Fitch Ratings has today affirmed Tata Projects Limited's (TPL) National Long-term rating at 'AA-(ind)' (AA minus(ind)). The Outlook is Stable. Fitch has also affirmed the 'AA-(ind)' (AA minus(ind)) ratings assigned to its INR337.5m partly-convertible debenture (PCD) issue and INR600m cash credit limits, as well as the 'F1+(ind)' ratings assigned to its INR300m commercial paper programme (CP) and INR17,500m non-fund-based limits. At the same time, Fitch has assigned a rating of 'AA-(ind)' (AA minus(ind)) to TPL's additional short-term fund based limits aggregating INR150m, and a rating of 'F1+(ind)' to its additional INR750m non-fund based limits.
TPL's ratings continue to reflect its established market position (especially in the thermal power plant segment), its strong order book position (around 6.3x FY08 revenues), strong credit metrics and support from the Tata group companies. The company secured a INR28bn project from Andhra Pradesh Power Development Company in February 2009, which has helped increase the order book position to INR86bn. At 9M09, the company demonstrated efficient working capital management by utilising advances from customers to fund growth, thereby maintaining its consistently low financial leverage. In Q409, the company expects INR3.3bn as a mobilisation advance from its recently acquired project, which will add to the company's operating cash flow and help the company maintain a high level of liquidity. TPL is a Tata Group company and has strong linkage with the Tata group companies.
The factors constraining the ratings are project concentration and low margins. The top three projects account for over 64% of the order book. The scale of the projects in hand has increased significantly, posing higher execution risk. The agency notes that TPL has a strong track record in execution of these projects, and a majority of its projects are in the power sector, where the capex cycle remains strong. TPL has thin margins as most of its work is sub-contracted; however, the company expects to improve its margins in the future by entering into higher margin contracts. With significant execution risk and long project gestation periods, timely execution would remain a key to maintaining profitability in the short-to -medium-term. EBITDA margins consistently below 3%, weakening of group support and/or sustained Net debt/EBITDA above 2.0x could potentially act as negative triggers for the rating.
TPL started operations in 1979 and has grown to be a leading power sector construction company. TPL has several strategic business units. In 9M09, the company registered revenues of INR10,924m, EBITDA of INR443m and net profit of INR184m. The company has maintained low financial leverage, with total debt of INR693m and cash balance of INR564m at end-December 2008.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
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