Fitch rates Shyam Telecom's bk loan at BBB-(ind)'/'F3 (ind)

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Fitch rates Shyam Telecom's bk loan at BBB-(ind)'/'F3 (ind)

Fitch Ratings has assigned Shyam Telecom Limited, National Long-term rating of 'BBB-(ind)' (BBB minus(ind)). The Outlook is Stable.

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Fitch Ratings has today assigned India-based Shyam Telecom Limited (STL) a National Long-term rating of 'BBB-(ind)' (BBB minus(ind)). The Outlook is Stable. At the same time, the agency has assigned a 'BBB-(ind)' (BBB minus(ind)) rating to the company's fund based working capital limits of INR80m and a 'BBB-(ind)/F3(ind)' rating to its non-fund based working capital facilities aggregating INR1,160m.

STL's ratings factor in its low financial leverage on net basis in FY08 and its presence in the telecom space for the last two decades. Total adjusted debt of the company reduced to INR291m at FY08 from INR408.5m at end-FY07 resulting in the net financial leverage (Total adjusted debt net of cash/Operating EBITDAR) of -0.4x at FY08. The company had a high level of cash (FY08: INR329m) due to profit on sale of investments, which helped in repaying the significant amount of its term loans. The working capital requirements are limited on account of the trading terms with buyers and sellers, which involve low inventories on STL's books (primarily for radio frequency (RF) products) and higher credit periods from handset suppliers as compared to that provided to handset buyers. STL's moderate working capital requirements and no major capex plan for next few years are likely to keep debt at low levels in the future.

However, the ratings are constrained by STL's limited size of operations and order driven business, leading to volatile revenues and profitability margins in the last few years. The majority of its revenues, at about 70% in FY08, were derived from its trading business, with very low margins, which led to low profitability on an overall basis. The company remains exposed to significant obsolescence risk owing to the highly technology driven business and concentrated product portfolio. Its revenues fluctuated widely in the last five years from INR2,255m in FY05 to INR1,288m in FY06 and INR2,163m in FY08. EBIDTA margins have declined to about 4.5% in FY08 (FY06: 7.5%).

Positive rating drivers include significant increases in revenues and improvement in EBIDTA margins, while maintaining low leverage on a net basis consistently. Erosion in revenues and operating margins from the existing levels, and an increase in leverage owing to debt-led capex plans or increased working capital requirements are negative rating drivers.

Incorporated in 1992, STL trades in GSM handsets and manufactures and sells RF products. During FY08, revenues declined by 9.6% to INR2,163m due to the lower quantity of handsets traded and RF products sold. EBITDA was also lower by 3% at INR96.5m with margins higher by 40bps, to 4.5%. During H1FY09, the company's revenue improved by 19% to INR1,022m. EBITDA also increased by 8% to INR33.5m, with margins declining slightly by 30bps to 3.3%. The company repaid about INR67m of debt during H1FY09. 

Sourced From: Fitch Ratings India Pvt Ltd