Fitch assigns A-(ind)’/’F1(ind) to Adhunik Metaliks

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Fitch assigns A-(ind)’/’F1(ind) to Adhunik Metaliks

This article was posted on Apr 11, 2008 and is filed under Press Releases

Fitch Ratings has today assigned a National Long-term Issuer rating of ‘A-(ind)’ (A minus(ind)) to India-based Adhunik Metaliks Limited (AML). The Outlook is Stable. Fitch has also assigned ‘A-(ind)’ (A minus(ind)) ratings to the company’s long-term bank loans aggregating INR5,300 million and to its fund-based working capital limits totalling INR3,700m. At the same time, Fitch has assigned a ‘F1(ind)’ rating to the company’s short-term bank loans aggregating INR2,000m and to its non-fund based working capital limits totalling INR3,750m, as well as a rating of ‘F1(ind)’ for AML’s INR500m (which has been enhanced from INR200m) commercial paper programme backed by funded working capital limits.

AML’s ratings reflect its strong growth in earnings on the back of its successful implementation of past projects and improvements in margins from a greater proportion of sales of value added products. The ratings also factor the company’s backward integration measures including the acquisition of iron ore and manganese mines, and the establishment of a captive power plant. In assigning the ratings, Fitch has also considered the margin benefits on account of AML’s forward integration into stainless steel and rolled products as well as forgings. AML’s sales from FY09 would comprise entirely of billets, rolled products and stainless steel with its entire sponge iron and most of its pig iron production expected to be consumed internally. The higher proportion of value added products has increased the company’s margin stability. By FY09, AML will be one of the few companies in Eastern India to have control over key raw materials, on commencement of its captive ore and mining operations. These initiatives will improve AML’s cost structure and boost revenues from FY09. Fitch notes that these initiatives will also stabilise the company’s margins, as well as place AML in a better position to handle negative fluctuations in the current positive steel cycle.

The ratings remain constrained by the significant debt-led capital expansion program pursued by the company, including its subsidiaries, as well as the high proportion of trading income in its sales. The above risk is to an extent mitigated by timely equity infusion by promoters and private equity, as well as the expectations of improving margins from Q109 once AML adds stainless steel to its product mix.

AML has announced an expansion of its metallic capacity in Orissa as well as undertaken a 270mw thermal power project in Jharkhand through a proposed 51% subsidiary, to be funded significantly by debt which is expected to result in a weakening of its credit profile over the medium term. Fitch however, notes that the funding for the power project and other initiatives through its subsidiaries could happen partly through the equity route, although any further major capex/investment plans and drop in EBITDA margins leading to a sustained financial leverage (Total Debt/EBITDA) on a consolidated basis of 4x will put negative pressure on its ratings.

During FY07, AML registered an operating income of INR7358m on which it recorded a net income of IN775m. For the nine-month period ended December 2007 AML registered an operating income of INR6927m with a PAT of INR585.6m. AML’s EBITDAR margin has stabilised at 16%-17% over the last two years with a higher proportion of billets and rolled products in its product mix. With an increase in overall debt levels, financial leverage deteriorated with adjusted debt/EBITDA at 3.8x in FY07 (FY06:2.9x).

Sourced From: Sampark Public Relations Pvt Ltd

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