ICRA revises Telco rating

THE INVESTMENT Information and Credit Rating Agency (ICRA) has revised the rating assigned to the long-term NCD programmes of Telco aggregating Rs. 600 crores from LAAA, indicating highest safety, to LAA plus, indicating high safety. The rating assigned to the Rs. 1,200-crore commercial paper programme has been retained at A1 plus, indicating highest safety.

The ratings take into account Telco's dominant position in the commercial vehicle business and its status as one of the flagship companies of the Tata group. The growth of the commercial vehicle business is intrinsic to goods movement in the country and the long term demand prospects for this business therefore remain favourable. Thus while ICRA considers the recent slack in the industry's business volumes as temporary, the revision in ratings factor in the competitive pressure in all the business segments of Telco, particularly in the passenger car and LCV businesses.

Telco fulfilled its initial booking commitments for Indica by December 1999 and sold 55,776 cars in 1999-2000, thereby garnering an 8.7 per cent market share in the car market in the first full year of its operations. However, given the limited pricing flexibility by virtue of operating in a competitive market, profitability of this division is expected to remain under pressure and will be sensitive to volumes.

The hike in diesel prices, imposition of uniform sales tax across the country coupled with the pressure on freight rates for truck operators are likely to have some impact on the ability of truck manufacturers to pass on the higher production costs associated with Euro emission norms. To mitigate pressures on its profitability Telco has also initiated a number of cost reduction programmes. ICRA ratings factor in these initiatives and take cognisance of Telco's low gearing, the favourable maturity profile of its borrowings and improvement in its working capital management.

Birla AT&T

ICRA has assigned an A1 plus rating to the Rs. 100 crore short term debt programme of Birla AT&T Communications (BATT) indicating highest safety.

The rating takes into consideration the positive outlook for the cellular sector with the change to a revenue sharing regime and the extension in the license period from 10 to 20 years as per the National Telecom Policy 1999 (NTP 99). The rating factors in the strength of the promoters and their commitment to the cellular business, the expected favourable impact of the proposed merger with TCL and the high revenue generation potential of the circles in which BATT operates.

The rating also takes into account the likely increase in competition due to the entry of additional players, especially Department of Telecommunication Services (DTS). BATT, a joint venture between the Aditya Birla Group and AT&T Corporation of the U.S. is the cellular operator for two circles, Maharashtra and Gujarat.

Dynamatic Tech.

ICRA has assigned a rating of LA minus (LA minus), indicating adequate safety, to the Rs. 5 crore non-convertible debenture programme of Dynamatic Technologies DTL).

DTL is a leading manufacturer of hydraulic gear pumps in the country, which are used in tractors, earth moving equipment, material handling equipment and trucks. DTL has a dominant share in supplies to tractor OEMs and also caters to the tractor replacement market.

With significant exposure to the tractor segment, DTL's sales are dependent on the fortunes of the Indian tractor industry. Besides the tractor companies, DTL has also been approved as a supplier to MNCs such as John Deere, Ford New Holland and Same for their joint ventures in India. For the year ended March 31, 2000 (18 months), DTL achieved sales of Rs. 73.80 crores and a profit after tax of Rs. 2.74 crores.

The company's diversification into areas such as manufacture of defence equipment, fabrication of aerospace components, trading of other hydraulic products and setting up computer design and training centre are expected to partly offset the risk arising out of high dependence on the tractor segment.

Rise in raw material prices and DTL's inability to pass on price increases to its customers led to decline in operating margins. Borrowings for funding its expansion and foundry unit resulted in increased gearing and interest. High dividend payout resulted in low cash accruals and low returns from investments in group companies affected the profitability of DTL.

The rating factors in DTL's leadership position in the tractor OEM segment, vast distribution network and growth potential arising out of synergistic diversification. The rating is constrained by its relatively high gearing and high repayment commitments over the medium term.

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