M&M NCD gets AA plus

THE CREDIT Rating Information Services of India (Crisil) has assigned a double A plus rating to the proposed Rs. 120 crore non-convertible debenture issue of Mahindra & Mahindra (M&M). The outstanding AA plus (double A plus) ratings assigned to the company's various non-convertible debenture issues have been reaffirmed. The outstanding P1 plus (P one plus) rating assigned to its commercial paper programme has also been reaffirmed.

The ratings are on account of M&M's continuing market leadership in both the utility vehicle and tractor businesses and its strategies to mitigate the effects of ongoing market pressures, the benefits of operational synergies across both these businesses, the company's comfortable gearing levels (as measured by total debt / tangible net worth) and its ongoing efforts to establish its new product development skills.

The rating also factors in the increased business side risks in both the tractor and UV businesses due to heightened competitive pressures arising out of volume contraction in the overall tractor industry and in the rural segment of the UV industry - the traditional preserve of M&M. The rating assumes a consolidation of the company's present business without any significant capital expenditure plans beyond the programme that is presently under execution.

M&M is the largest multi-utility vehicle (MUV) and tractor manufacturer in India and is also engaged in the manufacture and sale of light commercial vehicles.

Hero Cycles

A double A plus rating has been assigned to the Rs. 12 crore non- convertible debenture programme of Hero Cycles (HCL).

HCL's rating reflects its dominant position in Indian cycle industry coupled with its management's demonstrated ability to sustain market share and the strength derived from being the most profitable cycle manufacturer. The rating also factors in the company's favourable financial risk profile characterised by stable gearing and high debt protection ratios which is expected to remain comfortable in the absence of any major capital expenditure/ investment programs.

However, the ratings are to an extent constrained by the low growth and margins in the bicycle business, competitive environment for the CR division and the support extended to other companies in the Hero group.

Hero Cycles is part of the Rs. 3,800 crore Hero group which includes Hero Honda (FAAA), Munjal Showa (P1 plus), Highway Cycle Industries, Gujarat Cycles and Majestic Auto. HCL has bicycle manufacturing facilities at Ludhiana and Sahibabad (U.P.) with installed capacities of 3.6 million bicycles and 9 lakh bicycles annually respectively. HCL also has a cold rolling mill at Ludhiana with an installed capacity of 1.10 lakh tpa. For the year ended March 31, 2000 HCL posted a profit after tax of Rs. 42.10 crores on a sales of Rs. 820 crores.

Indian Aluminium

A triple A rating has been assigned to the Rs. 50 crore non- convertible debenture issue of Indian Aluminium Company (Indal).

The rating reflects Indal's strong market position in the semi- fabricated (semi-fabs.) aluminium products segment, the comfortable business position of its alumina business, its favourable and improving profitability and its comfortable capital structure and liquidity position. The rating is also supported by the expected further improvement in the company's business risk profile subsequent to the takeover by Hindalco Industries. (rated AAA / P1 plus by Crisil) due to the business synergies existing between Indal and Hindalco. The rating also factors in the company's dependence on external sources for meeting a part of its metal requirements and the competitive pressures prevalent in the semi-fabs segment.

Indal, a subsidiary of Hindalco, is the largest downstream fabricator of primary aluminium in India. The company's operations are vertically integrated and include bauxite mining, alumina refining, power generation, primary aluminium smelting, semi-fabrication and recycling facilities. The company's product- mix mainly consists of semi-fabricated products, which contribute to around 65 per cent of its operating income, and alumina accounting for around 30 per cent of its operating income, with the balance being contributed by others.

The change in ownership is expected to further strengthen Indal's competitive position in the domestic aluminium industry in addition to other synergistic benefits. Indal is primarily a downstream player, whereas Hindalco is primarily an upstream player. Further, while on one hand Indal is partly short of primary metal in which Hindalco has a surplus, on the other Hindalco faces a marginal shortage in alumina where Indal has a surplus.

During 2000-01, the company's sales turnover improved significantly largely on account of sales volume growth both in semi-fabs and alumina business segments. The company's margins have also improved during the period on account of better capacity utilisation and the company's constant efforts to reduce overheads and administrative costs. The company's financial performance is likely to improve further in future and its financial flexibility is also expected to remain strong on account of large unutilised bank lines, expected sustenance of its favourable liquidity position and its strong parentage.

Send this article to Friends by E-Mail

Section  : Business
Previous : Who will oversee OCBs?
Next     : BPCL sales cross Rs. 45,000 cr.