Mumbai: Global rating agency Fitch Ratings Friday downgraded Jain Irrigation Systems on concerns around its debt levels and aggressive growth pursued by the management.
The Jalgaon, Maharashtra-based micro-irrigation company rating now stands at 'B-' as against the 'B+' earlier and the new rating has also been put the ratings on 'rating watch negative' (RWN).A deterioration in its leverage and liquidity following a weaker than expected operating performance, stretched working capital position and management's aggressive focus on growth in FY19 are the primary reasons for the downgrade, the agency said in a note.
The rating agency said it was expecting an improvement in the debt levels, but the company continued to invest for growth amid weak demand conditions and elongated receivable cycle in its key micro-irrigation systems (MIS) segment.Its liquidity headroom has reduced with increased debt levels and its financial flexibility has worsened, the agency said, adding the ready cash reduced to a low Rs 20 crore as of FY19.
Additionally, there is a risk of a further deterioration in the company's cash flows and liquidity if India receives deficient rainfalls from its already delayed monsoons and if its working capital remains stretched."We aim to resolve the RWN once there is more clarity over the monsoon performance and the company's progress in normalising the working capital and improving liquidity buffer.
This could lead to a downgrade of at least one notch," it said.
The rating may be affirmed and removed from RWN with a stable outlook if JISL improves its liquidity profile as evidenced by tying up of additional bank lines or improving cash balance through a reduction in working capital, the agency said.However, a deterioration in liquidity profile that may occur due to reduced access to bank funding or weaker operating performance following poor monsoons and stretched working capital situation can lead to negative rating action.
The company scrip gained 3.33 per cent to close at Rs 24.85 a piece on the BSE Friday, as against a 1.03 per cent correction on the benchmark.