CARE cuts rating for Hindalco debentures

Credit Analysis and Research Ltd. (CARE), one of the world's premiere credit rating agencies, has revised its grade for Hindalco Industries' non-convertible debentures from 'AA+' to 'AA' on continued moderation in profitability and debt protection parameters. The debt amount involved is INR 6,000 crore.

Hindalco is part of the Aditya Birla Group. The rating is also AA for the long-term and short-term bank facilities, of INR 31,059 crore. The latter ratings and revision in the long-term one for the debentures factor in the continued moderation in the profitability and debt protection parameters, as compared to the envisaged levels.

The ratings also factor in the increased cost of production due to premium paid for acquisition of captive coal mines in auctions held in February 2015, CARE stated.

The captive coal is expected to cater to about 25 per cent of Hindalco's need, keeping it exposed to market risk for the balance requirement. Beside, the continued trend of lower aluminium prices on the London Metal Exchange have exerted pressure on the profitability margins. The increased debt levels due to substantial debt in subsidiary Novelis and term debt availed for new projects in Hindalco are other key rating concerns, it said.

The ratings, however, continue to derive strength from the leadership position of the company in India’s aluminium industry, the highly reputed promoter group, professionally qualified and experienced management, and strong liquidity profile, it said.

The rating factors the pro-active steps taken by the management to replace part of its term loans with a longer maturity profile, expected to reduce the stress on cash flows in the medium term. However, the amortisation of such loans has spread beyond the earlier envisaged schedule.

The rating continues to derive strength from stable performance of the copper division, with increased margins, in FY15. The company’s ability to successfully ramp up and improve its profitability in a scenario characterised by volatility in raw material prices and exchange rates is the key rating sensitivity, it added.