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| Fitch affirms Videocon Industries' ratings; outlook negative |
| BS Reporter / Mumbai Jul 23, 2009, 16:58 IST |
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Following the increase in the long term loans of Videocon Industries (VIL), Fitch Ratings has today affirmed Videocon Industries Limited's (VIL) National Long-term rating at 'A-(ind)' with Negative Outlook.
The Negative Outlook reflects VIL's high financial leverage, exacerbated by volatility in oil prices and the economic slowdown in India. It also factors in VIL's substantial investments in group companies, investments in ventures such as telecom services, direct-to-home television broadcasting and power, and in existing oil & natural gas exploration activities. VIL is still finalising the funding for these new ventures, and in discussions with third parties to reduce VIL's equity holding in them.
The rating reflect VIL's strong position in the consumer electronic industry and its large scale of operations. While VIL's margins continue to benefit from its glass shell business, these margins have come under some pressure as global sales of curved screen televisions continue to decline. In India, VIL has a 33 per cent share in the 1.8 million washing machine market and a 27.8 per cent share of the 1.6 million refrigerator market.
Over the past year the company's long term debts have increased by 6.43 per cent for its long term loans to RS 4431 crore from the earlier loan of Rs 4162 crore. The rating for this is affirmed at 'A-(ind)'
VIL's fund based working capital has also increased 423 per cent to Rs 450 crore from Rs 88 crore whereas its non fund-based working capitals has increased 193 per cent to Rs 698 crore from Rs 238 crore. However, the fungible working capital was reduced by 73 per cent from Rs 966 crore to Rs 252 crore. Fitch affirmed an A-(ind)'/'F1(ind)' ratings for these.
The commercial paper rating was affirmed at F1 (ind) at Rs 600 crore.
The ratings agency said that it will closely monitor the progress of these projects and their holding structures. The agency views any equity infusion from third parties and VIL's consequent de-leveraging as a trigger to revert the Outlook to Stable, while continuing investments at the current pace would be seen as a negative rating trigger.
Fitch expects future growth to be muted due to a lack of easy availability of regular power and water supply in smaller towns, thereby restricting penetration.
Demand is also constrained by the relatively low replacement rate of these appliances. The company also has a 20.7 per cent share in the relatively faster-growing air conditioner market. Fitch also takes comfort from VIL's flexibility to scale back capex on a LCD assembly facility, if needed.
The ratings are also constrained by the decline in revenue contributions from the oil & gas business. This is on account of lower production in its only operational Ravva field, as well as the lower selling price of crude oil. This is, however, partially mitigated by the pre-salt discovery at the Wahoo prospect in Brazil. The company is planning to apply for certification of the Wahoo prospect as a proved oil reserve by December 2009, after which management expects the project to be self -sustaining.
For the second financial quarter ended March 2009, VIL had standalone revenues of Rs 2210 crore with an EBITDA margin of 18.7 per cent. For the full year ended September 2008, VIL's consolidated operating revenues declined slightly by 2.4 per cent to Rs 11,850 crore. EBITDA was Rs 2640 crore with an EBITDA margin of 22.3per cent. Net debt/EBITDA for FY08 was 4.5x.
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