Covid-19 impact: CRISIL downgrades Thomas Cook India's rating to A+

 Rating agency CRISIL has downgraded Thomas Cook India Ltd’s (TCIL) bank facilities from “AA-” to “A+” on the weakening of the company’s business and financial risk profiles due to Covid-19 pandemic.

The continued travel restrictions and negative customer sentiments have severely impacted leisure and corporate travel, and the foreign exchange (forex) business. This may lead to operating losses during fiscal 2021 and substantially reduce the net free cash (over Rs 200 crore reported as on March 31, 2020), CRISIL said in a statement. TCIL is part of Prem Watsa controlled Fairfax Financial Holdings Ltd (Fairfax) group.

During the first quarter (June 2020) of the fiscal, TCIL reported EBITDA (earnings before interest, tax, depreciation, and amortisation) loss of Rs 80 crore. It also reported reduction in cash & cash equivalents of around Rs 240 crore due to the lockdown.

While economies are gradually opening up since the last quarter, domestic remains significantly lower than pre-pandemic levels and international travel is yet to resume.

TCIL is undertaking several cash preservation measures including optimisation of payroll cost, reduction in marketing and overhead costs, renegotiation of lease rentals and supplier contracts. These steps are expected to result in savings of more than Rs 550 crore during the fiscal.

Additionally, recent withdrawal of the share buyback offer will further reduce cash outflow by around Rs 180 crore (including tax on share buyback). Further, the company is looking to reengineer the business, focusing on aspects such as contactless customer experience, increased digitisation and process efficiencies, rating agency added.

The forex business, classified as an essential service, resumed operations since mid-April 2020. The gross volume in forex business has been lower than pre-pandemic levels. But, it has picked up on a month-on-month basis and the business has turned cash positive since June 2020. The continued ramp-up in both the travel and forex volume remains a key monitorable.

TCIL's rating factor in expectation of strong support from Fairfax Financial Holdings during the current fiscal, towards revival of business and strengthening of liquidity and financial profile.

CRISIL postpones 33rd AGM due on April 21 amid coronavirus outbreak

Credit rating firm CRISIL has postponed its 33rd annual general meeting (AGM), which was scheduled to be held later this month on April 21, in view of the coronavirus pandemic.

"The prevailing lockdown and restrictions on mass congregations in Mumbai, which commenced on March 21, 2020, in view of the Covid-19 pandemic, constrained the company from fully completing the dispatch of physical copies of the annual report to our shareholders," Crisil said in a regulatory filing.

It also added that the current circumstances do not allow smooth and safe conduct of the AGM and keeping in mind the safety of all stakeholders, in line with the government advisories on Covid-19, the board of directors had decided to postpone the meeting.

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The company will announce a new date for the AGM in due course. The e-voting processes for the AGM and the dividend payment date also stand postponed.

However, the book closure, announced earlier by the company for the purpose of determining the entitlement of shareholders for the final dividend, will remain unchanged on April 7 and 8 (Tuesday and Wednesday).

"Accordingly, the dividend, when approved by the members at the rescheduled AGM of the company, will be made payable to those members whose names appear on the register as on the aforesaid book closure date," the ratings agency said.

Shares of CRISIL were trading at Rs 1,251.95 apiece on the BSE on Wednesday, up 2.54 per cent from their previous close.

Gross credit offtake may see a 200-300 bps rise in FY21, says CRISIL

The slowdown in credit offtake that hit the banking sector adversely in the current financial year might be showing signs of bottoming out.

Rating agency CRISIL estimates that the gross credit offtake may see a 200-300 basis points rise in 2020-21 (FY21), driven by a revival in economic activity, continuous demand for retail credit securitisation. Credit growth for 2019-20 (FY20) is hovering around 6 per cent, the lowest in many years. In 2018-19, growth was 11 per cent and in 2017-18, it was 9 per cent. The agency also expects some growth momentum in the fourth quarter, after three subdued quarters.

The uptick in growth will be led by private sector banks as growth in their credit offtake is estimated to be around 15 per cent. This implies that they will gain market share from their public sector counterparts, supported by strong capital position and ability to raise capital. “Their share is expected to rise around 400 basis points (bps) by March 31, 2021, over March 31, 2019,” said CRISIL.

