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| Fitch Assigns 'BBB(ind)'/ 'F3(ind)' to QH Talbros's Bank Loans |
| Announcement / Banking Apr 29, 2009, 20:02 IST |
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Fitch Ratings has today assigned India's QH Talbros Limited (QHT) a National Long-term rating of 'BBB(ind)'. At the same time, the agency has assigned 'BBB(ind)' ratings to its outstanding term-loan of INR209.08m and fund-based limits of INR370m, as well as 'BBB(ind)'/ 'F3(ind)' ratings to the non-fund based limits of INR202m. The Outlook is Stable.
The ratings of QHT reflect its strong market position in the steering and suspension components business, and a well diversified customer base with a good mix of exports and domestic customers. The company has enjoyed a strong growth in revenues and EBITDA margins over the last five years. The revenues of the company have increased at a CAGR of 28% over FY04-FY08, while EBITDA margins have increased to 11.0% in FY08 from 5.9% in FY04. The ratings also take in consideration the fact that most of the leading Indian original equipment manufacturers (OEMs) such as Maruti Udyog Ltd., Tata Motors, General Motors India, Mahindra & Mahindra and Ashok Leyland are customers of QHT.
Besides the OEM business, QHT's revenues have significant contribution from exports and after market sales. In the exports segment, it has long-term contracts with various export customers as well as suppliers of raw materials. For it's after market segment, the company is catering to the replacement market through their network of distributors/dealers of spare parts.
The ratings are moderated by QHT's small size of operations, with traditionally high leverage and lower margins. The ratings also take in consideration the working capital intensive nature of the business, with its high inventory processing and debtor days. In addition, the agency is concerned that its proposed expansion plan may put pressure on the company's liquidity in future.
QHT's leverage has historically been high (7.0x in FY05) but declined to 2.8x in FY08 due to increased EBITDA and no significant increase in the debt levels. The company has witnessed negative free cash flows (FCF) in the last five years owing primarily to capex and this trend is likely to continue over next five years due to the expansion plans of the company.
The cash conversion cycle of the company has been low over the last five years (16 days in FY08 as compared to 26 days in FY07) owing to the high average payment period which was at 140 days in FY08, marginally higher than 128 days in FY07. The company has fund-based working capital limits amounting to INR370m and non-fund based limits of INR202m, with an average utilisation of about 70% for fund-based limits in the 12 months ending in January 2009.
Successful execution of the planned capital expenditure in time while maintaining stability in margins above 10% would be a positive ratings driver. On the other hand, a sustained downturn in the automobile industry leading to reduced volumes, and higher financial leverage (total adjusted debt/ operating EBITDA) beyond 5.0x would be negative for the ratings.
QHT came into operation in 1986 and is an auto ancillary unit manufacturing steering and suspension components for four wheelers. The company is promoted by the Talwar Group and Quinton Hazell Plc, UK - a part of Affinia International Holding Corporation USA. It has categorized itself into three business segments namely exports, OEMs and the after market segment. The company has three production facilities in total with one unit each in Gurgaon, Manesar and Dehradun. The main unit in Gurgaon caters to both OEMs and export market. The Manesar unit is a total export-oriented unit while the Dehradun unit caters to replacement market products.
In FY08, QHT recorded revenues of INR1775m, up by 13.7% yoy, while its operating EBITDAR margin was 11.0% versus 9.4% yoy, and net income was INR93.2m against INR70.9m as at FYE07. The financial leverage as at FYE08 was 2.8x as compared to 3.2x as at FYE07.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site
Fitch Ratings is one of the three large global credit rating agencies. Fitch rates 6000 financial institutions, including some 3,200 banks and 2,400 insurance companies, more than 1,700 corporates and 100 sovereigns as well as public finance, sub-sovereigns and structured finance transactions.
Fitch India has four rating offices located at Mumbai, Delhi, Chennai and Kolkata. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.
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