P1 plus for Sunbeam Auto

A P1 plus (P one plus) rating has been assigned to the Rs. 11 crore commercial paper programme (enhanced from Rs. 9 crore) of Sunbeam Auto (SAL). The AA minus (double A minus) rating assigned to the company's proposed non-convertible debenture issue has been reaffirmed.

The ratings take into account SAL's sole supplier status with Hero Honda Motors (HHML) for its range of products, its comfortable financial risk profile characterised by strong cash accruals and healthy interest coverage ratios (as defined by PBDIT/ interest and finance charges) and its access to managerial and financial support of the Hero group. The rating also factors in the company's complete dependence on the OEM segment of the market and its large revenue dependence on HHML.

SAL is engaged in the manufacture and sale of aluminium die cast components and pistons for two wheelers and passenger cars. In 2000-01, it reported net profit of Rs. 4.94 crores on a net sales of Rs. 220.81 crores.

The rating assigned to National Fertilisers' (NFL) Rs. 1,000 crore outstanding bonds programme has been downgraded from AA minus (double A minus) to A plus. The rating assigned to the company's Rs. 100 crore short term debt programme has been downgraded from P1 plus to P1.

The revision in ratings is on account of continued decline in the company's profitability on account of rising under recoveries from its plants (especially fuel oil based plants) under the current fertilizer policy regime and non-receipt of arrears that were anticipated in 2000-01 from Fertiliser Industry Coordination Committee (FICC).

While NFL's plants have been operating at high capacity utilisation in the past, their profitability have been affected on account of non-revision in retention prices since July 1997, further compounded by the company's relatively older plants which suffer from higher energy consumption, high manpower and overhead expenses. Further, the ad hoc reassessment of capacity of its profitable Vijaipur-I and II plants and restriction on ECA allocation during 2000-01 also affected the company's profitability.

The rating continues to factor in NFL's strong market presence in the domestic urea industry, location of its plants in the high urea consuming States and importance of fertilizers in general and urea in particular. While the gearing of the company is comfortable, the coverage indicators are modest and working capital and liquidity position of the company is strained.

While the Government has announced its decision to shift to group-wise concession scheme instead of retention price scheme for urea manufacturers, there is considerable uncertainty in the industry until there is clarity on the group concessions and supply of feedstock to urea manufacturers at import parity prices. The rating agency expects that the immediate impact on NFL might be marginally positive, if fuel oil is supplied to NFL at import parity prices by the oil companies.

However, medium to long run impact would depend on the company's ability to reduce energy consumption, control manpower and overhead costs and eventually switch to LNG as feedstock. The ratings could be influenced by the recommendations of Alagh Committee and any other major policy measures announced by the Government.

NFL, a urea company wherein Government has a stake of 97.6 per cent, is in the business of manufacture and sale of urea. In 1999-2000, the company had an operating income of Rs. 2,496.58 crores and a net profit of Rs. 34.89 crores.

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Section  : Business
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