Furthermore, Reserve Bank of India’s (RBI’s) recent move to introduce long-term repo operations to reduce cost of funds for banks will boost lending by banks, as they will be exempted from maintaining cash reserve ratio for incremental lending to the retail and micro, small and medium enterprises (MSMEs) segments. This will enable banks to extend credit at a cheaper rate as they will be borrowing at the repo rate and the deposit rates will not have to be tampered with. According to CRISIL, “Incremental net domestic credit this fiscal up to December 2019 is just a fifth of what it was a year ago. Lending to the retail segment and non-banking financial companies (NBFCs) showed good growth, while credit to corporates (ex-NBFCs) and MSME declined”.

Retail credit growth is estimated to grow around 16 per cent in FY21, driven by sustained demand in the unsecured loans segment and buyouts by banks of the non-bank retail portfolios through direct assignment route. Securitisation transactions through the direct assignment route have surged almost 40 per cent to Rs 59,000 crore in the first half of FY20, compared to Rs 42,700 crore a year ago. Meanwhile, bank loans to corporate houses, excluding bank loans to NBFCs, is expected to remain subdued in FY20, but will see a slight pick-up from thereon. “Overall growth in this segment, however, is expected to remain low at 2-3 per cent in FY21, causing its share in total bank credit to fall 300 bps to 48 per cent between March 2019 and March 2021,” the rating agency said.

The drag in corporate lending will be on account of low capacity utilisation in the economy that will result in keeping private investments muted in the near to medium term.

CRISIL downgrades PNB Housing Finance's deposits rating to 'AA+' from 'AAA'

Rating agency CRISIL downgraded ratings for PNB Housing Finance Ltd’s (PNB Housing) fixed deposits from “AAA” to “AA+” over weakening of asset quality after many big-ticket developers defaulted on payments. Also, the size of equity raising planned is lower than earlier envisaged.

The rating agency in a statement said the long-term rating was downgraded from “AA+” to “AA”. It also revised the outlook on the long-term ratings to 'Stable' from 'Negative'.

Earlier in July 2019, CRISIL had revised the rating outlook to 'negative' due to concerns over leverage metrics, moderation in capital adequacy ratios and increased vulnerability of asset quality in the wholesale loan portfolio.

In terms of asset quality, the company's gross non-performing asset (GNPA) ratio deteriorated to 1.75% as on December 31, 2019, compared to 0.48% as on March 31, 2019. The retail on-balance sheet loan book has witnessed a marginal uptick in delinquencies in early buckets but remains in control. The increase in overall GNPA was mainly on account of slippages from some large developer accounts.

PNB Housing's fund-raising ability has remained intact over the last 6-9 months and it continues to maintain high on-balance liquidity.

CRISIL downgrades PNB Housing Finance's deposits rating to 'AA+' from 'AAA'

Further, CRISIL notes that the management now intends to recalibrate its growth strategy keeping in mind the capital availability. The company will also increase the share of retail book due to challenges in the wholesale book. This will ensure that, post equity raise, the leverage metrics and capital adequacy levels remain under control.

To further reduce leverage, the company had earlier planned to raise around Rs 2,000 crore of equity by March 2020. However, the equity raise is now expected to be lower at Rs 1,500 to 1,600 crore, CRISIL said.

PNB Housing last raised equity capital of around Rs 3,000 crore in fiscal 2017 during the initial public offering (IPO), after which the on-book gearing improved to 6.4 times as on March 31, 2017 from 12.4 times as on March 31, 2016 (CRISIL-adjusted gearing including off book improved to 6.9 times as on March 31, 2017 from 12.4 times as on March 31, 2016)

Crisil upgrades Jindal Steel's NCD ratings to positive on restart of plant

Rating agency Crisil has upgraded its ratings on bank facilities and non-convertible debentures (NCDs) of Jindal Steel and Power Limited (JSPL) to 'CRISIL BB/Positive/CRISIL A3+' from 'CRISIL BBB-/Stable/CRISIL A3'.

The upgrade reflects expected improvement in JSPL's business risk profile over the medium term, due to to the restart of the 1.8 mtpa coal gasification process (CGP)-based Direct Reduced Iron (DRI) plant at Angul, Odisha, the ratings agency said in a release.

Crisil has also withdrawn its rating of NCDs worth Rs 300 crore at the company's request and on receipt of an independent confirmation of redemption from the debenture trustee. This is in line with Crisil's policy on withdrawal of debt instruments.

