Crisil Scales Down Tisco Debentures, Bonds

The Credit Rating Information Services of India Ltd (Crisil) has downgraded the ratings assigned to the non-convertible debentures, bonds and special premium note (SPN) issues of steel major Tata Iron and Steel Co Ltd (Tisco) from AAA to AA+.

The AAA rating assigned to its fixed deposit programme, however, has been reaffirmed.

Its proposed commercial paper programme for Rs 300 crore has also been assigned a P1+ rating, indicating very strong degree of safety.

The rating downgrade comes in the wake of a fall in the company's profits for the financial year 1997-98, followed by a 59 per cent slump in the first quarter.

"The revised rating is on account of pressures on the steel division's profitability due to sluggishness in demand, increased supplies and subdued prices," said a Crisil release.

Net income from non-steel business has also been declining and was negative in 1997-98, it added.

Tisco derived strengths in terms of its strong market position, operating efficiency and cost advantages due to integrated operations and status as the flagship of the Tata group.

The management's initiative towards improvement of product mix, cost reduction, inventory control and debtors was also well strategised.

Nevertheless, the difficult business conditions and the capital costs incurred on its ongoing projects, including the cold rolled mill project would not allow gearing levels to come down significantly, the release said.

The rating has not factored in the Gopalpur project, as it had been deferred for the time being, it added.

Tisco had posted a drop in net profit of 31 per cent for the year 1997-98 to Rs 322.08 crore from Rs 469.21 crore in the previous year. Operating profits had also fallen to Rs 995.34 crore (Rs 1,164.13 crore).

Turnover had grown by a mere 1.38 per cent to Rs 6,433.49 crore.

In the first quarter of this financial year, Tisco's bottomline had taken a hit of 59 per cent, ending at Rs 27.09 crore against Rs 65.59 crore in the corresponding period last year.

Its net sales had also dropped to Rs 1,352 crore as against Rs 1,395 crore in the corresponding period last year.

The interest burden of the company for the first quarter was higher at Rs 77.64 crore (Rs 69.26 crore) and gross profit was lower at Rs 159.24 crore (Rs 188.72 crore).

Last week, Crisil had also downgraded the ratings assigned to the bonds of another steel major, Steel Authority of India Ltd (SAIL) from AA- to A and its FD from AA to A+.