Fitch lowers Sargam

Fitch Ratings said it downgraded Sargam Retails Pvt. Ltd.'s national long-term rating to BBB(ind) from A-(ind) and removed it from Rating Watch negative and its Rs. 955 million long-term loans to BBB(ind) from A-(ind).

The outlook is stable.

The action reflects the promoters' decision to curtail tobacco trading at Sargam Retails with effect from September 2010 and expectation that this change in business policy would have an adverse impact on the company's overall credit profile, according to the agency.

Ratings are also constrained by the regulated nature of the tobacco industry and the high level of competition from the large number of unorganised chewing tobacco manufacturers, the agency said.

The risks are however mitigated by the price inelasticity of the product, the brand loyalty displayed by consumers and Sargam Retails' strong distribution network in Maharashtra, the agency noted.

Ratings reflect the strong brand name of the Malpani group's flagship chewing tobacco product, Fitch said.

With the absence of significant capital expenditures in the medium term, scheduled debt repayments will result in a strengthening of the company's financial leverage to a net adjusted debt-to-operating EBITDA ratio of 1.75x to 2.0x as of fiscal year-end 2012, the agency said.

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