The upgrade also factors in a likely improvement in liquidity following the Supreme Court order on resumption of mining activity at Sarda Mines Pvt Ltd (SMPL). The ruling will allow the Delhi-based JSPL to offtake its 12.22 million tonne duty paid iron ore fines inventory lying in SMPL's premises since mining activity was not allowed as the matter was sub-judice.

The company's financial-risk profile is also expected to improve over the medium term due to healthy operating performance and the absence of any significant capex or acquisition plans, which will make free operating cash flows available for debt repayment.

The 'positive' outlook is based on an expected improvement in financial risk profile due to timely completion of refinancing of debt at overseas subsidiaries.

Monetisation of overseas assets may further improve financial risk profile, particularly liquidity, said Crisil.

The Naveen Jindal-led JSPL expects to complete restructuring the debt in its Australian subsidiary and refinancing the debt in its Mauritius subsidiary through dollar bond issuance in fiscal 2020. This, along with sustained improvement in operating performance, can result in consolidated debt/EBITDA (earnings before interest, tax, depreciation, and amortisation) improving to below 3.5 times over the medium term; from around 4.7 times during fiscal 2019.

The ratings reflect JSPL's superior position in the value-added long steel products segment, improving operating efficiencies, and well-diversified operations. These strengths are partially offset by average, albeit improving, financial risk profile, limited raw material integration, and susceptibility to economic cycles.

Crisil extends gain, hits 52-wk high on acquisition of Greenwich Associates

Shares of Crisil surged 7 per cent and hit a fresh 52-week high of Rs 1,921 on the BSE on Monday, extending its Friday's 1 per cent gain, after the company said it will acquire a Stamford, Connecticut-based company Greenwich Associates LLC. The $40 million acquisition will be done through Crisil's subsidiary, CRISIL Irevna US LLC and will be funded entirely through internal accruals.

The stock was trading at its highest level since May 30, 2018. In the past one month, it has rallied 27 per cent, as compared to a 3 per cent rise in the S&P BSE Sensex.

Greenwich is a leading provider of proprietary benchmarking data, analytics and qualitative, actionable insights that helps financial services firms worldwide measure and improve business performance. It serves over 300 of the top investment banks, corporate banks, commercial banks, asset managers and key players in the market infrastructure space globally, Crisil said in its statement. 

The company said the acquisition will complement Crisil's existing portfolio of products and expand offerings to new segments across financial services including commercial banks and asset and wealth managers. The deal, it added, will accelerate Crisil's strategy to be the leading player in the growing market of global benchmarking analytics.

The deal is anticipated to close in the first quarter of 2020. Greenwich's partners and their team of approximately 150 people globally will join Crisil following the completion of the transaction, the statement said.

At 11:49 am, the stock was trading 5 per cent higher at Rs 1,887 on the BSE, as against a 0.10 per cent fall in the S&P BSE Sensex. A combined 64,212 equity shares have changed hands on the NSE and BSE so far.

Farmers to earn 9% profit over lower kharif, higher rabi output: CRISIL

Farmers are likely to generate 7-9 per cent more in profit during the crop year 2019-20 (July-June) because of an increase in overall prices of farm commodities on lower kharif yield and higher productivity from rabi crops, according to a study from ratings agency CRISIL.

In 2018-19, farmers had generated 26 per cent higher profit year-on-year over the low base of the preceding year, 2017-18. The latter saw per-hectare profit decline due to low wholesale (mandi) prices following a bumper crop.

“Unprecedented heavy rainfall in September-October would lower kharif crop production by 4 to 6 per cent year-on-year. On the other hand, a 10 per cent above-normal monsoon has filled reservoirs to the brim, which in turn promises to elevate rabi crop productivity and lead to seven-eight per cent higher output.

While lower market supply of kharif foodgrain will push up mandi prices by over 10 per cent, a higher minimum support price (MSP) and government support for wheat (over half of rabi output) is expected to aid price growth for rabi, leading to an expansion in the overall per-hectare farm profitability in crop year 2019-20,” said Hetal Gandhi, Director at CRISIL.

chartThe southwest monsoon was 28 per cent below normal as of end-June and nine per cent below normal at end —July 30, leading to delayed kharif sowing. However, quick catch-up in August and September resulted in a 10 per cent above-normal monsoon for the season between June 1 and September 30.

Though sowing gained pace in response to the monsoon’s progress, many parts of the country — including Punjab, Haryana, Uttar Pradesh and West Bengal —continued to be dry.

