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Rating agency ICRA revised short-term rating for Tata International Ltd's (TIL) non-fund based limits to "A1" from "A1+" on deterioration in profitability indicators in 2014-15.
The revision, in factors, in the operational inefficiencies in the core leather manufacturing business at the Move-On subsidiary and the indigenous manufacturing unit at Dewas (Madhya Pradesh). TIL, is an unlisted entity of Tata group focusing on international trade, has significant export obligations.
ICRA also flagged the risks associated with foreign currency fluctuations. The TIL, which is only partly hedged and the exposure to the African business, the currencies of which have been depreciating against the US Dollar in FY2015.
On consolidated basis, TIL posted a net loss of Rs. 123.3 crore on an operating income of Rs 13,605.0 crore in financial year ended March 2015 as against a net loss of Rs. 101.5 crore on an operating income of Rs. 10,468.3 crore in year before.
ICRA has reaffirmed the issuer rating (Ir) of the company at "IrA+". The outlook on the issuer rating is 'Stable'. This rating indicates adequate credit quality. The rated entity carries average credit risk. The rating is only an opinion on the general creditworthiness of the rated entity and not specific to any particular debt instrument, ICRA said.
Meanwhile, ICRA has assigned a long-term rating of "A+" to the Rs 95 crore enhanced long term, fund based limits of TATA International. The rating agency has also reaffirmed the long term rating assigned to the Rs 250 crore Non Convertible Debenture (NCD) program.
The ratings draw comfort from the strong parentage of the company, its established presence in the African and Asian markets and the reputed overseas clientele for its leather manufacturing division.
The agri-trading and steel trading businesses (acquired from TATA Steel International) have started gaining traction in FY2015. This lends further comfort to the ratings, which also take into consideration the strong investment portfolio of the company - the market value of which exceeds Rs 2,000 crore as on March 31, 2015- and their planned divestments which are expected to support the liquidity position of the company.
The ratings however, continue to remain constrained by recurring losses leading to erosion of networth and dependence on external debt funding to meet working capital requirements. The latter led to stretched capital structure and weak coverage indicators, and the susceptibility of operations to the fluctuating commodity prices which are not passed on to overseas customers in full or in a timely manner, ICRA said.
