(The following statement was released by the ratings agency)
May 21 - Fitch Ratings has today assigned India’s Batliboi Environmental Engineering Ltd.(BEEL) a National Long-term rating of ‘B+(ind)’. The Outlook is Stable. The agency has also assigned National ratings to BEEL’s bank facilities, as follows:
- INR10m long-term loans: ‘B+(ind)’;
- INR6.5m cash credit: ‘B+(ind)’; and
- INR2.5m non-fund based limits: ‘F4(ind)’.
BEEL’s ratings are primarily constrained by weak liquidity on account of increased receivable days from government orders. The ratings are also constrained by a delay in project execution by counterparties, leading to cost over-runs and consequent losses for the company; BEEL reported operating losses in three out of the past four years, including FY09 primarily due to these delays. Fitch expects the company to report profits once it has, slowly, exited these loss-making liquid pollution control contracts, and focused on equipment supply for these projects. While the agency notes that BEEL reported positive EBITDA in FY10, the improvements in profitability will be gradual as the last loss-making contract will be completed in FY12. Also, the ratings are constrained by high working capital requirements due to the high receivable periods.
The ratings are supported by the sponsor’s long-standing relationships with its customers and suppliers, enabling it to win large contracts. The ratings also benefit from the positive demand outlook for pollution control systems on the back of tighter government pollution control regulations. BEEL obtains liquidity support from Batliboi Limited (BTLI.BO) (‘B-(ind)’/Negative), another entity controlled by the sponsor, and has access to Batliboi’s INR300m working capital limits. However, Fitch has taken a standalone view of BEEL as the agency believes that other than this support, the operational and strategic linkages between the entities remain weak.
Negative rating factors include the inability to improve profitability as anticipated, any greater-than-expected decline in the order book position and a significant negative impact from working capital that could lead to further deterioration in financial leverage and liquidity. Conversely, a substantial and sustained improvement in profitability could have a positive impact on the ratings.
Established in 1959, BEEL is involved in the design, selection, engineering, fabrication, supply, installation, and commissioning of air and water pollution control equipment, and a variety of systems with industrial and municipal applications
In FY09 BEEL reported revenues of INR484.9m (FY08:591.9m) with corresponding EBITDA margins of -3.9% (FY08: 4.3%) and debt to EBITDA of -0.23x (FY08:-0.05x). In 9MFY10 the company reported net sales of INR320.7m (9MFY09: 257m), operating margins of 2.9% (9MFY09: -12.7%) and interest cover of 2.28x (9MFY09: -10.87x).
Applicable criteria available at www.fitchratings.com: “Corporate Rating Methodology,” dated 24 November 2009.
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