On the other hand, Maharashtra, Madhya Pradesh, Karnataka, Kerala, Andhra, Rajasthan and Odisha had crop damage due to excess rain and floods.

“Overall, the kharif crop output is expected to be four to six per cent lower year-on-year. Thus, shortage in market supplies is expected to keep mandi prices firm – indeed, mandi prices have already shown an upward trend in the past few quarters – leading to higher kharif profits per hectare,” said Gandhi.

Among crop segments, prices of pulses and oilseeds have shown an increase of 23 per cent and eight per cent, respectively, from the third quarter of 2018 to the fourth quarter of 2019 (the comparison period is odd because of delayed mandi arrivals in 2019).

Prices for cash crops have softened by around 5 per cent, led by a decline in cotton because of an expected increase in output.

Average prices of cereals and coarse cereals inched up 13 per cent because of an 11 per cent increase in paddy prices supported by higher MSP, and a 25 per cent increase in weighted average prices of coarse grain because of high domestic demand.

Crisil slashes India's FY20 growth to 5.1% over slump across sectors

Rating agency Crisil on Monday sharply cut its growth forecast for the current financial year to 5.1 per cent from an earlier estimate of 6.3 per cent.

The move comes ahead of the RBI's announcement on lending rates on December 5. The RBI's monetary policy committee (MPC) will meet between December 3-5 to review the interest rates.Crisil's revision, which is among the lowest after Japanese brokerage Nomura's 4.7 per cent forecast, comes within days of the official data showing a further slip in the second quarter growth to 4.5 per cent. This leaves the first half (April-September) growth at 4.75 per cent, a multi-year low.

"Key short-term indicators like industrial production, merchandise exports, bank credit offtake, tax mop-ups, freight movement, and electricity production, all point to a weakening growth momentum," Crisil said in a research report.

However, it expects a "mild" pick-up in growth in the second half.

Growth in the second half of 2019-20 will go up to 5.5 per cent, up from the 4.75 per cent in the first half, the agency said.

In October's policy review, the RBI revised downwards its estimate for GDP growth for the current fiscal to 6.1 per cent from 6.9 per cent estimated earlier.

The central bank is widely expected to slash rates for the sixth time on December 5. In five reductions so far in 2019, interest rates have been lowered by a total of 135 basis points over concerns that growth momentum is slowing down and also to try to boost liquidity in the financial system.

Infrastructure needs Rs 235-trillion investment in 10 years: CRISIL

The country’s infrastructure needs investment of Rs 235 trillion in the next decade, says CRISILInfrastructure Advisory (CIA). It expects Andhra, Telangana and Haryana to take a lead in road sector projects, together contributing half the total investment expected in the next 10 years in this segment.

“These states are expected to take the lead because their base is lower,” said Vivek Sharma, senior director at CIA.

The projection for overall infrastructure is more than double the Rs 100 trillion the BJP in its election manifesto had promised to invest in this over the next five years.

The agency has categorised states into three categories. Gujarat, Karnataka and Maharashtra are termed front-runners; Andhra, Telangana and Haryana are among those in the middle-of-the-pack. Climbers include Bihar, Uttar Pradesh and West Bengal.

After this categorisation, CIA recommends customised strategies and action, to maximise investment.

Rajasthan and UP have been high spenders in recent years but could now be constrained by a surging debt burden. Infrastructure investments by states needs to rise to Rs 110 trillion over the next decade — or 3.5 times the estimated Rs 32 trillion in the current decade — if India is to achieve its infrastructure targets, it said on Tuesday.

Countrywide infrastructure spending over the next decade ought to be Rs 235 trillion, it said, and called for average Gross Domestic Product (GDP) annual growth of 7.5 per cent and infra spending of above 6 per cent of GDP to achieve this.

“Unless states contribute nearly 50 per cent of infrastructure investments, India’s build-out momentum could taper sharply. With private investments tepid in recent years, and fiscal limitations on central spending, states have been keeping public spending going. They will need to strengthen fiscal health and build institutional capacity to sustain far higher levels of capex,” said Sameer Bhatia, president of CIA.

The spending trajectory of 15 large states which accounted for 83 per cent of infrastructure capex during 2014-2019 would be crucial.

Karvy group's liquidity to stay stretched over medium term: CRISIL

Rating agency CRISIL has said Karvy group’s liquidity will remain under pressure over the medium-term because of large working capital requirements. According to CRISIL, the outlook on liquidity is negative. Its net cash accrual may remain healthy at Rs 120 - 140 crore per annum but the sizeable annual repayment obligations of Rs 42-53 crore, along with stretched working capital cycle, will continue to exert pressure on liquidity, the rating agency said.

