(The following statement was released by the rating agency)
Dec 22 - Fitch Ratings has affirmed Officedge India Pvt. Ltd.'s (Officedge)
National Long-Term rating at 'Fitch BB(ind)' with a Stable Outlook. A list of
additional rating actions is provided at the end of this commentary.
The affirmation reflects Officedge's continued comfortable credit profile
and strong liquidity. In FY11, the company's financial leverage (total adjusted
debt/op. EBITDAR) improved to 0.4x from 1.5x in FY10; however, interest coverage
(op. EBITDA/gross interest expense), though comfortable, declined to 4.3x from
18.7x due to a rise in interest costs as working capital limits' utilization
increased to around 35% from around 10%. Working capital utilization at
end-October 2011 was around 60%. Cash flow from operations (CFO) has largely
been positive in the past three years except in FY10, when increased inventory
led to a negative CFO.
The ratings also reflect Officedge's standing as a supplier of speciality
chemicals to HUL's personal care products division for over five-years.
HUL has a strong credit quality and demonstrated record of timely payments. The
ratings also benefit from limited inventory risk as purchasing is undertaken on
HUL's defined production schedules at negotiated product prices.
The ratings, however, remain constrained by the high customer concentration
risk, with Hindustan Unilever Limited (HUL, 'Fitch AAA(ind)'/Stable) being
Officedge's only customer, and the absence of any formal agreement between
Officedge and HUL. The ratings are further constrained by the low entry barriers
in the domestic chemical industry and Officedge's low operating EBITDA margins,
which remained flat at around 2% over FY10-FY11 (year-end: March).
Negative rating guidelines include any significant reduction in business
from HUL, Officedge's leverage exceeding 4x and interest coverage falling below
2x. Positive rating guidelines include a diversification in Officedge's customer
base - which would reduce its dependence on HUL - while maintaining the current
level of profitability and leverage.
Established in 2003, Officedge supplies speciality chemicals to 57 HUL
plants across India including the second- and third-party manufacturers of HUL's
products. In FY11, the company's revenues grew by 10% yoy to INR565m and earned
a net income of INR10.1m (INR9.7m).
Fitch has also affirmed Officedge's bank loan ratings as follows:
- INR40m fund-based facility: affirmed at 'Fitch BB(ind)'
- INR10m non-fund based facility: affirmed at 'Fitch A4+(ind)'