Videocon's Rs 400 cr STDP gets 'F1(ind)' rating from Fitch

New Delhi, Oct 3 (UNI) New York-based rating agency Fitch Ratings today assigned a national short-term rating of 'F1(ind)' to Videocon Industries Ltd's commercial paper short-term debt programme for an aggregate amount of Rs 400 crore.

The rating takes into consideration Videocon's diversified businesses, monopoly in the glass shell business and the size of its colour picture tube (CPT) business, as it is the third-largest player in the world, which, coupled with strong cash generation from its oil and gas business, provides stability to its Ebitda margins and cash flows.

Both the glass shell and the oil and gas business have Ebitda margins in excess of 40 per cent. Videocon continues to be a significant player in the domestic consumer durables market (Colour televisions, washing machines, air conditioners, refrigerators) and derives a substantial proportion of revenues from this segment.

However, the agency notes that the consumer durable business has experienced pressure on margins due to increasing competition with the entry of multinationals into the Indian market.

Fitch's key rating concern centres on Videocon's aggressive acquisition strategy but this risk is mitigated by its ability to turn around its recently acquired businesses. However, the agency warns that its international acquisitions may expose the company to operational risks, which may negatively affect profitability.

Videocon has undertaken a series of acquisitions in the past two years including the acquisition of Thomson's Italy CTV unit and its cathode ray tube (CRT) units in Poland, Mexico and China. It also acquired the Indian arm of Electrolux (EKL).

The company, alongwith Ripplewood, is the preferred bidder for Daewoo Electronics and if successful, plans to fund the acquisition with the proceeds from its foreign currency convertible bonds which it raised recently.

Fitch has not factored any other acquisitions while assigning the rating and other rating risks remain event driven.

Promoted by Mr V N Dhoot, Videocon has undergone an operational restructuring wherein the oil and gas business in Petrocon and the businesses in Videocon International were merged into Videocon Industries Ltd.

With the acquisitions undertaken in the last year, FY06 would be the first year of consolidated financials. The debt protection measures as on September 30, 2005, were moderate. However, the stability of its cash flows and cash balances available provide cushion to the short-term rating.

Videocon registered a turnover of Rs 6,709 crore in FY05. The company's performance for the nine month ended June 2006, has been strong with a turnover of Rs 5,550 crore alongwith EBITDA margins of 18.1 per cent driven primarily by the glass shells and oil and gas businesses.

Videocon undertook FCCB issuances in February 2006 and July 2006 raising 195 million dollars redeemable in 2011 for the purpose of capacity expansion and to give it financial flexibility. It also completed a capacity expansion in July 2006,. at its glass shell facility of 9 million units, taking the total capacity to 24 million units per annum.

Videocon has capex plans of Rs 2,520 crore between FY06 and FY08, for investments in glass shells, oil and gas exploration and its global businesses, financed largely by internal accruals (65 per cent). Majority of these have been completed, with Rs 1,100 crore to be executed over FY07 and FY08.

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.

Fitch Ratings, one of the three large global credit rating agencies, rates 5,600 banks/financial institutions, including some 2,500 insurance companies, more than 1,300 corporates and 99 sovereigns as well as public finance, sub-sovereigns and structured finance transactions.

Fitch India has four rating offices located at Mumbai, Delhi, Chennai and Kolkata, and is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.

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