflect the strong market position of the company in the iron and steel rolls industry, above average operating efficiency and comfortable operating margins. These strengths are tempered by vulnerability to business cyclicalities arising out of the dependence on the steel industry. The ratings also factor in TAYOs strong association with the Tata Iron and Steel Company Limited (CRISIl rated AAA/P1+) and the business synergies arising therein.

TAYO, a part of the Tata group of companies, is mainly engaged in the manufacture of rolls for metallurgical and non-metallurgical industries. Rolls manufacturing is the primary business of the company and constitutes over 90 per cent of the turnover of the company. The company also possesses facilities for producing steel billets through the continuous casting route. During the year 1996-97, the company reported post tax profits of Rs 3.06 crore on an operating income of Rs 62.7 crore.

Crisil downgrades Flex Industries' instruments

The ratings assigned to the non-convertible and partly-convertible debenture programmes of Flex Industries Limited (FIL) have been downgraded from `A' to `BBB'. The revised rating indicates that the degree of safety regarding timely payment of interest and principal is moderate. Further, the ratings for these instruments have been placed on a rating watch with negative implications, pending inflow of funds through external commercial borrowings (ECBs).

The rating for company's fixed deposit programme has been downgraded from `FA+' to `FA-' indicating that the degree of safety regarding timely payment of interest and principal on the instrument is adequate. The revised rating has been placed on a rating watch with negative implications. The revised ratings for FIL's debenture and FD programmes reflect Crisil's concerns on the company's ability to generate adequate cash flows to meet its total debt repayment obligations and its high exposure to short term borrowings. Pressure on operating profits along with high interest harden and huge debt repayment requirements in the current year have put a severe strain on the company's liquidity position.

FIL plans to raise additional resources in the current year in the form of ECBs of about US$ 90 million. Most of these funds are expected to be utilised by FIL to meet its repayment obligations in the current year. Inflow of funds would be critical to enable the company honour its commitments to its lenders in time.

Crisil downgrades Escorts Finance NCD and FD

The rating of Escorts Finance Limited's (EFL) Rs 15 crore non-convertible debenture issue has been downgraded to ``A+'' from ``AA-''. The revised rating indicates that the degree of safety regarding the timely payment of interest and principal, on the instrument, is adequate. Further, the rating of EFL's fixed deposit programme has been downgraded to `FAA-' from `FAA'. The revised rating indicates that the degree of safety regarding timely payment of interest and principal, on the instrument is high. The ``P1+'' rating of EFL's Rs 25 crore commercial paper programme has been reaffirmed. The rating indicates that the degree of safety regarding timely payment of financial obligations, on the instrument, is very strong.

The revision in ratings is on account of declining asset quality, reduced profitability, relatively lower diversity of fund base, deterioration in capital structure, and increase in competition. However, the rating continues to factor in the company's presence on the relatively less risky commercial vehicles and cars segment. EFL, a part of the Escorts group, is engaged primarily in financing of commercial vehicles, cars, construction equipment, alongwith plant & machinery segment which has been declining in terms of share of disbursements. During 1996-97, the company reported a net profit of Rs 17.64 crore on a total income of Rs 124.44 crore.

Flex Finance FD downgraded

The rating of Flex Finance Limited's (MFL) fixed deposit programme has been downgraded to `FB' from `FA-'. The revised rating indicates that the degree of safety regarding timely payment of interest and principal on the instrument is inadequate. The revised rating reflects the deterioration of the overall risk profile on account of increasingly competitive scenario for NBFCs resulting in significant decline in the level of disbursements and profitability of the company. The downgrade also factors the increase in exposure FFL has to its group companies which is presently facing liquidity crunch on account of poor market conditions and large repayment obligations.
Crisil downgrades Indian Dyestuff's FD
The `A-' rating assigned to the NCD issue of the Indian Dyestuff Industries Limited (IDI) has been downgraded to `BBB+'. The `FA' rating assigned to the fixed deposit programme has been downgraded to `FA-'. The revised debenture rating indicates moderate safety regarding timely payment of interest and principal on the instrument. The revised fixed deposit rating indicates adequate safety regarding timely payment of interest and principal on the instrument.
The revision in the ratings factors the downtrend in the dyes industry in general and its reflection on IDI's performance in particular. The ratings take into consideration IDI's high cost structure and below average working capital management. These risks are partially mitigated by the dominant market position of the company, especially in the technology intensive vat dyes segment. The tie-up with Ciba Geigy Limited (CIBA), Switzerland, is expected to strengthen its market position in the long term, however, financial benefits are not expected to accrue to the company in the short term.
Crisil reaffirms Forbes Gokak's NCD ratings
The `AA' rating assigned to the Rs 15 crore and Rs 39.85 lakh non-convertible debenture programme of Forbes Gokak Limited (FGL) has been reaffirmed. An `AA' rating has been assigned to the proposed Rs 5 crore non-convertible debenture programme of FGL. The rating indicates that the degree of safety regarding timely payment of interest and principal on the instrument is high.
The rating reflects the strengths arising from diversification into various businesses and the company's ability to successfully circumvent the cyclicality in the textiles business through support from other equally strong businesses. The strengths of the textile division reflected in its large size, strong market position, high operating efficiencies and high proportion of export sales, have been favourably factored into the rating. The above average market position in the shipping agency and engineering tools business and the high profitability of these businesses is a source of comfort. The low financial risk arising from conservative funding policies, improving margins, comfortable coverage ratios and healthy cashflows has been factored into the rating. The above strengths are partly offset by poor performance of the optic lenses division, risks arising from termination of agencies in the shipping agency business and high operating costs of the Vadodra textile unit. The support from the Tata group has also been favourably factored into the rating.
Crisil downgrades Flex Engineering's NCD
The rating assigned to the non-convertible debenture programme of Flex Engineering Limited (FEL) has been downgraded to `BBB-' from `A'. The revised rating indicates that the degree of safety regarding timely payment of interest and principal is moderate.
The revised rating for FEL's debenture programme reflects Crisil's concerns at the significant decline in company's financial performance during 1996-97, pressure on operating profits and a strain on the company's liquidity position. These factors are likely to have a negative impact on the company's ability to generate adequate cash flows to meet its debt repayment obligations.
A decline in the activities of construction division and a slowdown in the sales of packaging machines have led to a substantial decline in the company's turnover in 1996-97 as compared to last year. The effect of pressure on operating profits has been accentuated by a substantial increase in the interest cost, thereby effecting the company's overall profitability at the PBT level. The shortfall in generation of cash flows from operations has resulted in a strained liquidity position for the company thereby affecting the company's ability to meet its debt repayment obligations.
Morepen Hotels' FD downgraded
The rating assigned to the FD programme of Morepen Finance Limited has been downgraded to `FB+' from `FA-'. The revised rating indicates that the degree of safety regarding the timely payment of interest and principal on the instrument is inadequate. The revised rating reflects the increase in business and financial risk due to the uncertainties associated with a greenfield five star deluxe hotel project envisaged by the company. Though MHL had increased its reliance on FDs as a means of finance, it has now stopped accepting fresh deposits and also proposes to reduce the level of fixed deposits from the existing levels and has earmarked funds for the same.
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