RATING METHODOLOGY FOR SERVICE SECTOR ENTITIES

OVERVIEW

The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment flows, contributed significantly to exports as well as provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel & restaurants, transport, storage and communication, real estate, business services, community, social & personal services.

KEY DETERMINANTS

BUSINESS RISK PROFILE

  • Market Position
  • Revenue and Client Diversification
  • Contract Mix and Billing Rates
  • Geopolitical Risk associated with Outsourcing
  • Manpower Utilisation, Attrition and Training
  • Systems, Processes and Compliance
  • Event Risk

FINANCIAL SOUNDNESS

  • Revenue growth& Profitability
  • Foreign Currency related Risk
  • Working Capital Intensity
  • Leverage, Cash Flows and Coverage Indicators
  • Tenure Mismatches and Risk Relating to Interest Rates and Refinancing
  • Debt Servicing Track record
  • Adequacy of Future Cash Flows
  • Accounting Quality

MANAGEMENT STRENGTH

  • Promoters and Management Quality
  • Past Track Record
  • Capability Under Stress
  • Financial Prudence
  • Resourcefulness

INDUSTRY SCENARIO

  • Characteristics
  • Key Factors
  • Strategic Position in the Economy
  • Linkage with Global Market, if any
  • Performance
  • Outlook

Each of these key determinants are not exhaustive by themselves, but enables to understand the rating considerations that are most important. The credit ratings assigned by Infomerics are a symbolic representation of its opinion on the relative credit risk associated with the instrument being rated. This opinion is arrived at following a detailed evaluation of all the aforesaid factors with major emphasise on issuer‘s business and financial risks, its competitive strengths, its likely cash flows over the life of the instrument being rated and the adequacy of such cash flows vis-à-vis its debt servicing obligations.