India Ratings and Research (Ind-Ra) has downgraded Jain Irrigation Systems Limited’s (JISL) long-term issuer rating to ‘IND BBB’ from ‘IND A-‘ while placing it on rating watch negative.
The downgrade reflects deterioration in the company’s liquidity profile on account of a delay in the realisation of its receivables from micro-irrigation systems segment. “The rating watch negative reflects the risk of delay in JISL’s deleveraging plans or a further increase in its working capital requirement, resulting in further worsening of its liquidity position,” said Ind-Ra in a statement.
JISL’s management intended to reduce Rs 350 crore to Rs 400 crore of debt on the realisation of receivables in the fourth quarter of 2018-19. As a result, the company’s working capital debt increased to Rs 1,920 crore. Ind-Ra said the adverse movements in working capital also caused JISL’s cash flow from operations to turn negative to Rs 350 crore in FY19 from positive Rs 850 crore in FY18.
The company has Rs 390 crore of long-term debt falling due in FY20, which it expects to repay through internal accruals. Besides, the management intends to reduce debt by Rs 2,000 crore over the medium-term through corporate actions of demerger, divestment and equity infusion which should also boost JISL’s liquidity.
JISL had around 74 per cent of its long-term debt obligations in foreign currency at financial year ending March 2019. The company hedges only a small portion of this debt, while profitability from overseas operations (35 to 40 per cent of overall EBITDA) and derivatives help in mitigating the foreign exchange risk to an extent.
However, the balance profitability is exposed to currency risk, said Ind-Ra.