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India Ratings Assigns Salcomp Manufacturing India ‘IND BBB+’
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Thursday, September 27, 2012:
India Ratings has assigned mobile phone charger manufacturer Salcomp Manufacturing India Private Limited (SMIPL) a National Long-Term rating of ‘IND BBB+'. The Outlook is Stable. The agency has also assigned SMIPL’s INR600m fund-based working capital limits National Long-Term 'IND BBB+’ and National Short-Term ‘IND A2+’ ratings.
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The ratings are supported by SMIPL’s position as a leading supplier of mobile phone chargers in the organised market in India, primarily to Nokia India Private Limited and Samsung India Electronics Private Limited, India’s top two mobile phone manufacturers.
The ratings also factor in the financial and technical support from SMIPL’s ultimate parent Salcomp Plc, Finland. Salcomp Plc, which holds 100% of SMIPL, has guaranteed SMIPL’s bank facilities, and had provided loans of USD5m and EUR4.55m during FY07-FY08 for setting up the latter’s manufacturing facility, which have since been fully repaid. SMIPL is Salcomp Plc’s second-largest manufacturing facility globally. The parent supplies mobile phone chargers to most of the global top 10 mobile phone manufacturers and reported a consolidated turnover of EUR305m in 2011 (2010: EUR299m).
SMIPL’s ratings are further supported by its comfortable credit metrics. SMIPL reported EBITDA interest cover of 3.3x in FY12 (FY11: 8.2x) and net debt/EBITDA of 2.8x (1.8x). Revenue grew significantly at a CAGR of 139% over FY08 to INR3,453m in FY12 (FY11: INR3,218m).
The ratings are, however, constrained by the concentration of SMIPL’s business in a single product segment, i.e. mobile phone chargers, combined with relatively lower operating margins (FY12: 4.3%, FY11: 5.0%). India Ratings expects SMIPL’s profitability to improve as it is upgrading its product portfolio and is also planning to increase automation of some of its production lines. The planned capex is expected to be funded by internal accruals and the net debt/EBITDA is likely to remain at around the current levels.
The profitability of SMIPL has been volatile over the last few years. Large imports, typically backed by long credit periods exposed SMIPL to fluctuation in exchange rates during this period resulting in profits or losses. Going forward, such volatility is likely to reduce due to several steps including reduction of credit period and a natural hedge due to increasing exports.
WHAT COULD TRIGGER A RATING ACTION?
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- net debt/EBITDA levels above 4.0x and/or EBITDA interest cover below 2.0x on a sustained basis
- a weakening of SMIPL’s linkages with Salcomp Plc.
Positive: Future developments that may lead to positive rating action include a sustained improvement in EBITDA margins driving net leverage below 2.0x.
Commenced operations in 2007, SMIPL is a subsidiary of Salcomp Manufacturing Oy (SMO), Finland, which is in turn a subsidiary of Salcomp Plc.
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