CRISIL revises rating outlook on Pricol FDs to ‘Negative’
CRISIL has revised its rating outlook on Pricol Ltd’s fixed deposit programme to ‘Negative’ from ‘Stable.’
By INDIATIMES NEWS NETWORK |
MUMBAI: CRISIL has revised its rating outlook on Pricol Ltd’s fixed deposit programme to ‘Negative’ from ‘Stable.’ The revision reflects CRISIL’s expectation that the slowdown in Pricol’s revenue growth as a result of sluggish offtake from the two-wheeler and commercial vehicle segments, and continuing pressures on its operating profitability, will impact Pricol’s cash-generating ability.
Reduced accruals and part debt funding for the ongoing large capital expenditure of about Rs 200 crore (spread over the 2007-08 to 2009-10 period), coupled with increasing working capital requirements will, in CRISIL’s opinion, result in Pricol’s gearing levels registering limited improvement from current high levels. The interest coverage ratio is also expected to weaken on account of sluggish profitability and higher debt levels.
Pricol’s operating profitability has been sliding steadily since 2003-04, not withstanding healthy revenue growth of about 19 per cent (compounded) in the 2003-04 to 2006-07 period. Firm raw material prices, intense competition and continuing pricing pressures from original equipment manufacturers, along with increasing manufacturing expenses have impacted operating profitability.
This coupled with large debt levels due to the recent part debt funded capex (about Rs 200 crore spread over the 2004-05 to 2006-07 period) and high working capital requirements in keeping with higher business levels, have resulted in gearing levels increasing to 1.99 times at March 31, 2007 from 1.40 times at March 31, 2005, while debt protection measures have also declined: interest coverage and net cash accruals to total debt ratios declined to 5.80 times and 0.16 times respectively, in 2006-07 from 15.05 times and 0.29 times in 2004-05.
Notwithstanding the above, the rating continues to be underpinned by Pricol’s diverse product profile, strong position in dashboard instrument products, established relationships with leading OEMs, and healthy product development skills aided by technological tie-ups.
Reduced accruals and part debt funding for the ongoing large capital expenditure of about Rs 200 crore (spread over the 2007-08 to 2009-10 period), coupled with increasing working capital requirements will, in CRISIL’s opinion, result in Pricol’s gearing levels registering limited improvement from current high levels. The interest coverage ratio is also expected to weaken on account of sluggish profitability and higher debt levels.
Pricol’s operating profitability has been sliding steadily since 2003-04, not withstanding healthy revenue growth of about 19 per cent (compounded) in the 2003-04 to 2006-07 period. Firm raw material prices, intense competition and continuing pricing pressures from original equipment manufacturers, along with increasing manufacturing expenses have impacted operating profitability.
This coupled with large debt levels due to the recent part debt funded capex (about Rs 200 crore spread over the 2004-05 to 2006-07 period) and high working capital requirements in keeping with higher business levels, have resulted in gearing levels increasing to 1.99 times at March 31, 2007 from 1.40 times at March 31, 2005, while debt protection measures have also declined: interest coverage and net cash accruals to total debt ratios declined to 5.80 times and 0.16 times respectively, in 2006-07 from 15.05 times and 0.29 times in 2004-05.
Notwithstanding the above, the rating continues to be underpinned by Pricol’s diverse product profile, strong position in dashboard instrument products, established relationships with leading OEMs, and healthy product development skills aided by technological tie-ups.
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