June 5, 2012 / 3:07 PM / 6 years ago

TEXT-Fitch revises Aegis Ltd outlook to negative

 (The following statement was released by the rating agency)	
 June 5 - Fitch Ratings has revised India-based Aegis Limited's (Aegis)
Outlook to Negative from Stable. Its Long-Term Foreign Currency Issuer Default
Rating (IDR) has been affirmed at 'BB-'.	
The revision in Outlook reflects higher-than-expected leverage and also risks as
to its ability to maintain its operating margins in the current global
environment, which could further negatively impact Aegis's liquidity and credit
profile. For the financial year ended March 2012, Aegis's funds from operations
(FFO)-adjusted leverage, contrary to expectations, continued to exceed 4.0x
(FY11: 4.4x) due to higher adjusted debt. Operating margins declined to 11.9% in
FY12 (FY11: 12.9%) as a result of a change in business mix.	
Fitch notes that higher working capital requirements, mainly at AGC Network,
coupled with an increase in rental lease-capitalised debt and off-balance sheet
contingent liability resulted in an increase in adjusted debt. However, Fitch
does expect major deterioration in Aegis's working capital cycle in the short-
to medium-term given the project-based nature of AGC Network's business and
revenue cyclicality which tends to lead to working capital build-up, typically
in the last quarter of the financial year. The agency notes that free cash flows
are expected to remain positive due to lack of significant capex plans post
FY12, although they could be limited by its operating margins potentially
falling below 11%.	
The rating reflects Aegis's geographically and vertically diversified revenue
with low client concentration risk, its strong counterparties, and a high degree
of customer loyalty. For FY12, Aegis's revenue grew 42% to USD1bn. The company
has also been able to significantly grow AGC Network post-acquisition in terms
of products, geographical markets and partners. The rating also takes into
account limited risks of foreign exchange fluctuations and anti-offshoring
regulations as a majority of Aegis's revenues come from its onshore operations.	
Constraints to the rating are Aegis's small size compared with other Fitch-rated
companies in the same and/or related industries, its limited track record of
organic growth, and volatility in operating margins. Fitch also views Aegis's
high attrition rate as a risk.	
The Outlook may be revised to Stable if FFO-adjusted leverage falls below 4x on
a sustained basis. Also, should Aegis enter into more of a consolidation phase,
then FFO-adjusted leverage below 3.5x on a sustained basis, led by operating
margins above 11%, with continued positive free cash flows could result in a
notch upgrade. However, the rating may be downgraded if FFO-adjusted leverage
remains above 4x, led by operating margins falling below 11% or debt-led capex.	
Aegis is a major outsourcing solutions company with a presence in 12 countries
across six continents. Services include business and knowledge process
outsourcing businesses and technology services. North American operations are a
major revenue contributor at 33%. Other major revenue-generating regions include
south Asia at 21% and Australia and New Zealand at 17%.	
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.	
Applicable criteria, 'Corporate Rating Methodology', dated 12 August 2011, are
available at at www.fitchratings.com.	
Applicable Criteria and Related Research:	
Corporate Rating Methodology	
 (New York Ratings Team)	

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