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IBM India Affirmed At 'Fitch AAA(ind)'; Outlook Stable
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Thursday, July 12, 2012:
Fitch Ratings has affirmed IBM India Pvt. Ltd.'s (IBM India) National Long-Term rating at 'Fitch AAA(ind)'. The Outlook is Stable. A list of other rating actions is provided at the end of this commentary.
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The ratings continue to draw strength from IBM India's strong strategic linkages with its parent entity, International Business Machines Corp. Inc. (IBM, 'A+'/Stable/'F1'). IBM India draws a significant proportion of its revenue from IBM's outsourcing business in India. Fitch believes that India will likely remain a key outsourcing destination for IBM based on the country's low-cost labour and large talent pool.
The ratings also reflect IBM India's continued strong operational links with IBM, with orders being executed on a cost-plus basis. IBM India has a prominent position in the domestic servers and storage devices market with a well-established brand name.
While there are no legal ties (guarantees or cross default provisions) between IBM and IBM India, Fitch believes that the strategic and operational links between the two entities are strong enough for IBM to support IBM India, if required. The agency notes that IBM-IBM India relationship is of a strong parent and weak subsidiary and hence has notched down the rating of IBM India from that of IBM.
What could trigger a rating action?
Negative: Future developments that may, individually or collectively, lead to negative rating action include
- a downgrade in IBM's rating
- a weakening of the strategic importance of the Indian operations to IBM
IBM India's operations can be classified into four segments - global business services, systems & technology group, software group and global technology services. For FY11, IBM India reported total income of INR154.13bn, net income of INR12.9bn, and financial leverage of 1.57x. Fitch has not been provided with the company's FY12 financials.
Rating actions on IBM India's bank facilities:
- INR4bn long-term fund based working capital facility: affirmed at National Long-term 'Fitch AAA(ind)'
- INR6bn fund-based and non-fund based working capital facilities (interchangeable): affirmed at National Long-Term 'Fitch AAA(ind)' and National Short-Term 'Fitch A1+(ind)'
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