N. L.

Dalmia Institute of Management Studies & Research

CREDIT RATING OF COMPANIES USING FINANCIAL RATIOS

Summer Internship Report

Submitted in partial fulfilment of the

requirements for

2 Yrs. Full Time

MMS Course Batch
2019-2021

SUBMITTED BY

Name: PRADEEP SINGH ADHIKARI (MMS)

Roll No. MG1921-B65

Batch 2019-2021

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 PREFACE

Loan has to be paid one day but providing loan with knowing the financial health of any
individual can be dangerous. So, Credit Rating Companies were formed in order to
examine and provide information about the financial health of the burrower company to
any agency who are lenders. I have made a paper on "CREDIT RATION OF
COMPANIES USING FINANCIAL RATIOS" as part of the MBA program and in order
to acquire realistic information regarding management. The central aim behind this project
in association with internship program was to familiarize the student with the
implementation of the knowledge we earned in the campus. The practical knowledge is far
different from the bookish knowledge that a student achieves in an institution.

Doing this project report helped us to enhance our knowledge about the companies, their
performance and how to practically do ratio analysis of a company. In this report we have
shared our views about the same based on our analysis.

ACKNOWLEDGEMENT

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I would like to express my deep and sincere gratitude to Mr. Deepak Nachanani & Mr.
Kaustubh, for giving me the opportunity to do research and providing invaluable guidance
throughout this research. Their dynamism, vision, sincerity and motivation have deeply
inspired me. They have taught me the methodology to carry out the research and to present
the research works as clearly as possible. It was a great privilege and honor to work and
study under their guidance. I am extremely grateful for what they have offered me. I
would also like to thank them for their acceptance and patience during the discussion I had
with them on project preparation.

It is my radiant sentiment to place on record my best regards, deepest sense of gratitude to

Mrs Jyoti Nair for mentoring me to complete my project.

I express my sincere thanks to Placement Committee – NLDIMSR for providing me the

opportunity to work for this esteemed organization.

Sincerely,

Name: Pradeep Singh Adhikari

Place: Mumbai
Date: 31st JULY 2020

CERTIFICATE

This is to certify that the Summer Internship Project Report is submitted in partial
fulfilment for the award of Masters of Management Studies of N. L. Dalmia Institute of
Management Studies and Research. It is a result of the bonafide research work carried out

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by Mr. Pradeep Singh Adhikari under my supervision and guidance during Summer
Internship of 08 weeks from 15th April 2020 till 15th June 2020.

This thesis has not earned any other diploma, degree, bursary or associated titles or
awards. Neither have the findings been reported in some journal / magazine.

Date:31st July 2020 Place: Mumbai

Industry guide

Signature of the Industry Guide: ______________________

Company: IIFL Securities Limited

Name of Industry Guide: Mr. Ketan Bhatia

Designation: Regional Sales Manager

Internal Faculty guide

Signature of Internal Faculty Guide: ____________________

Name of the Internal Faculty Guide: Prof. Jyoti Nair

Faculty <Finance>:

EXECUTIVE SUMMARY

The report showcases the financial of 9 companies from different sector and assessment of
financial performance.

Chapter 1 brief us about the credit rating, its uses and application by its users. Also, about
the history of Credit Rating.

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Chapter 2 gives us a brief understanding about the ratios and its importance in Credit
rating. Also, the criteria used in this project for rating the company.

Chapter 3 talks about the company of our study. Its balance sheet, profit and loss
statements and ratio which helps to indicate about the financial health of the company.
After all this the companies are rated.

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Contents
1. CREDIT RATING & ITS USES 7
 DEFINE CREDIT RATING? 7
 HISTORY OF CREDIT RATING 8
 FITCH RATING 8
 MOODY'S INVESTORS SERVICE 8
 STANDARD & POOR'S 8
 WHY CREDIT RATINGS ARE IMPORTANT 9
 USES OF CREDIT RATINGS 9
2. FINANCIAL RATIO 11
 IMPORTANCE OF RATIOS IN CREDIT RATING 11
 FINANCIAL RATIO 12
 PROCESS OF CREDIT RATING USED IN THIS PROJECT 12

