February 15, 2013

Mumbai

Stellar Information Systems Limited

Rating outlook revised to 'Negative'

Total Bank Loan Facilities Rated
Rs.92.9 Million
Long-Term Rating
CRISIL BBB+/Negative (Outlook revised from Stable and Rating Reaffirmed)

(Refer to Annexure 1 for details on facilities)

CRISIL has revised its rating outlook on the long-term bank facilities of Stellar Information Systems Ltd (Stellar) to ‘Negative’ from ‘Stable’, while reaffirming the rating at ‘CRISIL BBB+‘.

The outlook revision reflects Stellar’s increasing risk appetite as demonstrated by its growing exposure towards non-core real estate investments. The company has made investments in non-business related properties which stood at Rs.104 million as of March 31, 2012 and is expected to increase to more than Rs.180 million over the medium term. The exposure is significantly high, in relation to Stellar’s estimated net worth of Rs.335 million as on March 31, 2012. Stellar’s financial risk profile remains strong on the back of the company’s healthy accruals vis-ŕ-vis its moderate debt levels. However, CRISIL believes that the diversion of funds into non-core activities reflects Stellar’s changing business mix, which could negatively impact the business risk of the company over the medium term.

The ratings continue to reflect Stellar’s established position in the data recovery industry, supported by its promoters’ extensive industry experience, and the company’s strong debt protection metrics. These rating strengths are partially offset by Stellar’s vulnerability to intense competition and low entry barriers in the data recovery industry, and high exposure to unrelated real estate investments.

Outlook: Negative

CRISIL believes that Stellar’s business risk profile will deteriorate over the medium term because of the company’s increasing exposure to unrelated real estate investments. CRISIL, however, believes that Stellar will continue to benefit over the medium term from its promoters’ extensive experience and established position in the data recovery industry. The ratings may be downgraded if the company makes larger-than-expected investments in non-business-related properties or if an increase in competition in the data recovery business leads to decline in its revenues and margins. The outlook may be revised to ‘Stable’ if Stellar reduces its exposure to unrelated real estate investments and expands its core business, while it maintains its operating margin and capital structure.

About the Company

Stellar was set up in 1993 by Mr. Sunil Chandna, Mr. Manoj Dhingra, and Mr. Kuljeet Singh. It is in the business of data recovery. The company develops and sells data recovery software and suites and also provide data recovery services through various locations in India as well as through its subsidiary, Stellar Data Recovery BV, in the Netherlands.

For 2011-12 (refers to financial year, April 1 to March 31), Stellar, on a standalone basis, reported a net profit of Rs.102 million on net sales of Rs.332 million, against a net profit of Rs.105 million on net sales of Rs.271 million in 2010-11.

Annexure 1 - Details of various bank facilities

Current facilities
Previous facilities
Facility
Amount
(Mln)
Rating
Facility
Amount (Mln)
Rating
Cash Credit
12
CRISIL BBB+/Negative
Cash Credit
12
CRISIL BBB+/Stable
Foreign Currency Term Loan
69
CRISIL BBB+/Negative
Foreign Currency Term Loan
11.2
CRISIL BBB+/Stable
Proposed Long-Term Bank Loan Facility
11.9
CRISIL BBB+/Negative
Proposed Long Term Bank Loan Facility
69
CRISIL BBB+/Stable
--
0
--
Term Loan
0.7
CRISIL BBB+/Stable
Total
92.9
--
Total
92.9
--

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February 15, 2013

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