Fitch Ratings has today assigned India-based Jain Irrigation Systems Ltd (JISL) a National Long-term rating of 'A(ind)' with a Stable Outlook. At the same time, the agency has assigned a rating of 'A(ind)' to both its INR8.6bn long-term bank loans (as on 31 December 2008) and to its INR5.8bn fund-based limits. Fitch has also assigned a rating of 'F1(ind)' to its INR5.7bn short-term non-fund based bank limits.
The ratings reflect JISL's revenue and geographic diversification, leadership in all its key business segments and stable profitability over the last five years. The demand outlook for its Micro Irrigation Systems (MIS) segment, which contributes about 50% to JISL's revenues, is positive given the strong need for irrigation facilities in the country and the government impetus on the same. The ratings also reflect JISL's successful operation of overseas subsidiaries given the company's strong integration capabilities and the benefits JISL derives from the latest technologies provided by its subsidiaries in different segments. The ratings also factor in JISL's strong distribution network, strong relationships with farmers and government bodies, and a strong understanding of local conditions in the states in which the company operates.
JISL's credit metrics have improved over the past three years on healthy cash accruals while regular equity infusions have improved the capital structure. JISL has spent about INR5bn in the last two years on overseas acquisitions and capacity expansions and has plans to further expand capacities, especially in MIS over the next four years in a phased manner. A significant amount of future debt requirements have already been tied up with leading global financial institutions.
The ratings are constrained by JISL's aggressive growth strategy and high working capital requirements. JISL has followed a debt-led growth strategy in the past which has kept leverage high, but Fitch expects the strong projected growth in turnover with stable margins will lead to maintenance of a moderate leverage profile consistent with the rating assigned. High working capital requirements put some stress on liquidity, owing to the central and State government subsidy mechanism involved in the MIS segment, and the seasonal nature of the agriculture sector whereby the company needs to maintain significant inventories of various raw materials at all times. This has led to negative cash from operations (CFO) in the last three years which constrains the short-term rating.
The rating could come under downward pressure if net debt/EBITDA deteriorates to over 4.5x on a sustained basis or if the company undertakes unplanned acquisitions that result in significant debt on JISL's books. On the other hand, if the company can de-leverage from current levels and keep net debt/EBITDA below 3x on a sustained basis, it could be a positive rating factor.
JISL has a diversified revenue profile, with a presence in the micro irrigation systems, poly vinyl chloride (PVC) and polyethylene (PE) pipes, PVC and polycarbonate (PC) sheets, and agro processing segments. The company has customers in 107 countries and has subsidiaries in Israel, USA and Europe. In FY08, the company reported revenues of INR22.2bn compared to INR13.9bn in FY07 with an increase in EBITDA margins to 15.5% in FY08 from 13.5% in FY07. Debt increased to INR12.7bn in FY08 from INR3.3bn in FY05 and interest coverage improved to 3.4x in FY08 from 2.8x in FY07. JISL reported a net debt/EBITDA of 3.3x in FY08 compared to 3x in FY07. In the nine month period ended December 2008, JISL reported revenues of INR21.1bn and EBITDA of INR3.4bn, implying a further increase in margins to 16.1%.
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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