3. LIST OF COMPANIES RATED IN THIS PROJECT 12

 NAME OF THE COMPANY: - VODAFONE IDEA LTD 14

 NAME OF THE COMPANY: - RAIN INDUSTRIES LTD 17

 NAME OF THE COMPANY: - JSW STEEL LTD 19

 NAME OF THE COMPANY: - WIPRO LTD 21

 NAME OF THE COMPANY: - TATA MOTORS LTD 23

 NAME OF THE COMPANY: - ZEE ENTERTAINMENT LTD. 26

 NAME OF THE COMPANY: - DABUR INDIA LTD 28

 NAME OF THE COMPANY: - FORTIS HEALTHCARE LTD 30

 NAME OF THE COMPANY: - SUZLON ENERGY LTD 32

CONCLUSION 34

REFERENCE AND BIBLIOGRAPHY……………………………………… 35

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 CHAPTER: 1
CREDIT RATING & ITS USES

DEFINE CREDIT RATING?

An average appraisal of a creditor or a particular debt or financial responsibility is a credit

report. Credit rating may be given to any entity which seeks to loan money — an
individual, a company, a government or a provincial authority.

HISTORY OF CREDIT RATING

Moody's published bond ratings in 1909 and other agencies took action in the next
decades. Such rates had no effect on the industry until 1936 when new legislation
prohibited banks from lending in high-risk debt, or debt with poor credit scores, to avoid
financial losses due to default. Many corporations and financial institutions rapidly
followed this custom which became the norm to rely on credit ratings soon enough.

The global credit rating industry is highly concentrated, with almost the entire market
dominated by three agencies — Moody's, Standard & Poor's and Fitch.

FITCH RATING

In 1913, John Knowles Fitch formed the Fitch Publishing Company, offering financial
information for use in the securities industry through "The Fitch Stock and Bond Manual"
and "The Fitch Bond Book." In 1924, Fitch launched the AAA through a D rating system,
which has become the standard for ratings throughout the industry.

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In 1924, Fitch began the AAA with a D-rating, which is still the market norm for scores.
By the end of the 1990s, Fitch entered IBCA of London, a French parent group, Fimalac,
S.A., to create an all-in-one multinational rating firm. Fitch has also acquired Thomson
Bank Watch and Duff & Phelps Credit Ratings Co. as industry rivals. Starting in 2004,
Fitch started creating operating subsidiaries specializing in corporate risk management,
data processing and finance-induced

MOODY'S INVESTORS SERVICE

The first Moody's Manual was published in 1900 by John Moody and Company. The
manual published basic statistics and general stock and bond details from various sectors.
Moody 's Manual was a major publication from 1903 until the stock market crash of 1907.
In 1909 Moody started publishing Moody 's Railroad Investment Research, which
included empirical information on securities interest.

The extension of this concept culminated in the setting-up of Moody's Investors Service in
1914, which would issue rates over the following 10 years on almost all government bond
markets. Moody 's assessment launched in the 1970's with commercial paper and bank
deposits and is now the maximum ranked agency.

STANDARD & POOR'S

The History of Railroads and Canals in the United States was first published by Henry
Varnum Poor in 1860, the precursor to stock research and reporting to be developed in the
coming century. In 1906, Standard statistics for corporate bonds, sovereign debt and
municipal bond publishing ratings were created. Standardized figure became a normal and
bad business with Poor's Publishing in 1941. Standard and Poor's have been well
established by indices such as the S&P 500, a capital market index that is both an
investment research and decision-making tool and an economic predictor for the US.

WHY CREDIT RATINGS ARE IMPORTANT

Borrowers ' credit scores are dependent on extensive due diligence performed by rating
agencies. Although the borrowing agency should aim to have the highest possible credit

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rating as it has a significant effect on the interest rates paid by the borrowers, the credit
rating agencies will take a fair and unbiased view of the financial position of the borrower
and the ability to service / repay the debt.

A ranking of the bank also defines the interest rate at which the debt will be returned in
addition to determining whether or not the applicant is approved for a debt. Since
companies rely on credit for their startups and other expenses, refusal of the loan could
lead to catastrophe and it is much harder to repay a high interest rate. Your credit rating
will be instrumental in deciding which borrowers to apply for a loan. With someone with
excellent credit, the right lender would definitely be different from someone with really
good credit, or even bad credit.

Credit ratings play a crucial part in determining whether or not a forward-looking buyer is
purchasing debt. A poor credit rating is a risky investment, it is more probable that the
corporation will afford the debt payments. That is a risky investment.

