Fitch Ratings affirms Priya at 'Fitch A4+(ind)'

The affirmations reflect PL's sound financial performance in the financial year ended March 2011 (FY11). The company's revenue grew by 14% yoy in FY11 due to an increase in its local sales, which contributed 46% (FY10: 41%) to overall revenues. Growth in the domestic sales of its other IT products has also helped PL to mitigate concentration risk stemming from its product 'thin clients' accounting for a large proportion of total revenue (50%) in FY10. Its contribution reduced to only 25% to its total revenue in FY11. However, there was a slight reduction in its EBITDA and EBITDA margins to INR56.4m (FY10: INR 58.5m) and 2.56% (FY10:3.04%) respectively, in FY11. Fitch notes that PL's operating margins will always be thin in the range of 1.8% to 4.95% due to the trading nature of its business.

The ratings also factor in the consistent improvement in PL's cash conversion cycle days to 57 days in FY11 from 61days in FY10; Its interest coverage ratio also improved to 1.62x from 1.12x over the same period. The ratings also draw comfort from PL's over a decade track record in the business of distribution of information technology products.

The ratings are however constrained by PL's high working capital requirement of business, reflected in its full utilisation of working capital limits. Further, the company reported a negative cash flow from operations of INR42.55m in FY11. As on March 2011, total adjusted debt stood at INR 258.6m translating into a net financial leverage (total adjusted debt net of cash/operating EBITDAR) of 4.13x (FY10: 3.98x).

Negative rating guidelines include PSL's operating EBITDAR/gross interest expense falling below 1.2x. Positive rating guidelines include the company's operating EBITDAR/gross interest expense improving to above 1.8x on account of an improvement in its local business and a further diversification of its product offerings.

Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'Fitch AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com . Applicable criteria, 'Corporate Rating Methodology', dated 13 August 2010, are available at www.fitchratings.com .

Applicable Criteria and Related Research:
Corporate Rating Methodology - Amended

All Fitch Credit Ratings are subject to certain limitations and disclaimers. Please read these limitations and disclaimers by following this link: http://fitchratings.com/understandingcreditratings . In addition, rating definitions and the terms of use of such ratings are available on the agency's public website 'www.fitchratings.com'. published ratings, criteria and methodologies are available from this site at all times. fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'code of conduct' section of this site.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.