Fitch affirms national short-term rating of Videocon

New Delhi, July 11 (UNI) Fitch Ratings has today affirmed the 'F1(ind)' national short-term rating of Videocon Industries Ltd's (VIL) commercial paper, following an enhancement in the programme size from Rs 400 crore to 600 crore.

The issue will be over and above the company's fund-based working capital limits, it said in a statement.

In FY06, the company's two major acquisitions were integrated with the company, Eagle Corporation Ltd - which holds the assets of Thomson SA's colour picture tube (CPT) plants in Poland, China and Mexico units - and the Indian subsidiary of Electrolux AB (rated 'BBB/Stable/F2'), Electrolux Kelvinator Ltd.

The rating benefits from the high degree of stability of cash flows from the company's oil and gas business which partly mitigates the cyclicality of its Consumer Electronics (CE) business. The ] oil and gas business provides VIL with stable cash flows due to the extension of the plateau period for its Ravva oil and gas field from FY09 to FY13.

Driven by the success in this area, the company is currently undertaking exploration activities in four blocks through a series of unincorporated joint ventures in Oman and Australia.

In case commercial deposits of oil and gas are discovered, VIL will have to invest substantially in commercialisation, although the results of the exploration will be seen only over the next twelve to eighteen months. In the interim, VIL will only contribute four billion rupees towards initial exploration activities.

The company's domestic CE and durables business has benefited from strong volume growth over the past few years, although margins have remained under pressure. FY07 has seen slower growth for the company in the domestic market, resulting in increased discounting.

Therefore, margins and volume growth for this business are expected to be moderate. However, VIL's margins continue to benefit from its glass shells business.

The rating is constrained by the company's high debt levels, and moderated outlook on its margins. Credit metrics are likely to show only small improvements with the scheduled debt repayments countered by increased short-term debt to finance higher working capital requirements.

Fitch notes that VIL has followed an acquisition-led growth strategy, and any major debt-led acquisition remains a risk for the rating.

UNI