USES OF CREDIT RATINGS

Credit scores are used by creditors, intermediaries including investment banks, debt
issuers, and businesses and organizations.

• Both institutional and individual investors use credit ratings to determine the probability
of investing in a single offering, preferably within their portfolio as a whole.

• Intermediaries such as investment bankers use credit ratings to assess credit risk and to
further derive debt issues from the pricing.

• Debt issuers such as companies, states, municipalities and so on use credit ratings as an
impartial measure of their creditworthiness and credit risk associated with debt issuance.
The ratings will, to some degree, give prospective investors an idea of the instrument 's
efficiency and what sort of interest rate they can expect from it.

• Credit scores are also used by companies and organizations looking to determine the risk
associated with a given counterparty transaction. This will support organisations looking

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to take part in collaborations or projects with other organizations to determine the
feasibility of the plan.

In India there are six credit agencies in total, namely CRISIL, CARE, ICRA, SMREA,
Brickwork Rating, and India Rating and Research Pvt. Ltd.

CHAPTER: 2
FINANCIAL RATIO & PROCESS OF CREDIT RATING
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IMPORTANCE OF RATIOS IN CREDIT RATING

Running a company requires ongoing analysis and evaluation of its operating results. Use
financial indicators to calculate and assess the company to ensure the continued
productivity. When you compare important data such as assets and liabilities, the
importance of financial ratios becomes obvious. When you understand your safety margin,
you will be able to make important decisions to effectively run your company.

FINANCIAL RATIO
Dividing one piece of financial knowledge into another. In fundamental analysis, financial
ratios are very common which investigates the financial health of companies. One
example of a financial ratio is the price-earnings ratio, which divides the share price of a
publicly traded company by its earnings per share. This helps analysts determine if a
company's share price reflects its performance properly.
Credit analytics ratios are instruments that assist the process of credit analysis. These
ratios help analysts and investors determine if individuals or corporations can meet
financial obligations. Credit research has qualitative as well as quantitative dimensions to
it. Ratios deals with the quantitative aspect of the study. Main ratios can be divided into
approximately four groups: (1) profitability; (2) leverage; (3) coverage; (4) liquidity.

PROCESS OF CREDIT RATING USED IN THIS PROJECT

So, Credit Rating Companies have different criteria to rate a firm. In this project the
following method is applied.

 Companies are selected at random and their financial statements are used to find
out the ratios.
 Once the ratios are calculated the ratios are checked
i)Profitability Ratio – this ratio helps to know if the business is making profit, stability of
the company and their pricing power. Under this we have calculated three ratios
RATIOS Least Minimum Maximum
OPERATING PROFIT MARGIN 0 20 25+
EBIT MARGIN 0 13 15+

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NET PROFIT MARGIN 0 10 10+
So, company in between least to minimum is considered to be below average minimum to
maximum as average and above maximum to be good company
ii) Coverage Ratio- this ratio helps to know if the company is generating funds so that it
can pay the interests on the loans that it has taken.
RATIOS Least Minimum Maximum
Interest coverage ratio 0 1.5 2+
So, company in between least to minimum is considered to be below average minimum to
maximum as average and above maximum to be good company
iii)Stability Ratio- this ratio helps us to know how much debt is there in the company
with respect to equity.
RATIOS Least Minimum Maximum
Debt to equity ratio 0 8 15+
So, company in between least to minimum is considered to be good minimum to
maximum as average and above maximum to be under average company.
iv)Solvency Ratio – this ratio indicates whether the company has the ability to liquidate
the assets to pay-out its debt. Its divided into two namely,

RATIOS Least Minimum Maximum

Current Ratio 0 1.5 2+
Quick Ratio 0 1 1.5+
So, company in between least to minimum is considered to be below average minimum to
maximum as average and above maximum to be good company.
v)Turnover Ratio - this ratio helps us to know about the efficiency of the company.
Based on this its divided into-

Ratios Least Minimum Maximum

Inventory Turnover Ratio 0 1.5 5
Receivables Turnover Ratio 0 3 6
Total Asset Turnover Ratio 0 0.5 1+
Fixed Asset Turnover Ratio 0 1 1.5+
So, company in between least to minimum is considered to be below average minimum to
maximum as average and above maximum to be good company.
vi) Return Ratio – this ratio indicates whether the company is giving returns on the
equity invested on the firm. Its divided into-

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RATIOS Least Minimum Maximum
Current Ratio 0 15 25+
Quick Ratio 0 20 30+
So, company in between least to minimum is considered to be below average minimum to
maximum as average and above maximum to be good company.
Once the ratios are checked based on the above-mentioned criteria can be rated under
AAA, AA, A, BBB, BB, B, C & D. Where “AAA” is given to the best based on the ratio
to “D” which is assigned to a default company.

