India Ratings & Research (Ind-Ra) has assigned Ushdev International (UIL) a Long-Term Issuer Rating of 'BBB+'. The outlook is stable.

The ratings reflect UIL's comfortable financial profile. In FY14 (year end March), EBITDA margins were 3.6%, net interest coverage was 2.7x (2.0x) and net leverage was 4.0x (4.0x). Revenue rose 17.8% yoy to Rs 63 billion in FY14 on the back of increased non-ferrous metals trading. Credit metrics are likely to improve in FY15 due to the cash earned from the sale of subsidiaries with operating margins remaining stable. The agency expects UIL to be relieved of the bank guarantee given to subsidiaries to the extent of Rs 12.2 billion in FY15.

The rating factors in UIL's robust business model with pre-dominantly back-to-back orders and limited price volatility risk. The company's ferrous metal trading division generally does not take the delivery of inventory or the responsibility of logistics as the sales are free on board or cost insurance and freight basis, based on the conditions of the suppliers. The rating also reflects UIL's revenue visibility with firm orders reported to be worth about Rs 100 billion as of end-September 2014 (1.5x of FY14 sales). The rating is supported by around two-decade-long experience of UIL's founders in the metals trading business.

In 1QFY15, UIL sold two wholly owned subsidiaries (UIL Singapore and UIL Hong Kong) to its holding company for a total of Rs 2.4 billion and is reported to have received Rs 1.5 billion till October 2014. The residual amount is likely to be received by FYE15. UIL's liquidity is comfortable and is likely to be so even in FY15 as its scheduled debt repayment and capital expenditure requirements are meagre.

UIL's ratings are, however, constrained by its elongated working capital cycle of over 72 days in FY14 and FY13 from six days in FY12. UIL's customer concentration is high with the top three customers constituting 40% of sales in FY14 (FY13: 37%). Counterparty risk and foreign exchange volatility risk also constrain the ratings. UIL’s hedging ratio was about 50% at FYE14.

The rating is also constrained by the weak industry attributes including low-entry barriers and the cyclicality in demand.