CRISIL assigns CCR AA to Powerica

(ADPnews) - Dec 15, 2010 - CRISIL rating agency yesterday gave a CCR AA corporate credit rating to Powerica Ltd.

The agency issued the following press release:

Corporate Credit Rating AA (Assigned)

CRISIL has assigned its ‘CCR AA’corporate credit rating to Powerica Ltd (Powerica). The rating reflects Powerica’s strong market position and promoters’ experience in the diesel gensets (DG sets) industry, and strong financial risk profile. These rating strengths are partially offset by Powerica’s significant dependence on Cummins India Ltd (Cummins) and large capital expenditure (capex) plans.

Powerica acts as a global original equipment manufacturer (GOEM) for Cummins and uses Cummins’ engines and alternators (alternators are sourced from Cummins Generator Technologies India Limited (CGTIL); a group company of Cummins) for manufacturing DG sets. Cummins’s strong brand image, diversified product portfolio (with DG sets of various ratings), and wide dealer and service networks have helped Powerica cater to the requirements of a large number of customers. The long track record of Powerica’s promoters in the DG sets industry has helped the company establish and expand its market position. The company has been in the business of manufacturing DG sets for around three decades, reflecting its ability to weather business cycles.

The company has a robust financial risk profile marked by robust capital structure, healthy cash accruals, and high return on capital employed. The company had zero debt as on March 31, 2010. Its financial risk profile is also supported by healthy liquidity, reflected in liquid surpluses of over Rs.3.2 billion as on March 31, 2010.

However, Powerica depends significantly on Cummins; engines and alternators account for 80 per cent of the total raw material cost of manufacturing these DG sets. Sales of DG sets account for the bulk of Powerica’s revenues. The rating also takes into account the company’s large capacity expansion plans: the company plans to add fresh capacity of 209 megawatts (MW) of wind energy generation over the next three years for a total capex of Rs.12.6 billion. The project will be funded by raising equity and though internal accruals. The wind energy projects will also expose the company to counterparty risk as the purchasers of energy generated by these units will primarily be state power utilities, which have average or below-average credit risk profiles.

About the Company
Powerica is a GOEM of DG sets. It uses Cummins’s engines and alternators. Powerica acts as a channel partner for Cummins, and is authorised to sell DG sets in Maharashtra, Goa, Kerala, Karnataka, Andhra Pradesh, and Tamil Nadu. It also sells DG sets of MAN Diesel & Turbo SE, Germany. The company also has operational wind energy units with combined capacity of 36 MW in Gujarat and Tamil Nadu.

For 2009-10, Powerica reported a net profit of Rs.1.05 billion on net sales of Rs.8.21 billion, against a net profit of Rs.0.87 billion on net sales of Rs.9.14 billion for the previous year. For the six months ended September 30, 2010, the company reported a net profit of Rs.0.88 billion (Rs.0.60 billion in the corresponding period of the previous year) on net sales of Rs.5.22 billion (Rs.3.57 billion).

(INR 100 = USD 2.202/EUR 1.656)

Rating agency website: www.crisil.com

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