CRISIL has upgraded its long-term rating on Neoteric Infomatique Ltd’s (Neoteric’s) bank facilities to ‘BB+/Positive’ from ‘BB/Stable’; the short-term rating has been reaffirmed at ‘P4+’. The upgrade reflects the improvement in Neoteric’s financial risk profile, with higher-than-expected revenue growth and profitability in 2009-10 (refers to financial year, July 1 to June 30). The upgrade also reflects CRISIL’s belief that Neoteric will sustain the improvement in its credit risk profile over the medium term, supported by its established market position and the healthy medium-term prospects for the information technology (IT) products distribution business. However, the ratings continue to reflect Neoteric’s moderately working-capital-intensive operations, resulting in high short-term debt levels and modest debt protection metrics, and the company’s exposure to risks inherent in the IT products distribution business.

Outlook: Positive
CRISIL believes that Neoteric will sustain the improvement in its overall credit risk profile over the medium term, driven by the steady growth prospects for the IT products distribution business. A better-than-expected business performance by Neoteric, also leading to better cash generation and an improvement in key debt protection metrics, or equity infusions to improve the capital structure, could result in the rating being revised further upwards. Conversely, the outlook may be revised to ‘Stable’ in case of a significant decline in Neoteric’s profitability, or higher-than-expected debt levels because of increase in working capital requirements.

About the Company
Neoteric began operations in 1991 as a re-seller of IT products. The company commenced distribution operations at a national level in 1997, and currently has an established presence in the domestic IT hardware distribution space with an authorised distributorship of 28 brands. As of February 28, 2010, Neoteric had 38 branches, 8 representative offices, and 4 logistic centres, catering to over 6000 channel partners in more than 350 cities. The company also provides after-sales service for most of its products. Neoteric has a representative office in Shenzhen, China, which is used for sourcing components.

For the 15 months ended June 30, 2009, Neoteric reported a net profit of Rs.25.6 million on net sales of Rs.10 billion, as against a net profit of Rs.43.6 million on net sales of Rs.6 billion for the 12 months ended March 31, 2008. For the six months ended December 31, 2009, the company reported a net profit of Rs.43.6 million on net sales of Rs.4.8 billion.