CRISIL has downgraded its ratings on the bank facilities and non- convertible debentures (NCDs) of Karvy Data Management Services (KDMSL) from “BBB+/negative” to “BB+/Negative”. The downgrade in the overall ratings reflects the weakening of the KDMSL group’s financial risk profile, especially liquidity.

The weakening of profile is on the account of increasing working capital requirements, primarily due to delays in realisation of receivables and raising funds. A delay in realisation of receivables, especially from the Andhra Pradesh government and increase in realisation period from large customer in subsidiaries’ contact center business, exerts pressure on the group’s liquidity.

Execution of big government projects and their realisation will remain key monitorables, CRISIL said.

Pointing to strengths of the group, CRISIL has highlighted some factors like strong support from Karvy Stock Broking (KSBL) ultimate holding company of KDMSL.

KDMSL group benefits financially, operationally, and managerially from KSBL. KSBL, has provided corporate guarantee backing the bank lines availed by KDMSL.

It has Experienced management, leadership position in key business segments and strong delivery capabilities. C Parthasarathy and V Mahesh-the promoters-have more than two decades of experience across industries - financial sector, e-governance, IT industry.

CRISIL downgraded long-term bank ratings for BHEL from 'AA+' to 'AA'

Rating agency CRISIL has downgraded long-term bank ratings for Bharat Heavy Electricals (BHEL) from “AA+” to “AA” on weaker-than-expected operating performance and the continued decline in net cash levels in the first half of the current financial year (H1FY20).

The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1+’.

BHEL’s revenues declined to Rs 10,757 crore during H1FY20, as against Rs 12,715 crore during H1FY19. The fall in revenues was driven by slower execution of orders.

Lower revenues and high cost structure led to the decline in earnings before interest, tax, depreciation, and amortisation to nil during H1FY20, as against Rs 528 crore in H1FY19, CRISIL said in a statement.

Operating profitability is likely to remain subdued due to highly competitive bidding over the past few years. Further, overcapacity in the sector may lead to additional pricing pressure in upcoming bids.Debtors remained high at Rs 37,609 crore as of September 30 (Rs 35,493 crore as of March 31 a year ago).

Higher working capital intensity along with non-recurring nature of payment like equity buyback and payment of wages revision arrears has led to fall in gross cash reserves to Rs 6,816 crore as of September 30 (Rs 11,409 crore as of March 31 a year ago).

Further, net cash position (gross cash and cash equivalent less gross borrowings) had declined from Rs 11,000 crore as of March 31 last year to Rs 5,100 crore as of March 31 this year. This has further declined to Rs 2,000 crore as of September 30.CRISIL said BHEL’s short-term borrowing increased to Rs 4,793 crore as of September 30 (vis-a-vis negligible borrowing as of March 31 a year ago).

The management’s focus on improving collection cycle is expected to increase the net cash levels to around Rs 5,000 crore by the end of FY20. Further, working capital intensity and liquidity position will be key monitorables, it added.

Top 1,000 listed firms may see tax savings of Rs 37k cr on tax cut: Crisil

CRISIL Research on Sunday said top 1,000 listed companies could see tax savings of Rs 37,000 crore on account of the corporate tax cut.

"Over the past few days, a slew of measures have been introduced to address the slowdown in the Indian economy. Friday's announcement, however, is the most material...Our analysis indicates these 1,000 companies could see tax savings of Rs 37,000 crore, or nearly a fourth of the total savings anticipated by the government," it said in a statement.

The drop in tax rate would now bring India at par with most Asian economies, it added.

"CRISIL Research's analysis of nearly 1,000 companies -- spread across 80+ sectors such that they cover more than 70 per cent of NSE's market capitalisation -- indicates that effective tax rates had risen over the past 5 years," it said.

These companies, including oil & gas and financial services, account for nearly a third of the tax paid by India Inc.

"These estimates are based on profit before tax for fiscal 2019. Given that we expect 5-6 per cent growth in India Inc revenues and Ebitda (earnings before interest, tax, depreciation and amortisation) for this fiscal, the savings could end up a tad higher," it added.

In a major fiscal booster, the government on Friday slashed effective corporate tax to 25.17 per cent, inclusive of all cess and surcharges for domestic companies.