TEXT-Fitch release on Ginni Filaments Limited's bank loans

(The following statement was released by the ratings agency)

Aug 13 - Fitch Ratings has today assigned a National Long-term Issuer rating of 'BB(ind)' to India's Ginni Filaments Limited (GNNI.BO: Quote, Profile, Research) (Ginni). The Outlook is Stable. Fitch has also assigned ratings to Ginni's bank loans, as follows:

- Fund-based working capital lines aggregating INR1,050m: National Long-term rating of 'BB(ind)' and National Short-term rating of 'F4(ind)';

- Non-fund-based working capital bank lines of INR220m: National Short-term rating of 'F4(ind)'; and

- Outstanding term loans from banks aggregating INR2,554m: National Long-term rating of 'BB(ind)'.

The ratings take into account Ginni's integrated operations and long-standing experience in the textile industry, albeit constrained by its relatively large exposure to yarn and ongoing debt-funded capital expenditure leading to extremely high leverage. The ratings are also affected by the size of the company and its weakened profitability led by rising cotton prices, increasing power costs and appreciation of the Indian rupee (INR) during the financial year ended March 2008. As an export-oriented player, 65%-70% of Ginni's revenues are generated from exports, c. 90% of which are denominated in USD; owing to the appreciation of the INR against the USD, this led to significant foreign exchange risk for the company, thus negatively impacting its margins during the financial year ended March 2008.

However, Fitch notes that the INR has depreciated against USD in FY09 to date, which is likely to benefit Ginni's profitability in the short term. The agency also draws comfort from the company's diversification into higher margin non-wovens, which coupled with its new capacity on-stream since January 2008, are likely to improve both revenues and profitability. These factors, in Fitch's view, could act as positive rating triggers in the medium to long term, while further erosion of profit margins and continuing high capex would be viewed negatively for its ratings. Nonetheless, the agency notes that Ginni enjoys good customer diversification, with its top 10 customers accounting for c. 27% of its total sales and the top five customers accounting for c.15% of its total sales.

Key risks for Ginni in the future are anticipated to revolve around the volatility in cotton prices, rising power costs and capex execution risks. The recent scrapping of import duties of 14% on raw cotton by the government is, however, not expected to have a significant impact on Ginni's input costs, as the majority of the company's raw cotton is procured from the domestic market.

Ginni registered group revenues of INR3,018m, increasing by 34.4% yoy, during the financial year ended 31 March 2008, primarily driven by the expansion of capacities and commencement of commercial operations in the non-wovens business. Despite this, the company's operating EBITDAR profitability reduced to 7.5% in FY08 from 15% in FY07 as a result of higher cotton prices, rising power costs and INR appreciation, while the prices of yarn, fabric and garments have not moved in tandem with rising input costs. As such, the company recorded a net loss of INR176.3m in FY08 against a net profit of INR26.7m in FY07. The net loss of FY08 included INR134.8m on account of foreign exchange losses which are marked to market.