The rating agency has made these observations while upgrading the credit rating of Pawan Hans while maintaining a stable outlook.
"India Ratings & Research (Ind-Ra) has upgraded Pawan Hans Limited's long-term issuer rating to 'IND A+' from 'IND A'. The outlook is stable," the ratings agency said in a statement.
The agency has also upgraded Pawan Hans' Rs 1,702 million long-term bank loans (reduced from Rs 1,798.2 million to 'IND A+' from 'IND A'.
'IND A' instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.
"The upgrade factors in the steps taken by Pawan Hans to successfully address operational risks. The agency believes that the instances of crashes seen in FY'12 were event risks, outside the control of the company. No crashes have occurred since then. The company has undertaken enhanced maintenance and safety measures to reduce likelihood of such accident happening," it said.
Stability in operations is likely to translate into higher stability of margins to above 20 per cent, the statement noted.
Pawan Hans' ratings are supported by its leading market position, stability of business and continuously increasing revenue due to its increasing flying hours.
The ratings are positively impacted by the favourable nature of Pawan Hans' contracts, which provide for a fixed monthly charge in addition to a variable charge. Also, the risk of fluctuations in fuel costs is borne by the counterparty, the agency said.
The ratings continue to reflect support from both the shareholders of the company - the Ministry of Civil Aviation, the government of India (51 per cent), and Oil and Natural Gas Corporation (49 per cent).
The ratings are, however, constrained by Pawan Hans' high working capital cycle with inventory levels, Ind-Ra said.
The company has high customer concentration with ONGC, the largest client, contributing over 50 per cent to operating revenue.
However, Ind-Ra derives comfort from the strong credit profile of ONGC and its 49 per cent shareholding.
"Pawan Hans' fleet expansion plan is yet to be finalised. This might lead to net financial leverage increasing but remaining within the rating category," it said.
The agency said that future developments that could lead to a positive rating action include the successful completion of fleet expansion leading to higher levels of diversification of revenue generating asset while maintaining the current margins without a significant deterioration in financial leverage.
Besides, future developments that could lead to a negative rating action include a sustained increase in net leverage, any significant write-offs or perceived weakening of linkages with the stakeholders, it added.