TEXT-Fitch rates India's Capital Power Infrastructure Ltd

(The following statement was released by the ratings agency)

Nov 4 - Fitch Ratings has today assigned India's Capital Power Infrastructure Private Limited (CPIL) a National Long-term rating of 'BB-(ind)'. Simultaneously, Fitch has assigned a rating of 'BB-(ind)'/'F4(ind)' to the company's INR250m fund based and INR450m non-fund based facilities.

The ratings reflect the experience of Capital Power Infrastructure (Private) Limited's (CPIL) promoters in dealing with state electricity boards and state power utilities (SPUs). The ratings also factor in the comfortable INR1.4bn order book position CPIL enjoys, and the reasonable revenue growth it achieved since inception in 2008.

Rating concerns emanate primarily from the modest size of CPIL's trading operations, limited track record and relatively low operating margins as compared to other turnkey solutions providers in the power sector. CPIL provides turnkey solutions (primarily procurement, installation, erection, testing and commissioning services) for the transmission and distributions segment, and also acts as a subcontractor to larger private turnkey solutions providers. Fitch expects CPIL's business to remain vulnerable to the credit risks of its customers, such as SPUs, which have weak credit profiles. This risk, however, is partially mitigated by the ultimate coverage of CPIL's turnkey services under the Government of India's sponsored funding schemes and the experience of the promoters in dealing with SPUs.

In addition, the ratings are constrained by the continual concentration risk, since the majority of orders that are likely to be executed in FY10 pertains to a few large SPUs. Positive rating factors would constitute an increase in operational size and operating margins from current levels. On the other hand, a dip in operating EBITDA margins from current levels would affect CPIL's ratings negatively. Any unplanned capital expenditure or increase in working capital intensity that leads to additional debt, and/or heightened support extended to group companies that could potentially increase leverage would also prompt a negative rating action.

Incorporated in 2008, CPIL is a Noida-based company, which provides material, erection, testing and commissioning services in the power transmission and distribution sectors on a turnkey basis. As of FYE09, the company reported sales of INR841m and an operating EBITDA of INR25.6m.