TEXT-Fitch rts Dynatron Services at 'Fitch BB-(ind)'

Mon Aug 6, 2012 7:40am EDT

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(The following statement was released by the rating agency)

Aug 06 - Fitch Ratings has assigned India's Dynatron Services Private Limited (Dynatron) a National Long-Term rating of 'Fitch BB-(ind)'. The Outlook is Stable. Dynatron's main business is to provide after-sales-support for diesel engines, gear transmissions, electronic control and monitoring systems to the Indian Navy and Indian Coast Guard.

The rating is constrained by Dynatron's small scale of operations, falling profitability and high customer concentration risk. Provisional unaudited financials for FY12 (year end March) indicate revenue of INR139m (FY11: INR143m) and EBITDA margin of 16.7% (FY11: 22.9%). The company generates about 90% of its revenue by supplying spare parts and providing after-sales-support services to the Indian Navy and Indian Coast Guard.

However, Fitch draws some comfort from Dynatron's long-standing ties with the Indian Navy and Indian Coast Guard. The company has been serving these defence departments for over 25 years and signs multi-year contracts with the Indian Coast Guard to service the diesel engines on their vessels. The existing three-year contract will expire in March 2015. The rating factors in Dynatron's agreements with several international defence vendors to provide after-sales-support for their products being used by Indian defence departments.

The rating is further supported by the company's strong credit metrics and comfortable liquidity as demonstrated by its net cash position of INR22m at end-FY12. However, credit metrics are expected to worsen in the short to medium term as the company plans to raise debt to fund its upcoming ship repair facility in Karwar, Karnataka, for the Indian Navy and Indian Coast Guard vessels located around the region. The facility will provide a new growth opportunity to the company and also help in diversification of its revenue base.

WHAT COULD TRIGGER A RATING ACTION?

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- a significant decline in revenue due to early termination of contract from the Indian Coast Guard

- financial leverage (adjusted net debt/EBITDA) above 4.0x on a sustained basis

- a downgrade of its parent company's - Crown Corporation Private Limited (CCPL) - rating to below 'Fitch BB-(ind)'

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

- a significant increase in the scale of operations

- financial leverage below 2.5x on a sustained basis along with upgrade of its parent's (CCPL) rating.

Dynatron was established in 1975 and was formerly known as Dynatron Exports Private Limited. Dynatron is majorly owned by CCPL ('Fitch BB-(ind)'/Stable), which is engaged in the export of defence products.

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