The rating methodologies adopted by Infomerics for manufacturing entities begins with the evaluation of the industry in which the entity operates, followed by the assessment of the business risk factors specific to the entity. This is followed by an assessment of the financial and project-related, if any, risk factors as well as the quality of management. Assessing liquidity and financial flexibility of the issuer/obligor gains more prominence while arriving at ratings of short-term instruments/facilities apart from the analysis of the basic fundamentals of an issuer/obligor. The key determinants covered in the manufacturing entities are enumerated below:
Industry Overview: The industry overview brings out the characteristics of the industry in general and various key factors, its performance, linkage with the global front, its strategic position in the economy and its near-term and long-term outlook. It captures, in nutshell, all the prospects and concerns.
Business Risks: The business risks broadly cover geographical diversity and regional demand-supply scenario, locational economics, market structure, extent of competition, product diversity, scale of operations, market share, capacity utilisation, cost efficiencies, level of technology, sourcing of major input, power & fuel sensitiveness, export potential, logistics, brand development, fiscal incidence, Government policies & intervention, pending litigations, industrial relation, environmental issues, ongoing and/or proposed projects, if any, etc. The business risks, in general, attempts to capture all the major risks associated with the industry and how the entity being rated is positioned in the market.
Financial Risks: The financial risks broadly cover revenue growth, profitability, working capital management, leverage & capital structure, matching of cash flow vis-a-vis maturity of debt/loan obligation, risks relating to interest rates & refinancing, debt servicing track record, foreign currency related risks, if any, contingent liabilities & off-balance sheet exposures, consolidated financial analysis, if applicable, financial prudence & accounting policies, quality of auditors & their observations, etc. Deviations from the Generally Accepted Accounting Practices are noted and the financial statements of the entity are adjusted to reflect the impact of such deviations. The financial risks attempt to capture the various risks associated with the financial position of the entity and also the capability of the entity to meet its debt/loan obligations as per the debt servicing schedule. It is also seen as to how the entity being rated is placed vis-a-vis its peers in terms of financial parameters.
Management Risks: The management risks cover the quality & experience of promoters & management, past track record, status of group companies, prevailing corporate governance practices, continuity in the management, employee attrition rate, regulatory sanctions/prosecutions, succession policy, etc. The management risks attempt to capture the capability, transparency and integrity of the promoters and the top managerial personnel.