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Rating upgrade may cut interest costs by 100 bps: Sequent

The current gross debt for the company is above Rs 300 crore but net debt is only Rs 120 crore.The current borrowing cost is around 13.5-14 percent, said Manish Gupta, CEO Sequent Scientific.

Rating agency ICRA has upgraded Sequent Scientific credit rating by four notches. A rating upgrade usually helps in lowering interest costs on the debt of a company.

Manish Gupta, CEO Sequent Scientific in an interview to CNBC-TV18 said the agency had taken into account the company’s improved balance sheet and performance.

The rating upgrade could help reduce interest costs on current debt to the tune of 100 basis points. The current borrowing cost is around 13.5-14 percent.

The long-term rating has been upgraded from [ICRA] BB to [ICRA] BBB+ and the short-term rating has been upgraded from [ICRA] A4+ to [ICRA] A2+.

The current gross debt for the company is above Rs 300 crore but net debt is only Rs 120 crore.

Below is the transcript of Manish Gupta’s interview with CNBC-TV18’s Reema Tendulkar and Mangalam Maloo.

Reema: ICRA has just upgraded your credit rating on both your long as well as short term facilities. Could you tell us what will be the benefit that you expect for the company?

A: Basically what ICRA has taken on record is that improved balance sheet as also our improving performance in improving our rating by four notches. Fundamentally, with this our borrowing cost would certainly go down. However it is very early to predict given that in the next couple of weeks or so, we are expecting interest rate correction in the country.  We will go back to our banks thereafter and see where we stand.

Mangalam: Could you also give us a sense of what is the debt on your books right now. What is your current interest cost and does this upgradation coming in from ICRA reduce your current interest cost or this is for the debt that you will take going forward?

A: Currently, our gross debt is about Rs 350 crore however, our net debt – because we do carry a lot of cash in our books as well is only about Rs 120 crore. This upgrade in our rating will impact both our current costs as also any future debt that we may take on our books.

Mangalam: Could you quantify what that benefit would be?

A: As I mentioned it is too early to predict but I do foresee at least a 100 bps correction in our interest cost.

Reema: What is the current borrowing cost?

A: Current borrowing cost is in the region of 13.5-14 percent.

Reema: And that you expect to come down by 100 bps?

A: That is correct.

Reema: Typically how long will it take for the new interest rates to come into effect?

A: All these are generally floating interest rates. So, it is typically in the next credit cycle. So, it may lag by one to two month.

Sequent Scienti stock price

On September 24, 2015, Sequent Scientific closed at Rs 1021.50, down Rs 12.25, or 1.19 percent. The 52-week high of the share was Rs 1120.00 and the 52-week low was Rs 391.15.

The company’s trailing 12-month (TTM) EPS was at Rs 13.71 per share as per the quarter ended June 2015. The stock’s price-to-earnings (P/E) ratio was 74.51. The latest book value of the company is Rs 33.23 per share. At current value, the price-to-book value of the company is 30.74.