TEXT-Fitch asgns 'BB(ind)' rtg to India's Minda Capital's loans

(The following statement was released by the ratings agency)

Nov 4 - Fitch Ratings has today assigned India's Minda Capital Limited (MCL) a National Long-term rating of 'BB(ind)', as well as a 'BB(ind)' rating to its existing term loans of INR252.7m. The Outlook is Stable.

The ratings reflect the stability of revenues offered by MCL's lease and royalty agreements with the Ashok Minda Group (AMG) companies, high operating and net margins, and occasional financial support provided by its promoters. Fitch believes the expected business and financial support MCL derives from its agreements with the AMG companies would lend stability to its cash flows. The agency notes the consolidated financial profile of the AMG companies and MCL's strong linkages with these companies and its promoters.

Rating constraints include the limited scale and size of MCL's revenues, high leverage over the past few years and the limited dividend paying track record of investee companies. MCL's financial leverage has remained high, primarily on account of investments in real estate and subsidiary/JV companies for AMG's expansion purposes. Its real estate investments involved the construction of factory buildings for leasing to AMG companies. The agency notes that a significant majority of these companies are in initial stages of operations without much contribution to MCL's revenues, and that most of MCL's portfolio is not readily monetisable.

MCL as an investment vehicle obtains financial support from promoters to pursue the Group's investment plans. The promoters infused an equity capital of INR329m and INR140m in MCL in FY08 and FY09, respectively, while an equity infusion of INR150m is planned for FY10. Although MCL's revenues have been increasing over the years, the agency expects the growth to remain moderate till the financial performance of investee companies improves.

Negative rating drivers would include an increase in leverage due to a decline in operating profits, any weakening of linkages with the group companies and a deterioration in the credit profile of Minda Corporation Limited which results in the altering of MCL's business or financial profile. Conversely, a decline in financial leverage along with a significant improvement in MCL's revenue base and profitability due to an improvement in the financial performance of investee companies could have a positive impact on ratings.

The former Minda Group is now divided into two units, namely Ashok Minda and N K Minda. MCL is part of the Ashok Minda unit (with Minda Corporation Limited as its flagship company). MCL was born out of merger of a number of companies operating in the financial services space. The company handles the expansion plans of the AMG group, and also acts as its holding company. Also, MCL owns certain real estate assets which have been leased out to the group companies. MCL also owns the Minda brand for the purpose of royalty from AMG.

MCL's revenues rose to INR74.5m in FY09 (FY08: from INR26.8m) mostly on the back of an increase in lease rentals and royalty income. Financial leverage (Total Debt /op EBIDTA) stood at 4.5x in FY09 compared to 3.4x in FY08. In FY09 the operating EBIDTA margin and net profit margin were 92.5% and 58.4%, respectively, versus 72.5% and 40.1%, respectively, yoy. MCL derives more than 80% of its revenues from Minda Corporation Limited, AMG's flagship company, and this is likely to continue unless other AMG companies start contributing positively to MCL's revenues.