CRISIL has upgraded its rating on the short-term bank facilities of Indo-US MIM Tec Pvt Ltd (Indo-US MIM) to ‘P2+’ from ‘P2’, and has revised the rating outlook on the long-term bank facilities to ‘Positive’ from ‘Stable’, while reaffirming the rating at ‘BBB+’. The rating actions reflect a significant improvement in Indo-US MIM’s operating margin in the first nine months of 2009-10 (refers to financial year, April 1 to March 31); the company reported operating margin of 38 per cent during this period, against 22 per cent for 2008-09, following an increase in its revenues in the high-margin firearms business. The rating action also factors in Indo-US MIM’s comfortable liquidity supported by healthy cash accruals, better management of working capital cycle, and low bank limit utilisation. The upgrade and the outlook revision also reflect CRISIL’s expectation that the financial risk profile of the company will improve over the medium term backed by healthy gearing and high profitability.

The ratings continue to reflect Indo-US MIM’s established position in the metal-injection molding (MIM) business, widespread geographical reach with diversified products, and robust financial risk profile marked by healthy gearing, high profitability, and strong debt protection metrics. These rating strengths are partially offset by the company’s exposure to volatility in prices of raw materials, fluctuations in foreign exchange rates, and large working capital requirements.

Outlook: Positive
CRISIL expects improvement in Indo-US MIM’s financial risk profile over the medium term, given the company’s healthy gearing, high profitability, and strong debt protection metrics. The rating may be upgraded if the company scales up operations, thereby adequately utilising its enhanced capacities, while maintaining its current profitability and capital structure. Conversely, the outlook may be revised to ‘Stable’ if the company’s operating margin declines or capital structure deteriorates.

About the Company
Indo-US MIM (formerly AF Technologies India Pvt Ltd) was incorporated in 1996 by Mr. Krishna Chivukula. The company manufactures and supplies MIM parts, which find application in components for handguns and shotguns, fire-arm parts, hand and power tools, sporting goods, automotive components, and telecommunication and computer peripherals. Indo-US has its clients in around 20 countries. It derives around 90 per cent of its revenues from exports, of which the US contributes around 35 per cent, and the European and Asian countries account for the remainder.

For 2008-09, Indo-US MIM reported a profit after tax (PAT) of Rs.71 million on net sales of Rs.1.27 billion, against a PAT of Rs.31 million on net sales of Rs.1.16 billion for 2007-08.