India Ratings and Research (Ind-Ra) has downgraded HBL Power Systems'  (HBL) long-term issuer rating to 'IND BBB+' from 'IND A-'. The outlook is stable.

The downgrade reflects the lower-than-expected improvement in HBL's credit profile in FY15 and Ind-Ra's expectation that the gross leverage will continue to be above 3.5x even for FY16. The leverage improved to  4.7x in FY15 from 7.3x in FY14 against Ind-Ra's expectation of 3.5x. The higher leverage was a result of lower retail sales and delays in product development for the railways and the defence segments.

The company's partly debt-funded capex plan to set up a new manufacturing unit for concrete spun poles will contribute to delays in debt reduction. In the absence of margin expansion and with delays in debt reduction, Ind-Ra expects the leverage to remain above 3.5x in FY16.

The ratings benefit from the improvement in HBL's telecom segment's performance and revenue visibility coming from an overall order book of Rs 7 billion on Jun.30, 2015, excluding retail. The ratings also continue to factor in the company’s over 35 years of track record in battery manufacturing and vertically integrated manufacturing involving electro-plating, plastic moulding, precision fabrication, lead smelting and production of protection circuit modules.