"The downgrade reflects concerns about the company's ability to access capital consistently in view of the volatility in its share price, which has declined more than 75 percent since late February 2013, and the sale of the promoter's pledged shares," Moody's reasoned in its statement.
According to the report, the rating outlook is negative.
The stock plunged nearly 39 percent in last 15 days and more than 77 percent in one month on reports that lenders sold shares pledged by promoters in open market.
"Volatility in the company's share price was precipitated by margin calls on some investors' accounts which then required the sale of shares. The decline in CORE's share price caused the subsequent sale of promoter's shares which was held as collateral for some of the promoter entities bank facilities," Moody's added.
Net profit of the company has consistently been declining since March quarter of 2012. Net dropped 33.5 percent year-on-year and 6.4 percent quarter-on-quarter to Rs 68.30 crore in the quarter ended December 2012. Meanwhile, revenues increased marginally to Rs 485.43 crore from Rs 477.21 crore YoY, but declined QoQ.
According to Moody's, "While CORE's fundamental business remains sound, we believe that recent events have not been conducive to improving its tight liquidity position arising from its high reliance on debt to support growth, tight covenant levels and restricted financial flexibility."
Moody's expects CORE to continue generating negative free cash flow, owing to high working capital requirements and a substantial annual capex of around Rs 5 billion. It therefore needs to have stable access to domestic bank funding to support its operations.
At 09:47 hours IST, shares declined 1.5 percent to Rs 67.95 on Bombay Stock Exchange. Market capitalisation of the company currently stands at Rs 777.92 crore.
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