After Hindalco, Crisil downgrades Essel Mining

New Delhi, June 15 (UNI) A day after downgrading Aditya Birla flagship Hindalco to 'AA' stable from 'AAA', rating agency Crisil today downgraded the group company -- Essel Mining and Industries -- to 'AA-/negative' from 'AA'.

Crisil, a subsidiary of world's largest credit rating agency Standard&Poor's, attributed downward revision to ''a deterioration in Essel Mining's financial risk profile, subsequent to additional borrowing of Rs 1,500 crore (about 350 million dollars) to invest in the equity of its group company Hindalco Industries Ltd.'' The agency had earlier downgraded Hindalco for raising debt of an estimated 3.1 billion dollars for acquiring the US-based Novelis, the world's largest aluminium rolled products company, with an estimated 19 per cent market share. Novelis reported a turnover of 9.8 billion dollars and a net loss of 275 million dollars in 2006.

The rating agency said it downgraded Essel Mining because it has availed of the debt to part-fund the Novelis acquisition by Hindalco.

The rating, however, continues to reflect Essel Mining's healthy operating profit margins and strong cash accruals, driven by growth in the global demand for high-quality iron ore.

Essel Mining reported a consolidated profit after tax (PAT) of Rs 500.80 crore on an operating income of Rs 1,800.60 crore for 2006-07.

The company also enjoys financial flexibility as an integral part of the Aditya Birla group, Crisil said.

The rating agency expects the group to support Essel Mining as and when required. These rating strengths are partially offset by Essel Mining's substantial exposure to group companies and by the cyclicality in its iron ore business.

The company's group exposure has increased sharply to Rs 3,300.86 crore (about twice its net worth), from Rs 1,800.90 crore as on March 31, 2007, it added.

Crisil also expects that Essel Mining will continue to provide debt-funded support to the Aditya Birla group's large investment plans, including those in the retail business. The extent of such support will determine the degree to which it adversely impacts the company's financial risk profile.

The rating, however, is supported by the expectation that Essel Mining will continue to have strong cash accruals over the medium term, backed by significant inflows from the iron ore business, Crisil said.

Essel Mining is a closely-held company of the Aditya Vikram Birla group. Iron ore accounts for 84 per cent of its operating income, with ferro chemicals contributing the remainder.

The company has mining operations at Barbil in Keonjhar district of Orissa. The ferro chemicals division at Vapi in Gujarat, manufactures low-carbon ferro alloys.

UNI