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-CRISIL revises rating on Net 4 Communications' term loan.

BANKING AND CREDIT NEWS-February 23, 2011--CRISIL revises rating on Net 4 Communications' term loan(C)2011 M2 COMMUNICATIONS

23 February 2011 - Indian rating agency CRISIL yesterday upgraded the rating on an INR 6.4 million term loan of Net 4 Communications Ltd to BB-/"stable" from D.

The agency issued the following press release:

Rs.6.40 Million Term Loan BB-/Stable (Upgraded from 'D')

Rs.73.60 Million Term Loan Withdrawn

Rs.90.00 Million Cash Credit BB-/Stable (Upgraded from 'D'; Placed under 'Notice of Withdrawal')

Rs.60.00 Million Letter of Credit P4+ (Upgraded from 'P5'; Placed under 'Notice of Withdrawal')

Rs.40.00 Million Bank Guarantee P4+ (Upgraded from 'P5'; Placed under 'Notice of Withdrawal')

CRISIL has upgraded its ratings on the bank facilities of Net 4 Communications Ltd (N4C; part of the Net4 group) to 'BB-/Stable/P4+' from 'D/P5'. The upgrade reflects timely servicing of term loans by the Net4 group over the past one year, supported by improvement in its liquidity. The group's liquidity has improved because of increase in cash accruals, funding of a portion of its ongoing capital expenditure (capex) and large working capital requirements through equity of Rs.300 million in 2009-10 (refers to financial year, April 1 to March 31) and 2010-11, and enhancement in its bank lines.

However, despite the improvement, the group's liquidity remains constrained because of its large working capital requirements-the enhanced bank lines are almost fully utilised. CRISIL believes that the Net4 group will maintain its gearing at the improved level over the medium term; the gearing, however, remains constrained despite the improvement.

CRISIL has placed its 'BB-/Stable/P4+' ratings on the cash credit and short-term bank facilities of N4C under 'Notice of Withdrawal' for one year on N4C's request. The ratings will be withdrawn at the end of the notice period. The rating action is in line with CRISIL's policy on withdrawal of its ratings on bank loans.

The ratings reflect the Net4 group's weak liquidity because of large working capital requirements and regular capex requirements in the capital-intensive web servicing industry. The ratings also reflect the group's modest scale of operations and exposure to competition from large telecommunication players. These rating weaknesses are partially offset by the group's sound financial risk profile marked by low gearing, and comfortable net worth and debt protection metrics, leadership in the web servicing industry, and diversified revenue profile.

CRISIL has withdrawn its rating on the Rs.73.6-million term loan of N4C, as the loan has been redeemed.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Net 4 India Ltd and its wholly owned subsidiary, N4C, together referred to as the Net4 group. The two companies have strong operational linkages with each other.

Outlook: Stable

CRISIL believes that the Net4 group will maintain its industry leadership, driven by steady growth in revenues, over the medium term. The group's liquidity is, however, expected to remain weak because of large incremental working capital requirements and regular capex. The outlook may be revised to 'Positive' if there is improvement in the group's liquidity, supported by judicious mix of internal accruals and debt to fund incremental working capital requirements and capex. Conversely, the outlook may be revised to 'Negative' if the group's liquidity weakens further, because of larger-than-expected incremental working capital requirements or a decline in margins, leading to lesser-than-expected cash accruals.

About the Group

The Net4 group, an ISO-certified service provider of internet protocol (IP) communications, was founded in 1999 by Mr. Jasjit S Sawhney. The group's corporate office is in Noida (Uttar Pradesh) and its business offices are in Ahmedabad, Bangalore, Chennai, Cochin, Coimbatore, Delhi, Mumbai, Chandigarh, Kolkata, Hyderabad, and Pune. The company entered the domain registration business in 2001 with a strong penetration strategy; it lowered the prices of domain registration.

The group then expanded to web hosting; it has become the market leader in this field. In early April 2002, voice-over IP (VOIP) was legalised and opened for private players. The group was the first to launch its services in the VOIP business, by the end of April 2002.

The Net4 group commenced network integration business, which served as the support system for its existing verticals: web hosting and data centers. The group has also applied for licenses for international long-distance calls and national long-distance calls, and is waiting approvals from the Department of Telecommunications. The group is expected to use IP technology for providing this service. It is also planning to start providing IP virtual private networks, multiprotocol label switching and international private leased circuits. It has seven data centers that provide server co-location services; it is working on setting up another data center in Chennai.

The Net4 group reported a profit after tax (PAT) of Rs.119.00 million on an operating income of Rs.1.97 billion for 2009-10, against a PAT of Rs.84.00 million on an operating income of Rs.1.62 billion for 2008-09.

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Publication:M2 Banking & Credit News (BCN)
Date:Feb 23, 2011
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