ICRA downgrades credit rating of NELCAST

According to a report by Investment Information & Credit Rating Agency (ICRA), the long term rating for NELCAST was re-affirmed and outlook revised to Negative. On the other hand, the Short-term rating was downgraded to [ICRAJ]A1.

The revision in outlook and short-term rating reflects the weaker-than expected performance of Nelcast Limited (Nelcast) in H1 FY2020 on the back of demand slowdown in the domestic automotive industry and its consequent impact on the company’s revenues and earnings.

The credit report states that Nelcast's revenues and operating profits have declined by around 30 per cent in H1 FY2020, because of a sharp de-growth in supplies to the domestic medium and heavy commercial vehicle (M&HCV) and tractor industry segments (down by ~40 per cent and 30 per cent, respectively). Although Nelcast’s margins and earnings have been protected to an extent in the current fiscal by a steady revenue growth, they are expected to de-grow by around 25 per cent in FY2020 because of demand-side pressure. The lower-than anticipated earnings from operations coupled with the ongoing debt-funded expansion and firm repayment obligations is expected to moderate Nelcast’s credit metrics and free cash flows.

Incorporated in 1982, Nelcast manufactures grey and ductile castings for the M&HCV and tractor industry segments. Key products supplied to the M&HCV segment include wheel hubs, brake drums, axle housing, and brackets, among others. For the tractor segment, the company’s major products are transmission casing, centre housing, axle housing and hydraulic lift cover. It also supplies ribbed plates and brake discs used in Metro Rail projects and Railways.

At 3 pm on Tuesday, the stock was trading at Rs. 49, down by 4.20 per cent or Rs. 2.15. It is 52-week high is Rs. 86.50 and it's 52-week low is Rs. 33.10.