The rating for the Rs. 94 crores bonds programme of ITI has been retained at LAAA (SO) (L triple A - structured obligation), indicating highest safety and a fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualised, are not likely to affect the timely payment of principal and interest as per terms. The long term rating continues to factor in the unconditional and irrevocable guarantee provided by the Government of India for payment of interest and repayment of principal.

The rating for the Rs. 50 crores short-term borrowing programme of ITI has been retained at A1 (A one), indicating highest safety. The prospect of timely payment of debt/obligation is the best. The earlier rating of LAAA(SO) and A1 was reaffirmed in November 1999.

Revenues from both switching and transmission segments went up during the financial year 2000, resulting in ITI's gross sales growing by 20 per cent from Rs. 1,539 crores in 1999 to Rs. 1,847 crores in 2000. However, falling prices of switching equipment depressed its operating margins during the year. ITI had shown a loss in its books in 1996 and 1997. Internal restructuring coupled with support from Department of Telecom (DoT) helped its turnaround effort and the company was able to report a profit at the net level in 1998. ITI has been able to settle a large proportion of past dues, as a result of which despite fluctuations in its margins at the operating level, net margins have shown a steady improvement since 1998.

ITI has a high fixed cost structure which restricts its flexibility to compete on pricing front. The falling trend in prices of switching equipment is unlikely to be reversed. As a result, ITI has taken steps to diversify its revenue streams. It has entered into a number of technology tie-ups in emerging areas of telecommunication technology, and its success in new areas would be critical in sustaining its operating margins in future.

ITI receives advance from Bharat Sanchar Nigam (BSNL) which supports its working capital requirement. However, during 2000, working capital requirement went up in order to fund a large order for switches from BSNL, which was not supported by advance. BSNL has subsequently liquidated the receivables arising out of these supplies.

Despite this, ITI's receivables have traditionally been on the higher side since a large proportion of supplies are made at provisional prices where realisation is prolonged due to finalisation of prices. ITI has initiated measures to resolve pricing related issues resulting in some improvement in settlement of past dues. Its ability to sustain its recovery efforts is expected to be crucial in determining its short-term liquidity.

DoT was corporatised during FY01 and a new company called BSNL was formed. At present Government of India holds the entire equity in BSNL. The corporatisation of DoT is unlikely to affect ITI operationally in the short term although its long term implications hinge to a large extent on impending privatisation of the new company. The long-term rating continues to factor in the guarantee provided by the Government of India.