Amid the boardroom tussle between Ratan Tata and Cyrus Mistry, rating agency Icra today cut its rating on Tata Teleservices (TTSL) by one notch with a negative outlook on weak operational and financial performance.
The domestic rating outfit also said it has "taken note" of the replacement of Chairman Mistry from the parent Tata Sons, where Ratan Tata has taken over as interim head.
Icra, in a statement on rating downgrade, said it is "monitoring the ongoing developments (in Tata Group) and the impact of the same on the telecom company's financial or operational performance".
"The rating action factors in the continuing weak operational and financial performance of the company marked by year-on-year decline in revenues over the last three quarters, consistent pressures on profitability and strained debt coverage indicators," it said.
The rating on the Tata Group company has been cut to 'A-' from the earlier 'A' and the outlook on the long-term rating has been reaffirmed at 'negative', it said.
Icra has an outstanding rating on a Rs 359 crore term loan, which was earlier Rs 490 crore, Rs 465 crore long-term fund based/non-fund based limits, and Rs 188 crore (earlier Rs 57 crore) unallocated limits of Tata Teleservices (Maharashtra) Ltd, another Group firm in telecom space, it said.
The agency said in the September quarter, the mobile phone network operator's performance was impacted by higher amortisation expenses and finance cost due to acquisition of spectrum in March 2015. This led the debt to grow to Rs 8,929 crore from Rs 8,803 crore over the past six months.
"Given the insufficiency of cash flow generation to meet the scheduled repayment obligations, reliance on rollover /refinancing of maturing debt remains high for the company."
The company is also "vulnerable" to foreign exchange fluctuation risk given that a sizeable proportion of debt is denominated in foreign currency, it warned.
Its subscriber addition and growth in revenues have lagged the industry averages and it has also reported fluctuating revenue market shares, the agency said, adding Reliance Jio's entry will only aggravate it.
"The debt coverage metrics of the company are unlikely to report significant improvement in the medium term."
The rating firm also flagged the unresolved feud with its Japanese partner NTT DoCoMo over the payout by Tata Sons for NTT DoCoMo's stake in TTSL.
The agency, however, said its "strong parentage" helped the company to acquire Rs 2,000 crore of spectrum in the auction that concluded in October.
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