Fitch Ratings has downgraded India’s Leitner Shriram Manufacturing Limited’s (LSML) National Long-term rating to ‘BBB-(ind)’ from ‘BBB (ind)’. The Outlook is Stable.
LSML is a JV (49%: 51%) between Chennai-based Shriram EPC Limited (‘BBB+(ind)’/’F2+(ind)’)/Stable) and Italy-based Leitwind BV (subsidiary of Leitner Technologies) to manufacture wind turbine generators.
The downgrade reflects LSML’s lower-than-expected EBIDTA margin and de-leveraging during the financial year ended March 2011(provisional, unaudited). Its EBIDTA margin of 7.6% for FY11 is a weak improvement from 5% for FY10, due to raw material cost increases, which could not be fully passed on to customers. Its leverage of 6.12x for FY11 is well above the negative guideline of 4.75x. Debtor levels failed to improve in FY11 due to higher level of receivables outstanding with group companies. As a result, LSML required equity support to bridge the shortfall in meeting financial commitments during FY11.
The ratings continue to reflect the technical support provided by Leitner Technologies’ and the Shriram group’s track record in the 250 kilowatt (KW) wind turbine generator (WTG) segment. The ratings are also supported by the large order from group company Orient Green Power Company Limited, which will ensure capacity utilisation as projected for FY12. The ratings are constrained by the limited operational history of the gearless technology LSML uses and the fact that it has not been commercially deployed on a large scale to date. The ratings are also constrained by the limited track record of both the JV partners in manufacturing and deploying larger than 1 megawatt (MW) WTGs.
A sustained improvement in leverage below 4.75x would be positive for the ratings. On the other hand, a sustained deterioration in leverage above 6.0x would be negative for the ratings.