CRISIL downgrades Tata Teleservices' loans

Outlook on ratings banks loans worth Rs 15,000 crore is negative

Rating agency CRISIL has cut the rating for loans given by banks to Tata Teleservices Ltd (TTSL) from ‘A’ to ‘A-’, owing to lower than expected improvement in the financial risk profile. 

The ratings outlook on banks’ loans worth Rs 15,000 crore is negative. The rating downgrade reflects expectation of a subdued business risk profile, considering the heightened competition in the telecom sector.  

The ratings, however, continue to reflect the ongoing financial support demonstrated by the Tata group, to Tata Tele, CRISIL said on Monday. 

The rating strength is offset by a highly leveraged capital structure, modest operating profit margin and weak market position, leading to losses.

 The Tata group operates its mobile telecommunication business through TTSL and TTSL’s associate, Tata Teleservices (Maharashtra) Ltd. 

To arrive at its ratings, CRISIL has combined the business and financial risk profiles of TTSL and Tata Teleservices (Maharashtra). 

Both companies are in the same line of business and under a common management. CRISIL has applied its group notch-up framework to factor in the intensity of distress support available from the Tata group. 

For the purpose of analysis, preference shares issued to Tata Sons by TTSL have been considered as quasi equity as they carry low dividend and are compulsorily convertible to equity. 

Its operating margin rose to 18.6 per cent in FY16, vis-a-vis 12 per cent in FY15 due to a drop in termination charges, cost rationalisation measures, and lowering overhead expenses.

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