TEXT-Fitch rates Ambica Steels' bank loans

(The following statement was released by the rating agency)

June 5 - Fitch Ratings has today assigned a National
Long-term issuer rating of 'BBB-(ind)' to India's Ambica Steels
Limited (ASL). The Outlook on the rating is Stable. Fitch has
also assigned the following ratings to ASL's bank loans:

- Outstanding long-term loans aggregating INR405.7 million:
'BBB-(ind)' (BBB minus (ind));

- Sanctioned non-fund based limits aggregating INR1250m:
National Short-term rating of 'F3 (ind)'; and

- Cash Credit Limits aggregating INR728.5m: National
Long-term rating of 'BBB-(ind)' (BBB minus (ind)).

The ratings assigned to ASL reflect the company's position as
a relatively small-sized producer of cold rolled stainless steel,
billets and blooms, forging ingots, bright round bars and rolled
billets, its improving profitability over the last three years
driven by an upswing in the steel cycle that has resulted in
financial leverage improving to 3.4x as at FY08, and a
diversified customer base with an increasing share of exports.

The ratings however, remain constrained by ASL's relatively
low margins in relation to its peers, limited ability to pass on
raw material price increases to its end consumers on a timely
basis, the high volatility in nickel prices and its locational
disadvantage resulting in higher logistic and transportation
costs. The financial leverage for its size and nature of business
is high, although with limited capex, the balance sheet is
expected to delever during the next two years. With increasing
exports, ASL's working capital requirements are expected to
increase which could also potentially impact its overall
liquidity.

ASL manufactures stainless steel through the melting of scrap
and further refining it through the argon oxygen decarburisation
(AOD) process. The company has two units - the first is for steel
melting, refining and casting, and the second consists of two
rolling mills for rolling products. ASL is augmenting its rolling
capacity by 12000MTPA by installing a new rolling mill in a third
unit. The project, expected to be completed by FY09E, will
involve a total project cost of INR240m. Successful completion of
expansion projects resulting in an improvement in margins and
debt/EBIDTA ratio to less than 2.5x could potentially act as a
positive rating trigger. An overrun in expansion plans or a major
debt-funded investment impacting Debt/EBIDTA ratio to move
towards the range of 4.0x might be reasons for a possible
downgrade.

ASL recorded revenues of INR3275.8 in FY07. Its profitability
has shown improvement over the last two years with EBITDA margins
remaining range bound between 3% - 5.8% (during FY06 and FY07).
ASL had total debt of INR706.5m at FY07. The debt/equity ratio
stood at 1.46 in FY07 as compared to 0.83 in FY06.

ASL had total debt of INR706.5m at FY07. ASL has been
reporting negative free cash flow because of its growth plans. It
managed to improve its debt ratios in FY07 with Total Adjusted
Debt Net of Cash/Op. EBITDAR improving to 3.7x in FY07 from 4.9x
in FY06. Fitch believes the same ratio to peak in FY09 and to
improve once benefits of the enhanced capacity start accruing.