India Ratings & Research (Ind-Ra) has upgraded Asian Tea & Exports (ATEL) long-term issuer rating to 'BBB-' from 'BB+'. The outlook is stable.

Ind-Ra continues to take a consolidated view of the Asian Tea Group comprising ATEL and Asian Tea Company Private (ATCPL) due to the strong linkages between the two companies in the form of cross holdings, corporate guarantees, common directors and business.

The upgrade reflects the group's ability to sustain consolidated EBITDA interest coverage above 1.75x in the past two years, thus breaching Ind-Ra's positive rating guideline. The interest coverage improved to 2.3x in FY14 (FY13: 1.8x) on the back of higher EBITDA of Rs 67.2 million (Rs 57.2 million) coupled with lower interest expense. Net leverage (net debt/EBITDA) stood at 3.5x in FY14 (FY13: 2.7x).

The group's revenue grew 35% yoy in FY14 to Rs 1,977 million on the back of an increase in iron & steel as well as tea sales. EBITDA margins reduced slightly to 3.4% in FY14 (FY13: 3.9%) on a sharp rise in the proportion of iron & steel trading to around 15% of the total revenue (0.1%).

However, the margins are likely to improve in FY15 on higher export orders for tea and coal. The consolidated group order book stood at Rs 2,300 million at end-June 2014, providing revenue visibility for  one year.

The ratings continue to benefit from the group's established customer base and its founders' experience of around 25 years in tea trading and about 10 years in the trading of timber, fabric and coal. The group also owns tea estates in Dooars and Assam and a coal mine in Shillong.

The ratings are, however, constrained by the group’s high customer concentration with around 50% of revenue coming from a single customer and the trading nature of its operations.