Besides, the management intends to reduce debt by Rs 2,000 crore over the medium-term through corporate actions of demerger, divestment and equity infusion which should also boost JISL's liquidity.
JISL had around 74 per cent of its long-term debt obligations in foreign currency at financial year ending March 2019.
The affirmation with Positive Outlook reflects JISL's satisfactory deleveraging in the last 12 months, which is in line with our expectations.
JISL's ratings reflect its high, albeit improving leverage, and its strong business risk profile as a globally diversified producer of micro irrigation systems (MIS), a leading manufacturer and distributor of polyvinyl chloride and polyethylene pipes in India for industrial and residential uses, as well its leading position in supplying processed fruits and vegetables to leading multinational fast-moving consumer goods companies across several geographies.
Long-Term Structural Growth: India's low irrigation coverage and high dependence on erratic rainfall underpin the demand for JISL's micro-irrigation products.
Furthermore, JISL's pipes business stands to benefit from initiatives, such as India's Atal Mission for Rejuvenation and Urban Transformation to develop urban infrastructure such as roads, water supply and sewage services, solid waste management and storm water drains.
Cash-Flow Seasonality: JISL's sales are slower during the first half of the fiscal year than the second half, which results in a higher cash balance at the fiscal year-end of around INR1 billion on average, compared with the preceding three fiscal quarters.
Diversified Cash Flows: JISL's revenue is diversified across products and geographies, with sales outside India accounting for 45% of revenue in FY17.
Fitch does not rate any of JISL's direct competitors.
JISL has a stronger business risk profile than HMS, supported by its larger operating scale and more diversified cash flows across geographies and end-markets.
Therefore, despite Yingde's larger operating scale compared to JISL, we assess both companies as having a similar credit risk because JISL's cash flows are diversified by end-market and geography, which mitigate the risks stemming from a smaller scale.
- The recovery analysis assumes that JISL would be considered a going-concern in bankruptcy and that the company would be reorganised rather than liquidated.