Fitch Ratings-Mumbai/Singapore-12 May 2009: Fitch Ratings has today assigned India's Mokalbari Kanoi Tea Estate Pvt Ltd (MKTL) a National Long-term rating of 'B(ind)' with a Stable Outlook. At the same time, Fitch has assigned 'B(ind)' ratings to MLTL's long-term bank loans aggregating INR105m and fund based limits of INR70m.
The ratings draw comfort from the company's profitable operations during the past five years, despite a period of slackening demand and margin pressures, reflecting its ability to garner above-average price realisations. Fitch notes the expansion programme MKTL undertook and completed in FY2009 will further improve productivity and the quality of its products. In addition, the company benefits from a favourable market outlook in the short-to-medium-term, driven by rising demand as a result of a global production shortfall.
The ratings are constrained by MKTL's relatively small size of operations, compounded further by the agricultural nature of its products. Given that the company has undertaken a large capex of INR170.0m to be funded through long-term debt of INR100m and the expectation that working capital requirements will continue to be high commensurate to its growth. Further financial leverage is expected to remain high in the medium term.
A deterioration of EBITDA/interest to below 1x and/or net leverage to over 7.5x on a sustained basis could act as a negative rating trigger. Conversely, the company's ability to achieve significant improvement in EBIDTA margins through the successful completion of its capex programme while maintaining its financial leverage below 4.5x on a sustained basis, will act as a positive rating trigger.
MKTL, incorporated in 1981 as Opera Estates Pvt Ltd, changed its name to Mokalbari Kanoi Tea Estate Pvt Ltd in 2005. It is primarily involved in the cultivation of green tea leaves and processing them into different types of black tea. The company has witnessed a steady growth in revenues during the last few years; revenues grew to INR180m in FY08 from INR148m in FY06, while EBITDA margins increased to 13.20% in FY08 from 5.57% in FY06. However its total debt also increased, to INR218m in FY2009 from INR71m in FY2008 on the back of increasing capex and working capital requirements. MKTL reported revenues of INR159m with EBIDTA of INR26.08m, and a total debt/EBIDTA of 8.38x for the nine months to end-December 2008.
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