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| Fitch Rates Jabil Circuits India's Bank Facilities 'AA(ind)(SO)'/'F1+(ind)(SO)' |
| Announcement / Banking Jun 08, 2009, 19:35 IST |
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Fitch Ratings has today assigned Jabil Circuits India Private Limited's (JCIPL) INR400m long-term bank loans and INR4,449m cash credit facility ratings of 'AA(ind)(SO)'. At the same time, the agency has assigned JCIPL's INR64m short-term bank loan facility a rating of 'F1+(ind)(SO)'. The outlook is positive
JCIPL's ratings primarily reflect the strong legal, operational and strategic linkages with its ultimate parent, Jabil Circuit Inc. (JCI) ('BB+'/Positive), further reinforced by a letter of support that it will provide support including providing funds as needed, thereby mitigating the bankruptcy risk for the Indian operations. JCIPL's entire debt is also unconditionally guaranteed by JCI, while most of its major functions have a direct reporting line to JCI's global or regional offices. Moreover, all the demand forecasting and capital expenditure budgeting is carried out at the parent level, demonstrating the strong linkage.
Fitch notes the high revenue concentration with 73% of the revenues from EchoStar Corporation in FY08, and the high product concentration with most of the revenues derived from set top boxes. Fitch also notes that JCIPL has been unsuccessful in broadening the scope of its business due to relatively high production costs and the adverse government duty structure. Moreover, the electronics manufacturing services (EMS) business that the company is in requires raw materials to be sourced from Southeast Asian suppliers. Due to the lack of a domestic supply base, this makes JCIPL's operations less cost-competitive internationally. The agency expects JCIPL to continue to make operational losses in the short- to medium-term. Nevertheless, although JCIPL continues to be operationally weak, thereby exposing it to risks of becoming a 'Sick Company' under the Indian Companies Act, the risks have been mitigated by regular infusion of equity on account of its strong operational and strategic linkages with JCI, as well as the parent entity's history of providing support to its international subsidiaries.
Fitch notes that a material weakening of the credit profile of JCI (beyond two notches) and/or the linkages between JCI and JCIPL could act as a negative rating trigger. This could include non-renewal of the letter of support provided by JCI, which expires in October 2009, as could any change in the guarantee arrangement for the rated instruments.
In FY08, JCIPL's revenues increased to INR8,090m from INR2,026m in FY07 owing to increased utilisation of the Rajnandgaon facility. The Indian operations are experiencing losses at the EBITDA levels, although the EBITDA margins improved to -9.5% in FY08 from -17.3% in FY07; the accumulated losses represent 49% of its total net-worth as on January 2009.
JCIPL is a wholly owned subsidiary of JCI and is in the EMS business manufacturing set top boxes and plastic moulding parts for mobile hand sets. It has facilities in Rajnandgaon for set top box manufacturing and in Chennai for manufacturing plastic moulding parts of mobile hand sets.
Fitch Ratings is one of the three large global credit rating agencies. Fitch rates 5900 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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