Rating Watch
FE NEWS SERVICE
ICRA downgrades Usha Ispat FDICRA has downgraded the rating of fixed deposit programme of Usha Ispat Limited (UIL) from "MA" to "MB". This revised rating indicates inadequate safety. The timely payment of interest and principal are more likely to be affected by future uncertainties. The downgrade takes into account UIL's strained liquidity position and increased project risk. The profitability of the company suffered in 1996-97 due to lower volume of pig iron sales. Although the net realisation per tonne of pig iron in 1996-97 was higher by 5 per cent over 1995-96 levels, the volumes fell by 21 per cent. In the half year of fiscal 1998 the volumes have decreased further and this situation is unlikely to change in the short run due to over capacity in the industry. The decrease in profitability led to delays in meeting interest obligations related to the ongoing Rs 1202 crore Integrated Steel Project (ISP) at Satara, Maharashtra. UIL has, however subsequently cleared all delays in interest
payments. The prospects for pig iron industry are not bright in the short to medium term due to slowdown in industrial sector and over-capacity in this industry. Further delay in project implementation can lead to an enhancement in financial risk arising out of funding shortfall. ICRA assigns "LAA" rating to Asian Hotels' NCD ICRA has assigned an "LAA" rating to the Rs 100 crore NCD programme of Asian Hotels Limited (AHL), indicating "High Safety". AHL is a simple property company which owes the Hyatt Regency -- a 5 star deluxe hotel located in Delhi. The proposed NCD issue would be utilised to part finance its hotel projects in Mumbai and a 250 room 5-star deluxe hotel in Calcutta at a total estimated cost of Rs 460 crore. The hotels which are expected to be operational by mid 2000, would give AHL presence in other metro cities and help diversify its business risk. AHL was promoted by three NRI's in 1980. It is a listed company with promoters holding approximately 58 per cent of the equity.
AHL has a management agreement with Hyatt International Corporation (HIC) for a period of 20 years ending in 2014 AD. The tie-up with Chicago based HIC has given AHL the exclusive right to brand "Hyatt Regency" in Delhi apart from having access to the global reservation system of HIC. AHL has already entered into in principle agreement with HIC for the new properties. AHL's property, Hyatt Regency, is positioned as a business hotel and generates a major portion of its revenue from the international business travellers. The property has been consistently operating at high margins riding on the high occupancy rates, increasing average room rent (ARRs) and tight control on expenses. The company has recorded a healthy growth in its revenue and profits in the past. AHL is a zero debt company and with the renovation of Delhi property being recently completed, all the cash generation from Delhi property would be available for the new projects. AHL has liquid investments of about Rs 50 crore which would be
available to part finance the new projects. AHL's ability to set up the projects within the budgeted cost and targeted time frame shall be critical to its future profitability. The risk factors for the company are the vulnerability of the hotel industry to the vagaries of Indian economy and political situation which have a direct impact on the business and leisure traveller traffic. The hotel industry in general is presently affected by lower occupancy rates and falling ARRs as compared to last year. However, in the long term, ICRA expects the occupancy rates and ARRs to recover with the stabilisation of economic growth and political scenario in the country. Also, till the new hotels start generating cash surpluses, AHL, would continue to be exposed to the concentration risk associated with single property ownership. The risk factors however mitigated by AHL's strong financial position, competent management and its tie-up with HIC. Paam Pharmaceuticals FD, NCD ratings downgraded ICRA has
downgraded the non-convertible debentures (NCD) rating of Paam Pharmaceuticals (Delhi) Limited (PPDL) from "LA" to "LC" indicating substantial risk. The revised rating indicates that there are inherent elements of risk and timely servicing of debts/obligations could be possible only in case of continued existence of favourable circumstances. ICRA has also downgraded the fixed deposits (FD) rating of PPDL from "MA" to "MC" indicating risk prone. The revised rating indicates that susceptibility to default is high. Adverse changes in business/economic conditions could result in inability/unwillingness to service debts on time and as per terms. The ratings have additionally been placed under rating watch with negative implications. PPDL's liquidity is under considerable strain due to the cost overrun in its Bhiwadi project and losses from operations in the first half of the current financial year. The use of short term funds for long term asset creation has led to a severe asset liability mismatch. This has
resulted in PPDL delaying payments to its lenders. To overcome its liquidity problems, PPDL is in the process of divesting real estate and units. It has also taken steps to cut down on its overhead expenses. However, till the sales proceed from divestments start flowing in, the liquidity position of the company is expected to remain under strain and delays in meeting its obligation are likely to continue.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
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