has today assigned a 'F1(ind)' rating to the proposed INR3,000 million commercial paper/short-term debt programme of Financial Technologies (India) Ltd (FTIL). The instrument will not be backed by working capital limits.
The rating reflects FTIL's dominant position in the transaction automation market and strong customer base of over 750 brokerages and approximately 164,000 operating trading terminals across India (as of 31st March, 2007). The rating also factors in its strong operating and positive free cash flows, with EBITDA margins of 62% in FY06. Moreover, the rating is supported by the strong working results and growth prospects of Multi Commodity Exchange of India () - India's largest commodity futures exchange, successfully established by FTIL where it holds 64.11% of the equity - as reflected in its strong consolidated financials. The growth of MCX will further benefit FTIL's automation revenues. The agency also notes that FTIL has ambitious growth plans, and is establishing new exchanges in India and abroad. In addition, FTIL has an option to disinvest a minority stake in MCX, which will support its liquidity, although the event is dependent upon final regulations for commodity markets, which are yet to be finalised. The company has also realised USD12.5m from the sale of a 1% stake in (DGCX) to its joint venture partner in April 2007, which further supports its short-term liquidity.
In India, MCX functions under the Forward Markets Commission (FMC). However, as the majority of MCX's revenues are from globally-linked commodity trades in gold and metals with limited scope for domestic price manipulation, the risk of regulatory intervention in these commodities is relatively low. The recent regulations banning futures trading in wheat and rice also do not materially impact MCX. The company is exposed to new business risks, with a large proportion of future revenues expected to accrue from the sale of its proprietary exchange trading system to other exchanges, including those sponsored by FTIL. The investment plans will result in negative free cash flows over FY08, while debt will increase due to the proposed INR3,000m short-term debt/ commercial paper programme. Credit metrics are likely to show improvements from FY09 onwards, due to the anticipated growth in cash flows.
FTIL raised USD100m five year foreign currency convertible bonds (FCCBs) in December 2006 to part-finance its capex plans and investment plans abroad. FTIL is also utilising the FCCB amount to set up domestic development centres and invest in new business ventures.
Sourced From: Fitch Ratings
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