(The following statement was released by the rating agency)
March 01 - Fitch Ratings has affirmed India's IOT Infrastructure & Energy Services Ltd's (IOT Infra) National Long-Term Rating at 'Fitch AA-(ind)'. The Outlook is Stable. A list of additional rating actions is provided at the end of this commentary.
The ratings continue to reflect IOT Infra's well-established position in the engineering procurement and construction (EPC) space, especially for the oil and gas sector. The ratings also benefit from revenue visibility provided by the company's order book of INR29.2bn at end-September 2011. The ratings also derive support from the strong operational and strategic linkages with its parents - Indian Oil Corporation Ltd (IOCL, 'Fitch AAA(ind)'/Stable) and Germany's Oiltanking Gmbh (OT), the second-largest independent terminal player in the world.
The ratings are constrained by concentration in the order book and revenues. However, Fitch notes that the company has reduced its concentration, with the top two projects accounting for 64% of the order book at end-September 2011, compared with just one project accounting for 64% at-end March 2010. Another rating constraint is the company's fairly long working capital cycle with a high level of unbilled revenues (INR6.5bn at end-March 2011).
The company has a 52.5% stake in IOT Utkal Energy Ltd (Utkal, 'Fitch A(ind)'/Stable) which is undertaking a build-own-operate-transfer project of terminal facilities for IOCL's 15mtpa greenfield refinery at Paradip. Utkal's other shareholders are OT (10%) and IVRCL Ltd (37.5%, 'Fitch A+(ind)'/RWN). Fitch notes that Utkal's commissioning has been delayed by a few months to May 2012. Fitch has analysed IOT Infra's consolidated financials excluding the financials of Utkal, as the project's debt raised by the latter is on a non-recourse basis. The agency has, however, included in its analysis IOT Infra's equity injections, as well as funding of cost overruns and debt service gaps for Utkal.
A sustained increase in leverage beyond 3.5x as a result of margin contraction or working capital cycle lengthening may put downward pressure on the ratings. Any weakening of its linkages with its parent companies may also lead to a negative rating action. The ratings may benefit from scale expansion and a diversification of its order book with sustained positive cash flows from operations.
Started in 1996, IOT has shifted its key focus from terminals to EPC. The latter accounted for 85% of consolidated FY11 (year end March) revenues and 75% of EBITDA. For FY11, the company reported consolidated revenues of INR12.5bn (FY10: INR15.2bn), EBITDA of INR2.6bn (INR2.7bn) and net profit INR568m (INR955m). The declines were due to elimination of inter-company revenues and profits relating to Utkal. Total adjusted debt was INR5.7bn (including INR2bn of compulsory convertible debentures at Utkal), with net adjusted leverage of 1.5x. In FY12, the company raised INR1bn through a private equity investment from India Infrastructure Development Fund.
IOT Infra's bank facilities have been affirmed as follows:
INR1,162m (reduced from INR1,892m) long-term loans: 'Fitch AA-(ind)'
INR2,500m cash credit facility: 'Fitch AA-(ind)'
INR500m short-term loans: 'FitchA1+(ind)'
INR1,000m letter of credit facility: 'FitchA1+(ind)'
INR11,075m (increased from INR7,185m) bank guarantee facility: 'Fitch AA-(ind)'/'Fitch A1+(ind)'
INR8,600m working capital facility: 'Fitch AA-(ind)'/ 'Fitch A1+(ind)'
INR300m short-term debt/ commercial paper programme - 'Fitch A1+(ind)'