Ramco Industries' NCD gets MAA

THE INVESTMENT Information and Credit Rating Agency (ICRA) has assigned an MAA rating, indicating high safety, to the Rs. 15 crore medium term non-convertible debenture programme of Ramco Industries (RIL). An A1 plus rating has also been assigned to the Rs. 33 crore commercial paper programme of RIL. The rating indicates highest safety in the short term.

RIL demerged its software division into a separate legal entity, Ramco Systems, with effect from April 1, 1999. The demerger exercise has helped realise the value of the investments made in its software business. Among the two remaining divisions, fibre cement (FC) sheet division is the prime driver of the operating income and profits. The FC sheet industry is characterised by overcapacity, sluggish demand and declining prices. RIL is one of the oldest players in the industry and has a good reach in the southern and western markets.

The company's production facilities are located in proximity to the consuming centres. It also has a favourable cost structure which enables it to maintain profitability in a competitive market. The threat of ban on asbestos sheets is mitigated to some extent by non-availability of viable, cost effective alternatives. RIL had during FY 2000 successfully set up a FC sheet plant in Sri Lanka under a wholly owned subsidiary, for catering to that market.

The yarn division of RIL is an export-oriented unit selling its produce to Mitsubishi Corporation. This division, with 12,000 spindles, contributes to about 16 per cent of gross sales of RIL, and is managed by group company - Rajapalayam Mills.

After the demerger of the software operations, RIL's overhead costs have shown a decline. The debt stock of RIL has also declined, reducing the gearing from 1.65 times as on March 31,1999 to 0.98 times as on March 31, 2000, thereby improving its net margins. The gearing dropped further in 2000-01. In 1999- 2000, RIL had net sales of Rs. 141.12 crores on which it made a profit after tax of Rs. 16.01 crores. The company recorded improved performance in the first three quarters of the current year aided by saving in costs.

ICRA expects the future revenues and profitability of RIL to be steady as it has a stable market position in a moderate growth segment. The rating also factors in the favourable cost structure, reduction in gearing and comfortable liquidity. The rating is constrained by the competitive market structure and the threat of product substitution.

Hindustan Dorr-Oliver

ICRA has downgraded the rating assigned to the Fixed Deposit Programme of Hindustan Dorr-Oliver from MA to MA minus (M A minus). The revised rating indicates adequate safety. The prospect of timely servicing of the interest and principal is adequate. However, debt servicing may be affected by adverse changes in the business/economic conditions. The relative degree of safety has for the rating is marginally lower than in the previously assigned rating.

HDO's businesses mainly comprise design and supply of capital equipment for process industries as well as turnkey construction for the DAP/ phosphatic fertiliser segment. The businesses are conducted through three main divisions - project systems division (PSD), environmental engineering division (EED) and project engineering division (PED). PSD undertakes turnkey projects for construction and revamp in the DAP/ phosphatic fertilizer industry. The EED undertakes design and fabrication of equipment for water treatment and other pollution control equipment while the PED undertakes design and supply of solid/liquid separation equipment to the processing industries. In FY 2001, HDO's three main operating divisions, namely, project systems division (PSD), project equipment division (PED) and environmental engineering division (EED) have been restructured. PSD and EED have been merged to form the project systems group (PSG). PED has been renamed as the process equipment group (PEG).

In the current fiscal year, HDO's unexecuted order book position has recovered, reversing the earlier declining trend since 1997- 98. In the current fiscal, HDO has bagged additional fresh orders and executed them on a timely basis resulting in improved performance. For the nine months ended December 31, 2000, HDO reported operating profits (OPBDIT) amounting to Rs. 2.57 crores. The opening order book position for the next fiscal is likely to be stronger at around Rs. 45 crores than it was for FY2001.

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