ICRA assigns highest credit quality ratings to Sona Koya instruments

New Delhi, Nov 16 (UNI) Credit rating agency ICRA has assigned highest-credit quality rating to the Rs 15 crore short-term debt instruments of Sona Koyo Steering Systems Ltd (SKSSL).

The reaffirmation of the rating A1+ takes into account SKSSL's position as a supplier of steering systems to the domestic car industry, its ability to diversify its customer and product portfolio and the revenue upside from expected commissioning of Electronic Power Steering (EPS) project in the medium term.

SKSSL continues to derive benefits from the technical assistance, international relationships and in recent times, exports to its shareholder, automotive steering manufacturers JTEKT, Japan.

ICRA views that SKSSL's foray into the export markets positively as higher volumes would support higher profits and cash accrual even as the associated operating margins may be lower.

The rating also factors in continued pricing pressures from OEMs, the adverse impact of the new EPS assembly business on margins in the short to medium term, and the high gearing levels of the company.

SKSSL has announced Rs 400 crore capital expenditure to be incurred between 2006-07 and 2009-10, which is likely to impact the Return on Capital Employed (RoCE) and debt coverage indicators adversely in the short term.

Nevertheless, ICRA draws comfort from the equity infusion plan announced by the company besides expectations of higher cash accruals that would support the financial risk profile in the short to medium term.

The company is in the process of setting up C-EPS facility with an installed capacity of 0.024 crore at an outlay of Rs 60 crore spread over next two years.

During 2005-06, SKSSL reported net profit of Rs 16.66 crore on net sales of Rs 340 crore.

UNI KR CS Mir RK1700