(The following statement was released by the rating agency)
March 01 - Fitch Ratings has affirmed India-based IOT Anwesha Engineering & Construction Ltd’s (IOT AEC) National Long-Term rating at ‘Fitch A-(ind)’ with a Stable Outlook. A list of additional rating action is provided at the end of this commentary.
The affirmations reflect IOT AEC’s comfortable credit profile and liquidity position in the financial year ended March 2011 (FY11), with low gross financial leverage of 0.6x (FY10: 0.5x), cash balances of INR102m (INR28m), and unutilised fund-based limits of INR293m. The ratings also reflect an increase in IOT AEC’s order book position to INR3.6bn (2.2x FY11 revenues) in FY11 (FY10: INR2.6bn), with strong revenue growth of 63% yoy to INR1.6bn, an EBITDA of INR316.2m (INR231.7m), and a 15% yoy increase in net profit to INR152.8m. The company has also generated positive cash flows from operations for the last four years, except FY10.
The ratings benefit from IOT AEC’s moderate operational and strategic linkages with its parent - IOT Infrastructure & Energy Services Ltd (IOT IES, ‘Fitch AA-(ind)'/Stable). IOT IES owns an 81% stake in IOT AEC and is also one of the latter’s largest customers (around 58% of order book at end-December 2011). The management expects the parent’s contribution to order book to remain around the current levels over the near-term (FY10: around 90%).
The ratings, however, continue to be constrained by the project concentration in IOT AEC’s order book, with top two projects accounting for 63.6% of the order book in FY11 (FY10: 81.8%). Though segment concentration has reduced with the company entering into power segment (orders from Lanco Infratech Ltd ) and ports (orders from Adani group), its revenues and profitability may be impacted due to any time or cost overruns at either of these projects.
Positive rating guidelines include IOT AEC’s order book diversification and an increase in its size of operations. Negative rating guidelines include IOT AEC’s financial leverage exceeding 3x on a sustained basis, due to margin contraction or working capital cycle lengthening, and any deterioration in its linkages with IOT IES.
IOT AEC’s bank loan ratings have also been affirmed as follows:
- INR206.1m long-term loans (enhanced from INR41.8m): affirmed at ‘Fitch A-(ind)'
- INR350m cash credit facility: affirmed at ‘Fitch A-(ind)/Fitch A1(ind)'
- INR550m non-fund based limits (enhanced from INR350m): affirmed at ‘Fitch A1(ind)'