TEXT-Fitch cuts Aradhya Steel to 'Fitch D(ind)'

(The following statement was released by the rating agency)

June 19 - Fitch Ratings has downgraded India-based Aradhya Steel Private Limited's (Aradhya) National Long-Term rating to 'Fitch D(ind)' from 'Fitch BB(ind)'/Stable. A list of additional rating actions is provided at the end of this commentary.

The downgrade reflects Aradhya's continuous delays in meeting its debt obligations since FY12 (year end March). This is due to liquidity pressures on the company, as illustrated by the overutilisation of its working capital facilities by 6.1% in April 2012 and 11.4% in May 2012.

Fitch notes that the company's working capital requirements increased in FY12, due to higher inventory requirements and longer receivable periods, and there was a lack of sufficient working capital limits to support the same. Though the company has maintained a debt service reserve account covering one quarterly instalment of term loan repayment and three months interest amounting to INR21.7m (and accrued interest of INR2.3m), it has not been utilised by its bank for clearing overdue interest.

Fitch remains concerned of Aradhya's liquidity over the short-term due to a continuance of insufficient working capital limits. However, over the medium-term, the company's liquidity could see an improvement, with an improvement in the working capital cycle through a reduction in inventory and debtor days together with an expected enhancement in its working capital limits.

Positive rating action may result from utilisation of the working capital facilities within sanctioned limits and timely debt servicing of the term loans for two continuous quarters.

Aradhya manufactures steel wires and wire ropes, catering primarily to the automotive and infrastructure segment since 1971. For FY12 (provisional, unaudited), revenue was INR1,550.7m (up 38.4% yoy), EBIDTA was INR155.8m (FY11: 10%) and adjusted debt/EBITDAR was 5.84x (FY11: 5.49x).

Rating actions on Aradhya's bank facilities:

- INR400m fund-based working capital limits (enhanced from INR320m): downgraded to National Long- and Short-Term 'Fitch D(ind)' from 'Fitch BB(ind)' and 'Fitch A4+(ind)'

- INR65.4m non-fund-based working capital limits: downgraded to National Long- and Short-Term 'Fitch D(ind)' from 'Fitch BB(ind)' and 'Fitch A4+(ind)'

- INR243.7m outstanding term loans: downgraded to National Long-Term 'Fitch C(ind)' from 'Fitch BB(ind)'