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-CRISIL revises outlook on loan, cash credit limits of Nelco.

BANKING AND CREDIT NEWS-March 7, 2011--CRISIL revises outlook on loan, cash credit limits of Nelco(C)2011 M2 COMMUNICATIONS

7 March 2011 - Indian rating agency CRISIL on Friday raised the outlook on the cash credit limits and a long-term loan of Nelco Ltd (BOM:504112) to "stable" from "negative", while reaffirming the ratings at A.

The agency issued the following press release:

Rs.342. 4 Million Cash Credit Limits (Enhanced from Rs.292.4 Million) A/Stable (Reaffirmed; Outlook Revised from 'Negative')

Rs.30.5 Million Long-Term Loan (Reduced from Rs.302.2 Million) A/Stable (Reaffirmed; Outlook Revised from 'Negative')

Rs.350.0 Million Short-Term Loan (Reduced from Rs.450.0 Million) P1 (Reaffirmed)

Rs.745.5 Million Bank Guarantee and Letter of Credit (Reduced from Rs.1259.1 Million) P1 (Reaffirmed)

Rs.221.73 Million Fund Based Facility Withdrawn

Rs.100 Million Short-Term Loan Withdrawn

Rs.513.6 Million Non-Fund Based Facility Withdrawn

CRISIL has revised its rating outlook on the long-term bank facilities of Nelco Ltd (Nelco) to 'Stable' from 'Negative', while reaffirming the rating at 'A'; the rating on the short-term facilities has been reaffirmed at 'P1'.

The revision in the outlook reflects expected improvement in Nelco's operating performance after sale of its four lines of businesses (LOBs) to Crompton Greaves Ltd. The revision also factors in improvement in Nelco's financial risk profile because of substantial profits earned from the sale of these LOBs.

The ratings continue to reflect the strong support that Nelco receives from its parent, Tata Power Company Ltd (Tata Power, rated 'AA/Positive/P1+' by CRISIL), and the healthy business risk profile of Nelco's very small aperture terminal (VSAT) business unit. These rating strengths are partially offset by Nelco's weak financial risk profile marked by low operating profitability.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Nelco and its wholly owned subsidiary, Tatanet Services Ltd (TNSL).

Outlook: Stable

CRISIL believes that Nelco, backed by healthy VSAT operations, will maintain its moderate business risk profile over the medium term. CRISIL also believes that Nelco will continue to receive business and financial support from Tata Power. The outlook may be revised to 'Positive' if Nelco turns around its strategic electronics business division, leading to a significant improvement in its financial risk profile. Conversely, the outlook may be revised to 'Negative' if the company fails to achieve the envisaged traction in business volumes, leading to deterioration in its financial risk profile.

About the Company

Nelco, established in 1940, is a subsidiary of Tata Power. From being a radio and television manufacturing company, Nelco has transformed into an organisation that provides electronic systems, solutions and services for enterprise, infrastructure, and defense. Nelco has two business units: strategic electronics and Tatanet. Nelco's wholly owned subsidiary, TNSL, provides bandwidth and other services related to VSAT operations, thereby complementing the operations of Nelco's Tatanet division.

In 2009-10 (refers to financial year, October 1 to September 30) Nelco divested four of its LOBs: traction electronics, industrial drives, supervisory control and data acquisition (SCADA; industrial and power). The company executed a few orders on behalf of the hived-off LOBs to maintain continuity in sales.

For 2009-10, Nelco (combined with TNSL) reported, a profit after tax (PAT) of Rs.223.9 million (including Rs.530.2 million profit from sale of businesses) on net sales of Rs.1580.2 million, against a PAT of Rs.33.0 million on net sales of Rs.3627.0 million for the eighteen-month period, April 1 2008 to September 30 2009. For the first quarter ended December 31, 2010, Nelco, on standalone basis, reported, on provisional basis, a net loss of Rs.19.7 million on net sales of Rs.377.2 million; it reported a net loss of Rs.18.8 million on net sales of Rs.407.6 million for the corresponding period of the previous year.

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Publication:M2 Banking & Credit News (BCN)
Date:Mar 7, 2011
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