India ratings downgrade Hindustan Dorr-Oliver to 'IND BBB'/Negative

India Ratings has downgraded Hindustan Dorr-Oliver Ltd's (HDOL) Long-Term Issuer Rating to 'IND BBB' from 'IND A'. The Outlook is Negative. A list of additional ratings is provided at the end of this commentary.

The downgrade reflects HDOL's weak financial performance for the 15 months ended June 2012 (15 months). Consolidated provisional results for the 15 months indicate revenues of INR10.2bn, down 5% compared with those in FY11 (12 months). On a pro-rata basis, revenues declined 24% yoy in FY12. The cause for the fall in revenue was delays in the execution of company's projects, particularly two major projects (cumulative value of INR4.5bn) in its mineral division. Revenue was also impacted by delays in receiving an order worth INR1.98bn in the same division.

The Outlook reflects India Ratings' view that HDOL's liquidity and operating margins will remain under pressure in the near term. However, the agency does not expect operating margins to deteriorate further from the FY12 levels. The company is expecting to receive around INR1.2bn of its receivables by December 2012, which are blocked in some of its projects executed in minerals and environmental divisions. This should ease some pressure on its liquidity.