Fitch Assigns 'BBB+ (ind)'/'F2+ (ind)' to Value Industries loans

(The following statement was released by the rating agency)

MUMBAI/SINGAPORE, August 22 (Fitch) Fitch Ratings has today assigned a National Issuer rating of 'BBB+(ind)' to India's Value Industries Ltd (Value). The Outlook is Stable. Fitch has also assigned the following ratings to Value's various bank lines: - Non-fund based limit of INR647.6m: 'F2+(ind)'; - Cash credit limits of INR897.6m: 'BBB+(ind)'; and - Long-term bank loans of INR2,345.3m: 'BBB+(ind)'. The ratings reflect the company's strong operating and strategic linkages with Videocon Industries Limited (VIL, 'A-(ind)' (A minus(ind))/Negative Outlook) and manufacturing and selling of a range of white goods under the 'Videocon' brand name. Value's product profile complements VIL's, and forms an integral part of the group's consumer goods strategy. Value also undertakes the manufacturing of certain components for other group companies. Value has also provided guarantees to other group companies which are in turn counter-guaranteed by the group. As a result, any major deterioration in the credit profile of the group's flagship - VIL - could act as a negative trigger for Value's rating. The rating reflects Value's strong position as one of the largest Indian brands in its respective field, the moderate growth in volumes and stable market share over the past few years. Videocon has a 21% market share in the 1.8 million washing machine market, and a 12% share of the 1.6 million refrigerator market. These segments have witnessed a growth of around 8%-10% per annum on average over the past few years. However, Fitch expects future growth to be more moderated due to cyclicality and lack of easy availability of regular power and water supply in most of the smaller towns, thereby restricting penetration. Demand is also constrained by the relatively low replacement rate of these appliances. The company also has a small (around 7%) share in the relatively faster growing air conditioner market, which is currently sized at around 2.1 million units. The ratings are, however, constrained by the substantial competitive pressures in the white goods market, a result of over-capacity and a large number of competitors, which in turn increases pricing competition. The level of dealer discounts and credit periods have also increased. Margins have also come under pressure due to increased input costs, mainly in plastics and components. The rating is also constrained by the substantial increase in the working capital of the business. Leverage levels are also high for the company - a consequence of the company's INR5.3bn capex programme completed in FY07. Despite no major capex/investment plans over the medium term, the agency expects the company's leverage to remain at current levels on the back of moderate EBITDA growth. However, any material deterioration in net debt/EBITDA to beyond 6.25x could act as a negative trigger for the rating. Value, a part of the Videocon group, was incorporated in 1988, and engages in the manufacturing of electrical and electronic home appliances. Videocon holds around 37% of the company's equity. For the nine month period ended June 2008, Value's revenues grew 10.6% to INR9.53bn, with an EBITDA margin of 11.7% (9mFY07:10.8%) and a net income of INR76m (9mFY07:INR182.5m). Net income was lower for the period due to lower non-operating income for the period. EBITDA/interest remained comfortable at 2.7x (9mFY07:2.4x). In FY07, Value reported a net debt/EBITDA of 5.8x (FY06:5.3x). Contacts: Nikhil Gupta, Mumbai, +91 22 4000 1732/ nikhil.gupta@fitchratings.com; Priyamvada Balaji, Mumbai, +91 22 4000 1742/ priyamvada.balaji@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable. Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215. Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.