(The following statement was released by the rating agency)
March 14 - Fitch Ratings has assigned India's K.S. Commodities Private Limited (KSCPL) a National Long-Term rating of 'Fitch B(ind)' with Stable Outlook. A list of additional rating actions is provided at the end of this commentary.
The ratings reflect KSCPL's small scale of operations (FY11 (financial year ending March) revenues: INR758.3m) and its weak and fluctuating EBITDA margins (FY11: 1.2%; FY10: 0.4%, FY09: 1.6%), inherent to the trading nature of its business. The latter, along with working capital debt (FY11: INR81.6m, FY10: INR85.8m), has led to low net interest coverage (FY11: 1.7x; FY10: 0.6x) and high net financial leverage (FY11: 6.0x; FY10: 17.4x) for the company. Other rating constraints include counterparty risk and susceptibility of agricultural commodities trading business to climatic conditions and government policies.
The ratings also factor in KSCPL's established presence in agricultural commodities trading business since the last 13 years, supported by its large supplier network across India. The ratings draw comfort from the company's three-year track record of comfortable working capital cycle (FY11: 20 days; FY10: 26 days; FY09: 23 days). Also, majority of KSCPL's purchases are backed by commitments from ready buyers.
Negative rating guidelines include a decline in profitability leading to net interest coverage falling below 1.2x on a sustained basis. Positive rating guidelines include improvements in scale of operations and margins leading to net interest coverage increasing to above 2x on a sustained basis.
KSCPL's bank loan facilities have also been rated as follows:
- INR120m fund-based limits: 'Fitch B(ind)'/'Fitch A4(ind)'
- INR30m non-fund-based limits: 'Fitch B(ind)'/'Fitch A4(ind)'