TEXT-FItch affirms Indic EMS

(The following statement was released by the ratings agency)

June 22 - Fitch Ratings has affirmed India-based Indic EMS Electronics Private Limited's (Indic EMS) National Long-Term rating at 'Fitch B(ind)'. The Outlook is Stable. A list of additional ratings is provided at the end of this commentary.

The ratings continue to reflect Indic EMS's limited track record in the domestic electronics assembly market and the moderating outlook for export markets. Fitch notes that the company is making an attempt to increase sales from the domestic market. Indic EMS also plans to reduce its cash-flow pressures by resorting to job work for some of its domestic orders.

The ratings are constrained by the 10.1% yoy decline in EMS's revenue in FY12 (year end March) to INR181.6m and its stretched net working capital cycle of 75 days (24 days), as per provisional results, both due to a slowdown in demand from EU, its major market. The ratings are also constrained by forex and raw material cost fluctuations and competitive pressures. Provisional numbers for FY12 indicate EBITDA margin of 10% (FY11: 7.1%), interest coverage of 1.88x (1.77x), and financial leverage of 2.94x (2.64x).

Amid EU's weak economy in FY12, about 62% of EMS's total revenue was from sales to its founders - Spain-based Digiproces S.A (a 33.3% stake) and Electronica Itel (a 33.3% stake), though lower than 71% in FY10. Fitch expects this outsourcing trend to continue over the medium- to long-term.

Negative rating guidelines include interest coverage below 1.25x and/or net debt/EBITDA above 4.5x. Positive rating guidelines include strong revenue growth, stable EBITDA margins, and net leverage below 3.0x on a sustained basis.

Established in 2007, Indic EMS is engaged in the assembly of printed circuit boards.

Rating actions on Indic EMS's bank loans are as follows:

- INR2.34m long-term loan (reduced from INR14.5m): affirmed at 'Fitch B(ind)'

- INR11.5m new long-term loan: assigned at 'Fitch B (ind)'

- INR50m fund-based working capital limit (increased from INR30m) and: affirmed at 'Fitch B(ind)'/'Fitch A4(ind)'

- INR34m non-fund based working capital limit (increased from INR10m): affirmed at 'Fitch A4(ind)'