ICRA retains Vardhman Polytex CP rating

ICRA HAS reaffirmed the A1 plus rating assigned to the Rs. 10 crore commercial paper programme of Vardhman Polytex (VPL), indicating highest safety in the short term. The prospect of timely payment of debt obligation is the best.

The rating factors in the leading market position of VPL in the grey yarn segment in two major markets (Delhi and Ludhiana), established brand image of Vardhman group, experience of the company which gives it a better understanding of the market and availability of liquidity to stock cotton.

The retention of the highest safety rating also takes into account the synergistic activities of VPL with other group companies, improved operational efficiency through centralised marketing and raw material procurement policy of the group and financial flexibility from strong group companies. The rating also factors in the adverse impact of increase of raw material prices and depressed export realisations on the profitability of the entire cotton yarn spinning industry in the short term.

VPL manufactures 100 per cent cotton yarn, 100 per cent acrylic yarn and polyester cotton blended yarns. The Ludhiana-based company has five manufacturing units in Punjab and Himachal Pradesh.

VPL is part of Rs. 1,650-crore Vardhman group, which is fully integrated into manufacturing of a wide range of products - yarn, sewing thread, and fabric. The Vardhman group has established itself as a strong player in the textile sector, showing consistent growth in sales and profitability, both in the domestic and international markets.

The operating income of VPL has grown from Rs. 223.5 crores in FY 2000 from Rs. 211.70 crores in FY 1999, a growth of 5.6 per cent. A large portion of the growth has emanated from a 19.3 per cent growth in exports (from Rs. 54.22 crores in FY 1999 to Rs. 64.69 crores in FY 2000).

ICRA expects VPL's sales to increase from addition of new capacities, however increase in raw cotton prices is expected to impact the operating margins. The net profit is expected to decline during FY 2001 and FY 2002 due to higher depreciation charges and interest burden. In the short term, due to increase in cotton prices and depressed export realisations the profitability of the entire cotton yarn spinning industry is expected to be adversely affected. ICRA draws comfort from the financial flexibility available to the company both from the group and access to long term funds from banks and Financial institutions and majority of repayments due in FY 2001 have already been made as on date.

Karvy Consultants

The rating for the fixed deposit programme of Karvy Consultants (KCL) has been retained at MA, indicating adequate safety.

The rating takes into account KCL's improved financial performance in 1999-2000, its established position in the registrar and retail depository businesses. The rating reflects the group's strong distribution network, its proximity to the retail investor and its association with leading institutions and corporates. The rating also factors in dependence of KCL's revenue on the buoyancy of capital markets and possible loss in the registrar business as a result of dematerialisation (demat).

KCL was able to improve its performance during 1999-2000, recording an income of Rs. 55.32 crores, an increase of 39 per cent over the previous year and achieved a PAT of Rs. 5.28 crores. Although the company opted out of fund-based activities, it capitalised on the buoyant stock market conditions in the latter half of 1999-2000, and earned substantial profits from trading in investments. The accruals enabled it to write off non- performing assets (NPAs) of over Rs. 4.80 crores and also retire Rs. 11 crores of debt.

During 1999-2000, it continued to be the leading share registrar. As on March 31, 2000, it managed folios in excess of one crore of around 110 companies including 40 lakh folios of the Reliance group. In 1999-2000, KCL was appointed registrar for 40 public issues, which included almost all the major infotech public offers. KCL is also the leading registrar in the domestic mutual funds sector.

Birla Yamaha

ICRA has reaffirmed the A1 rating assigned to the Rs. 5 crore commercial paper programme of Birla Yamaha (BYL), indicating highest safety. The reaffirmation takes into account the company's established position in the domestic portable genset industry and increased market share in multi-purpose engines. The rating action also takes into account BYL's ability to maintain its operating margins by controlling costs in 1999-2000 despite a flat industry growth and fall in realisations.

The rating is constrained by BYL's increased fund-based exposures to group companies and relatively weaker market position which has resulted in high working capital intensity. The rating agency, however, derives comfort from BYL's low gearing and comfortable coverage indicators which are expected to be sustained in the short to medium term.

BYL, promoted by Y. V. Birla group and Yamaha Motor Corporation, Japan, commenced operations in 1984. It is engaged in manufacturing and marketing of portable gensets and multi-purpose engines with manufacturing facilities at Dehradun, Uttar Pradesh and Paonta Sahib, Himahcal Pradesh.

The portable genset industry registered a decline of around 4 per cent in 1999-2000 while export sales exhibited an increase of 6 per cent. BYL was able to marginally increase its market share in the domestic market to 35 per cent in 1999-2000 with an increase in sales of low-end models. It also achieved significant growth in multi-purpose engine sales in 1999-2000 by selling them as applications instead of bare engines.

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