Voltas, 9 others downgraded

MUMBAI, Nov 18: CRISIL, the leading credit rating agency has downgraded nine companies including seven manufacturing companies and two fina...

MUMBAI, Nov 18: CRISIL, the leading credit rating agency has downgraded nine companies including seven manufacturing companies and two finance companies. The debt instruments of Flex Industries Ltd FIL, the market leader in the flexible packaging business has been downgraded and put on rating watch following the recent downgrading of Garware Polyester, another major player in the flexible packaging sector.

In a related move, rating agency ICRA has also downgraded the Rs 47.91 crore-PCD programme of Voltas Ltd of the Tata group from LAA to LA and placed it under rating watch indicating inadequate safety. The slowdown in demand in the white goods sector has contributed to a deterioration in the performance of the company during 1996-97. Voltas has lost market share in the refrigerator and air-conditioner segments. Other leading companies in the downgraded list are Escorts Finance LtdEFL of the Delhi based Escorts group, Elbee Services leading courier company, Herdilla Unimers Ltd HUL, Indian Dyestuff Industries Ltd IDIL and Morepen Hotels Ltd MHL formerly Morepen Finance. The ratings of HUL and Elbee Services Ltd ESL have been downgraded to the default category showing that the instrument is either in default or is expected to be in default.

The major victim of Crisil offensive today was Flex group 8220;The Flex group is presently facing a strained liquidity position, primarily on account of poor market conditions for packaging firms and large repayment obligation in FIL. The improvement in the group liquidity position is contingent on the proposed US 90 million issue going through in FIL,8221; said Crisil.

The rating of FIL8217;s Rs 93.89 crore Non-Convertible Debenture NCD, Rs 50 crore NCD and Rs 39.3 crore Partially Convertible Debentures have been downgraded from A to BB and all the instruments have been put under the rating watch with negative implications. FIL8217;s FD programme has also been downgraded from FA to FA1 and placed on watching list. The downgrading has been mainly due to pending inflow of funds through External Commercial Borrowings ECBs. 8220;The revised rating of FIL8217;s debentures and fixed deposit programmes reflect Crisil8217;s concern on the company8217;s ability to generate adequate cash flows to meet its total debt repayment obligations and its high exposure to short term borrowings,8221; it said.

Pressure on operating profits along with high interest burden and huge debt repayment requirements in the current year have put a severe strain on the company8217;s liquidity position. Other companies from the same group 8212; Flex Engineers Ltd FEL, Flex Foods Ltd FFL and Flex Finance Ltd FFinL 8212; have also been downgraded. The Rs 50 crore NCD of FEL has been downgraded from A8217; to BB-8216; due to the significant decline in the company8217;s performance during 1996-97, pressure on operating profits and a strain on its liquidity position. These factors are likely to have a negative impact on FEL8217;s ability to generate adequate cash flows to meet its debt repayment obligations. A decline in the activities of the construction division and a slowdown in the sales of packaging machines have led to a substantial decline in the company8217;s turnover. One reason for the downgrading of NBFC subsidiary is the poor profitability in the sector and increased exposure to group companies which are facing liquidity crunch.

While the rating of the FD and Rs 15 crore NCD of EFL of the Escorts group has been downgraded to FA18242;, AA-8216; respectively, rating of its Rs 25 crore Commercial Paper has been reaffirmed at P18217;. The revised rating shows safety and has been on account of declining asset quality, reduced profitability, relatively lower diversity of fund base, deterioration in capital structure and increase in competition.

The Rs 10 crore NCD and the FD of the market leader in dyes industry 8212; IDIL 8212; has been downgraded from A- to BBB and FA to FA- respectively. The revision has been mainly due to downtrend in the dyes industry in general and its reflection on IDILs performance. The company8217;s high cost structure and below average working capital management also contributed to the downfall. 8220;These risks are partially mitigated by the dominant market position of the company, especially in the technology intensive vat dyes segment. The FD of MHL has been downgraded to FB inadequate safety grade due to the increase in business and financial risk owing to uncertainties associated with a greenfield five star deluxe hotel project envisaged by the company. The company has already stopped accepting fresh FDs.