March 14 - Fitch Ratings has affirmed India-based Jubilant Enpro Private Ltd.'s (JEPL) National Long-Term rating at 'Fitch BBB-(ind)'. The Outlook is Stable. A list of additional rating actions is provided at the end of this commentary.
The ratings reflect potential financial support from the Jubilant Bhartia Group (JBG) and JEPL's readily monetisable assets in the form of a 49.67% stake in Jubilant FoodWorks Ltd. Also, JEPL's founders (promoters) continue to provide support through personal guarantee for some of its debt.
The ratings also reflect JEPL's diversified, but fluctuating, revenues streams including consultancy, off-shore support in oil and gas exploration, dividend and interest income as well as the company's very high financial leverage due to the financial support to its subsidiaries. Most of the JEPL's subsidiaries, except Jubilant Energy (Kharsang) Private Limited, are yet to break-even.
Negative rating action may result from weakening of linkages with JBG. Conversely, significant improvements in consolidated revenues and profitability of JEPL will have a positive impact on the ratings.
On a standalone basis, JEPL reported revenue of INR836.65m in FY11, down 8% yoy, due to lower revenue from port logistics business and as it spun-off its Audi dealership business into Jubilant Motorworks Private Limited (JMPL, 'Fitch BBB-(ind)'/Stable). Delays in rig mobilisation also resulted in lower revenues. However, EBITDA margin improved to 51.7% in FY11 (FY10: 35.7%) due to increased contribution from its high-margin consultancy and agency services. Nevertheless, JEPL continues to record net losses since FY10 (FY11: INR7.74m, FY10: INR24.77m) due to increased interest expense for servicing the debt raised to support its subsidiaries.
The total debt increased by 26% to INR5,697m in FY11. However, total adjusted net debt reduced to INR11,948m in FY11 (FY10: 12,502m) due to a decrease in off-balance sheet debt. Consequently, financial leverage, which continues to remain high, improved to 25.9x in FY11 (FY10: 38.2x). At 31 January 2012, JEPL's total corporate guarantees to secure debt of its subsidiaries amounted to INR9,240m.
JEPL is a part of the Jubilant Bhartia Group. Its holdings include the group's interests in oil and gas businesses through its overseas subsidiary - Jubilant Energy N.V., which is listed at AIM London, and auto dealership businesses.
Rating actions on JEPL's bank loans:
- INR50m fund-based working capital limits: affirmed at 'Fitch BBB-(ind)'/'Fitch A3(ind)'
- INR911.5m long-term bank loan (reduced from INR3,050m): affirmed at 'Fitch BBB-(ind)'
- INR60m non-fund based limits: affirmed at 'Fitch A3(ind)'
- INR733.3m short-term bank loans: 'Fitch A3(ind)'; rating withdrawn as loans have been paid in full