(The following statement was released by the rating agency)
Aug 06 - Fitch Ratings has assigned India's defence products exporter Crown Corporation
Private Limited (CCPL) a National Long-Term rating of 'Fitch BB-(ind)' with Stable Outlook.
The rating is constrained by the irregular nature of CCPL's revenue and
significantly high customer concentration, as 100% of revenue is derived from a
single customer. The company is currently engaged in the export of submarine
batteries to the Ministry of Defence, Algeria. The rating is also constrained by
CCPL's dependence on a single supplier, the limited number of alternative Indian
suppliers, and forex risks on exports.
The rating is, however, supported by CCPL's 20 years of experience in the export
of defence equipment, as well as a long-standing relationship with its clients.
The rating also derives comfort from the nature of CCPL's current trading
business which has resulted in positive operational cash flow with low working
capital requirements. Fitch notes that the company does not require any
long-term or fund-based banking facilities for its trading operations and
currently has only unsecured loans form its founders as debt. In addition,
minimal operational costs result in the company able to report profit, through
rental and other income, even in the absence of revenue from defence orders.
The ratings also derive comfort from the limited technical risk borne by CCPL on
equipment supplied, due to the pass through of such risk to contract
manufacturers and/or suppliers.
WHAT COULD TRIGGER A RATING ACTION?
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- gross interest coverage below 1.5x on a sustained basis due to an unexpected
increase in debt levels or deterioration of operating profitability
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- an increase in the size and stability of revenue and cash flow along with
credit metrics remaining at same level
Established in 1978, CCPL is engaged in the export of defence products. The
company reported nil revenue from defence orders in FY10-FY11. It subcontracts
its order to a domestic vendor. FY12 provisional results indicate revenue of
INR454m (FY11: INR44m), net income of INR53m (FY11: INR2m), and interest
coverage of above 2x. The company has two subsidiaries - Dynatron Services
Private Limited ('Fitch BB-(ind)'/Stable) and Crown Infracon Private Limited.