Fitch Ratings has today assigned India's Surya Vinayak Industries Limited (SVIL) a National Long-term rating of 'BBB-(ind)' (BBB minus(ind))'. Simultaneously, the agency has assigned ratings of 'BBB-(ind) (BBB minus(ind))/'F3(ind)' to SVIL's fund based working capital limits amounting to INR3,080m, and 'BBB-(ind)' (BBB minus(ind))/'F3(ind)' to its non-fund based working capital limits amounting to INR6,428m. The Outlook is Stable.
The assigned ratings reflect SVIL's established position in the perfumery and sandalwood industry, its consistent track record of growth and the already large size of its still expanding agro-trading business. The ratings are further strengthened by the high profit margins enjoyed in the perfumery division (the company witnessed an Op. EBITDA/Revenues of 24% in FY08). The ratings also find support in the low levels of competition in the sandalwood oil and perfumery industry, as well as the company's diversified operations.
Rating concerns emanate from expected decrease in overall profit margins due to increased agro-trading operations, and SVIL's limited scope of expansion in the sandalwood oil business on account of the market almost reaching saturation. The ratings are also constrained by the working capital intensive nature of the operations, high leverage levels, the relatively small history of its agro-trading operations and the regulatory, foreign exchange and commodity risks arising on account of the nature of business.
A sustained growth in revenues as anticipated, improved working capital management and a significant improvement in financial leverage would act as positive rating drivers. On the other hand, a marked decrease in profit margins, non-achievement of growth rates as anticipated and deterioration in financial leverage levels could act as negative rating triggers. Any additional exposure to entities within the group beyond the existing off balance sheet liabilities could potentially act as a negative trigger.
For the year ending March 2008, SVIL earned INR20,805m in revenues with its Op. EBITDA and Net Income being INR1,295m and INR778m, respectively. The company's profitability as measured by its Op. EBITDAR and net income margins stood at 6.2% and 3.7%, respectively. Meanwhile, the Total Adjusted Debt stood at INR5,010m, after including the off balance-sheet debt in the form of corporate guarantees of INR3,407m extended to lenders of SVIL Mines (an independent company promoted by the promoters of SVIL). SVIL's financial leverage computed as Total Adjusted Debt Net of Cash/Op. EBITDAR stood at 3.8x while its coverage ratio as measured by Op. EBITDAR/Net Fixed Charges stood at 3.6x.
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SVIL is a privately-held company involved primarily in the production of sandalwood oil and other essential oils and perfumery compounds. As a part of the Floriana Group, the company also manufactures personal care cosmetic products and trades agricultural commodities which primarily comprise soya bean oil and soya bean meal. Two other group companies, Rim Zim Valley Products Private Limited (RZVPPL) and Global Business India Private Limited (GBIPL), were recently merged into SVIL with effect from 1 April 2006; however, the effect of the merger was only reported in FY08 financial statements. SVIL's FY08 revenues included INR3668m and INR1121m of RZVPPL's and GBIPL's FY07 revenues, respectively.
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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