India Ratings & Research (Ind-Ra) has downgraded Educomp Solutions Limited’s (Educomp) Long-Term Issuer Rating to ‘IND BB-’ from ‘IND BBB’. The Outlook is Negative. A list of additional rating actions is provided at the end of the commentary.
Key Rating Drivers
The downgrade reflects growing liquidity pressure on Educomp, with material refinancing risks. The company is negotiating with its banks regarding cash flow mismatches and further refinancing. Successful refinancing of its existing debt with extended debt maturities would reduce the immediate liquidity pressures faced by the company.
The liquidity pressure is on account of its continuously declining revenue and profitability, inability to securitise receivables amid a tough credit environment, high debt obligations and high cost of debt.
Ind-Ra takes cognizance and draws comfort from Educomp’s initiatives towards reorganising its business, funding the smart class business with long-term vendor facilitated financing to reduce dependence on securitisation and asset monetisation strategy to improve liquidity position. The ratings factor in the company’s successful divestitures of two non-core businesses (Euro Kids and IndiaCan JV) to improve liquidity. Educomp is also attempting to bring in a large equity infusion to alleviate liquidity stress.
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