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The ratings on bank facilities and medium term fixed deposits of Gati Ltd, India’s largest road transport company, have been downgraded by CARE Ratings.
The rating on long-term bank facilities of the logistics company aggregating Rs 173.02 crore have been downgraded from ‘A-’(outlook: stable) to ‘BBB’ (outlook: stable), said the rating agency in a statement.
The rating on short-term bank facilities aggregating Rs 5 crore have been downgraded from ‘A2+’to ‘A3+’.
The rating on medium term fixed deposits aggregating Rs 50 crore have been downgraded from ‘A-’(outlook: stable) to ‘BBB’ (outlook: stable).
However, the agency has reaffirmed the ratings on bank facilities and commercial paper of Gati’s flagship subsidiary, Gati Kintetsu Express Private Ltd, aggregating Rs 325.13 crore.
According to CARE Ratings, instruments with ‘A’ rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.
Instruments with ‘BBB’ rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.
Instruments with ‘A3” rating are considered to have moderate degree of safety regarding timely payment of financial obligations. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories.
Instruments with ‘A4” rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.
CARE said: “The revision in the ratings assigned to the bank facilities of Gati takes into account decline in revenue from operations along with significant deterioration in PBILDT (profit before interest, lease, depreciation and tax) level (adjusted to non-cash income) and reduction in gross cash accruals during FY18.”
Further the company has raised additional debt during FY18 for the purpose of redemption of part of its Foreign Currency Convertible Bonds (FCCB) leading to higher debt repayment obligations during FY19 while the cash accruals are expected to remain relatively stressed, the agency added.
CARE Ratings said the ratings also factors in the risk associated with the support extended by Gati to a hydro power company - Gati Infrastructure Private Ltd which is under liquidity stress and significant reduction in promoters control on account of dilution of shares on FCCB conversion and invocation of pledge of shares.
The ratings, however, derive strength from its experienced management, extensive support from its subsidiary companies for augmenting E-Commerce division and favourable industry prospects.
“The ratings continues to remain tempered by working capital intensive nature of operations and presence of stiff competition from many unorganized players in the industry.
“The ability of the company to improve its operational efficiency thereby garnering better profitability margins and increase the scale of operations are the key rating sensitivities,” said the agency.
In a stock exchange notification, Gati said: “We also wish to inform you that the management of the company has already made a representation to the rating agency for their review and to reaffirm the ratings to their existing levels.”
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