CRISIL has downgraded its ratings on Universal Power Transformer Pvt Ltd (UPT) to ‘BB/Negative/P4+’ from ‘BBB+/Stable/P2’. The rating revision reflects UPT’s stretched liquidity owing to delay in realisation of receivables, and an inventory pile-up due to deferment of orders by key customers. The ratings also factor in UPT’s moderate financial risk profile, and exposure to risks relating to fluctuations in raw material prices, and the working-capital-intensive nature, and small scale, of its operations in the power transformer industry. These weaknesses are mitigated by UPT’s promoters’ experience in the transformers industry.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of UPT and UPT Fabrication Pvt Ltd (UPTF). This is because UPT and UPTF (together referred to as the UPT group) have common promoters, operational synergies, and fungible funds, and are in the same line of business.

Outlook: Negative
CRISIL expects the UPT group’s liquidity to remain constrained over the near to medium term because of delayed realisation of receivables and deferment of offtake on orders by key customers. The rating may be downgraded if the group’s liquidity deteriorates further, if its order book reduces, or if its margins continue to decrease over the medium term. Conversely, the outlook may be revised to ‘Stable’ if UPT’s receivables and inventory positions improve, resulting in comfortable liquidity, supported by sustainable growth in operating revenues and margins, and timely execution of orders.

About the Company
Magnum Electric Machine Manufacturers Pvt Ltd (Magnum), which was incorporated in January 2002, acquired Universal Transformers (UT), a proprietorship business formed in 1978, in June 2003. UT was converted into a private limited company, promoted by Mr. Dhruva Talwalkar, in 2003. To retain the Universal brand, Magnum was renamed UPT in August 2003. UPT manufactures power transformers and executes turnkey projects. The company initially manufactured distribution and power transformers ranging from 1 kilovolt-ampere to 30 megavolt-ampere. It currently manufactures a wide range of products including power and distribution transformers in both the oil-filled and dry variants, industrial batteries (both lead acid and dry varieties), and switch gears. The company caters to both the domestic and international markets.

The UPT group reported a net loss of Rs.31 million on net sales of Rs.1.25 billion for 2008-09 (refers to financial year, April 1 to March 31), against a profit after tax of Rs.28.4 million on net sales of Rs.1.15 billion for 2007-08.