Rating firm ICRA has downgraded the long-term rating on the Rs 1,100 crore long-term loans of Adlabs Entertainment Ltd to ‘D’ from ‘BB+’ due to “some delays by the company in servicing its debt obligations on account of weak liquidity position”. Instruments with the ‘D’ rating are in default or are expected to be in default soon.
Despite a 53 per cent growth in Ebitda from Rs 39.8 crore in FY2016 to Rs 60.7 crore in FY2017, the company could not achieve the targeted cash break even, it said. The downgrade was due to “recent delays in debt servicing emanating from lower-than-anticipated revenues.” “Significant interest costs to keep the cash flows stretched in the medium term, lengthening the breakeven period and requiring further investments or early monetization of assets to fund the losses,” it said while listing key rating drivers.
“Seasonal nature of demand and any adverse exogenous factors during the peak season could severely impact the operating performance. Footfalls vulnerable to discretionary spend by consumers, indirectly impacted by the macro-economic conditions and also remains exposed to climatic risks,” ICRA said.
The company’s revenues were notably impacted during November and December 2016, its peak season, on account of the demonetisation exercise by the Government which had resulted in a drop in footfalls. “This further impacted its liquidity position. Apart from seasonality and adverse exogenous factors, the footfalls remain susceptible to discretionary spend by consumers, indirectly impacted by the macro-economic conditions and also remains exposed to climatic risks,” ICRA said.