TEXT-Fitch rates R.S.V. Constructions at 'Fitch BB-(ind)'/stable

(The following statement was released by the rating agency)

July 26 - Fitch Ratings has assigned India's R.S.V. Constructions Private Limited (RSV) a National Long-Term rating of 'Fitch BB-(ind)'. The Outlook is Stable. A list of additional rating actions is provided at the end of this commentary.

The ratings reflect RSV's contracting operating profitability and deteriorating credit metrics for the past two to three years due to a continuous increase in its working capital requirements. Provisional results for FY12 (year end March) indicate EBITDA margins of 8.1% (FY11: 9.2%), financial leverage of 3.5x (2.8x), and interest coverage 2.5x (2.6x).

The ratings also reflect the company's tight liquidity position as evident in the above 95% utilisation of its working capital limits in the 12 months ended 30 June 2012.

The ratings, however, draw strength from RSV's revenue growth at a CAGR of 26% over FY08 to INR433.5m (provisional) in FY12 (FY11: INR338m), as well from its strong and diversified order book position both in terms of counterparty and geography. As at end-March 2012, order book was INR1.5bn (3.6x of FY12 revenue).

The ratings also reflect the continuous financial support from RSV's founder through interest-free unsecured loans, which constituted around 30% of the total debt in FY12.

WHAT COULD TRIGGER A RATING ACTION?

Positive: Future developments that may, individually or collectively, lead to positive rating action include gross debt/EBITDA below 2.5x on a sustained basis.

Negative: Future developments that may, individually or collectively, lead to negative rating action include gross debt/EBITDA above 4.5x on a sustained basis.

Incorporated in 1995, RSV is a civil contractor mainly focussing on projects from railways. The company has executed various projects like constructing roads, railway tracks, bridges, foundation works and miscellaneous civil works.

Fitch has also assigned ratings to RSV's bank facilities, as follows:

- INR75m fund-based working capital limits: National Long-Term 'Fitch BB-(ind)' and National Short-Term 'Fitch A4(ind)'

- INR150m non-fund-based working capital limits: National Short-Term 'Fitch A4(ind)'