Mumbai: Credit rating firm CARE Ltd has downgraded the bank facilities of Tata Teleservices (Maharashtra) Ltd (TTML), citing continuing deterioration of the already weak financial risk profile as a result of continuing losses.
The downgrade, CARE said, factors in the significant weakening in the business risk profile of the company as a result of a significant increase in competitive intensity in the sector and its impact on the company’s pricing power and profitability.
Long-term bank facilities’ rating has been revised from CARE A to CARE A-. Fund-based long-term cash credit has been downgraded to CARE A- from CARE. Non-fund-based short-term bank guarantee has been revised to CARE A2+ from CARE A1. The ratings for fund-based short-term loans have been revised to CARE A2+ from CARE A1.
The ratings continue to factor in the financial support derived by virtue of TTML, being part of the Tata group and its strategic importance as the group operates in the domestic mobile communication segment through TTML along with associate company Tata Teleservices Ltd.
It also takes into account the benefits on account of operational synergies with TTSL, which is in the same line of business. But the rating strengths are tempered by continued losses, high leverage position on account of significant debt funded capital expenditure and intense competition in the industry, it said.
The agency has a negative outlook on the company owing to increased competition and expected deterioration in key financial parameters on the back of continued losses. It however added that the outlook may be revised to ‘stable’ if the entity is able to improve its key financial and operational performance.
The Tata group holds 63.14% stake in TTML, of which TTSL holds 36.54%. A sub-optimal operating performance has led to continued losses. The company continues to report losses in the current year as well; the loss at profit after tax (PAT) level for the nine months of fiscal 2016-17 widened to Rs991 crore as against a loss of Rs337 crore in the corresponding period of last year. The company incurred a net loss of Rs498 crore in FY16 (refers to period 1 April to 31 March) as compared to a net loss of Rs615 crore in FY15.
TTML, like any other telecom service provider, requires significant funding on an ongoing basis for expanding telecom infrastructure including roll out and expansion of its GSM and 3G services. Major portion of this cost is funded by way of debt. The company relies heavily on debt largely to fund working capital requirements and refinance short term loans resulting in a weak capital structure.