Fitch BBB-(ind)' Ratings for nuFuture Digital (India)
26 Sep 2011
National Long-Term rating
'Fitch BBB-(ind)'
INR650m term loan
'Fitch BBB-(ind)'
INR1,000m term loan
'Fitch BBB-(ind)'
Fitch Ratings-Mumbai/Singapore-26 August 2011: Fitch Ratings has assigned India's nuFuture
Digital (India) Limited (nFDIL) a National Long-Term rating of 'Fitch BBB-(ind)'. The Outlook is
Stable. A list of all rating actions is given at the end of the commentary.
The ratings reflect nFDIL's strong operating and strategic linkages with Pantaloon Retail (India)
Ltd (PRIL, 'A-(ind)'/Stable). Further, nFDIL has an exclusive master service level agreement with
PRIL for providing technology and business services till March 2015. As per the agreement, the
latter guarantees minimum annual revenue of INR350m to the former till the end of the tenure.
Service consideration for both technology and business services have been pre-fixed.
Technology services are provided at a fixed rate of 1% of PRIL revenues (FY10 revenues:
INR95,505m).
The ratings also takes comfort from the corporate guarantee extended by the parent company Future Corporate Resources Limited (FCRL) - for nFDIL's INR650m term loan. In addition, FCRL
and PRIL together injected INR671.4m to nFDIL through an unsecured term loan.
The ratings are constrained by nFDIL's limited track record as it started its commercial operations
only in 2011, and customer concentration risk as all its customers are the Future group entities.
Fitch notes that the customer base will remain the same in near-term.
Fitch expects nFDIL's credit profile to improve in the near-term on account of its strong revenue
visibility and sound profitability. However, a sustained deterioration of its financial leverage (total
adjusted debt net of cash/operating EBITDAR) to above 4.5x may result in a negative rating
action. A rating downgrade may also result from a weakening of nFDIL's linkages with PRIL and
other Future group entities.
Positive rating guidelines include a sustained improvement in the company's net financial
leverage to below 2.0x along with the further strengthening of its linkages with PRIL and other
Future group entities.
nFDIL (previously known as Erudite Knowledge Services) is a technology service provider for
retail chain of the Future group and other organised retailers. The company provides consolidated
technology support, business process management and contact centres. In FY11, its revenue
was INR1,084.5m, operating EBITDA margins were 32%. nFDIL's credit metrics was comfortable
in FY11 with interest coverage ratio at 3.2x and financial leverage at 4.7x.
nFDIL:
- INR650m term loan: assigned 'Fitch BBB-(ind)'; and
- INR1,000m term loan: assigned 'Fitch BBB-(ind)'.
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. 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 'Fitch
AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally
comparable.
Additional information is available at www.fitchratings.com.
Applicable criteria, "Corporate Rating Methodology," dated 12 August 2011, are available at
www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology
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Issued by,
Mihir Mukherjee
Sampark Public Relations
99875 56960