(The following statement was released by the rating agency)
July 02 - Fitch Ratings has assigned India’s Tayal Energy Ltd (TEL) a National Long-Term rating of ‘Fitch D(ind)'. A list of additional rating actions is provided at the end of this commentary.
The ratings reflect TEL’s corporate debt restructuring programme due to liquidity pressures. The latter is indicated by cash credit limit overutilisation averaging 105% and continuous delays in term loan repayments, both since December 2011. The tight liquidity is a result of a long working capital cycle (financial year ended March 2012: 144 days) and inadequate working capital facilities to support an increase in its size of operations; revenue grew at a CAGR of 58% over FY09 to INR4,930m in FY12.
TEL is facing difficulties in recovering its trade receivables especially for sales made in H1FY12 as the prevailing market prices for yarn are much lower than the prices at which these sales were booked. To tackle this issue, the company provided discounts of around INR95.4m on sales in FY12, and is again expected to provide a substantial discount in FY13.
Fitch expects TEL’s liquidity to deteriorate further if interest costs remain high and operating margins continue to decline due to higher input costs. The company has not been able to pass on costs increases in cotton, wages and power to its customers due to intense competition and the current slowdown in the textile industry. This resulted in a 480bp decline in its EBITDA margin to 9.5% in FY12.
Positive rating guidelines would be regularity in debt service for at least six months post implementation of its debt restructuring.
TEL, incorporated in September 2005, manufactures cotton yarn at a total capacity of 126,000 spindles and 8,020 rotors. Its manufacturing plants are located at Kotkapura and Govindwal in Punjab. In FY12 (year end March), EBITDA was INR470m, EBITDA interest coverage was 1.69x and net debt/EBITDA was 9.71x.
Fitch has also assigned ratings to TEL’s bank instruments as follows:
- INR1,283.2m term loan: National Long-Term ‘Fitch D(ind)’
- INR965m fund-based limits: National Long-Term ‘Fitch D(ind)’
- INR180m non-fund-based limits: National Short-Term ‘Fitch D(ind)'