CHAPTER: 3
LIST OF COMPANIES RATED IN THIS PROJECT

NAME OF THE COMPANY: - VODAFONE IDEA LTD

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SECTOR: - TELECOMMUNICATION

Vodafone Idea is amongst the top three telecom service providers in India with pan India
operations. It is engaged in the business of Mobility and Long-Distance services. It has a
market capital of Rs 25574.5 Cr and placed 3rd in this sector after Jio and Bharti Airtel.
Vodafone has zero promoter pledge & is facing many problems in the recent times.

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RATING: - D

REASON: - The company is default as the debt is too high. The company is not in the position to
pay the interest on the loan that it has already taken. There is no return & also the net profit of the
company is Negative figure.

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NAME OF THE COMPANY: - RAIN INDUSTRIES LTD

SECTOR: - CEMENT (MAJOR)

Rain Industries majorly deals in cement but also deals in sale of products and providing
shared support services to its group companies. The market capital of Rain Industries is
Rs.2282.68CR & competes with 3M India, Adani Enterprises etc

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RATING: - BB
REMARKS: - Except for the debt to be high rest of the other factor are stable & are
performing consistently over the years .

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NAME OF THE COMPANY: - JSW STEEL LTD

SECTOR: - STEEL

JSW Steel is in the business of manufacture and sale of Iron and Steel Products with the
market capital of Rs.49976.03 CR and leads the sector.

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RATING: - BB
REMARKS: - Debt to equity ratio is too high. All the other ratios are neither too good or
bad and declining over the years.

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NAME OF THE COMPANY: - WIPRO LTD

SECTOR: - IT

Wipro Ltd is an India based provider of IT Services, including Business Process

Outsourcing (BPO) services, globally. Wipro also has other businesses such as IT
Products,
Consumer Care and Lighting and Infrastructure engineering. It has a market capital of
Rs.158290.7 Cr.

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RATING: - A

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REMARK: - The company is stable over the year & also the debt to equity ratio is
improving over the years.
NAME OF THE COMPANY: - TATA MOTORS LTD

SECTOR: - AUTOMOBILE

Tata Motors Ltd is India`s largest automobile company. They are the leader in commercial
vehicles in each segment, and among the top three in passenger vehicles with winning
products in the compact, midsize car and utility vehicle segments. The company is the
world`s fourth largest truck manufacturer, and the world`s second largest bus
manufacturer. The product range of the company includes Passenger Cars: Indica Vista,
Indica V2, Indica V2 Turbo, Indica V2 Xeta, Indica V2 Dicor. Indigo XL, Indigo, Indigo
Marina Indigo CS. Nano. Fiat Cars. Utility Vehicles. Safari Décor. Sumo Grande. Sumo.
Xenon XT. Trucks: Medium & Heavy Comm. Vehicles, Tata Novus. Intermediate Comm.
Vehicles. Light Commercial Vehicles, TL 44, Small Commercial Vehicles. Commercial
Passenger Carriers: Buses. Winger. Magic. Defence Vehicles. The company has a market
capitalization of Rs.32681.34 Cr.

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RATING: - C
REMARK: - The company is not providing return & profit. It seems to be on the verge of
defaulting.

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NAME OF THE COMPANY: - ZEE ENTERTAINMENT LTD.

SECTOR: - ENTERTAINMENT

Zee Entertainment Enterprises is mainly in the following businesses: Broadcasting of

Satellite Television Channels, Space Selling agent for other satellite television channels,
and Sale of Media Content i.e. programs / film rights / feeds /music rights. The company
has a market capital of Rs.15118.34 CR.

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RATING: -BBB
REMARKS: - The ratios of the company over the years are slowly decreasing making it
unstable. The debt has also increased.

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NAME OF THE COMPANY: - DABUR INDIA LTD

SECTOR: - FMCG

Dabur India is one of the largest and oldest Ayurvedic and natural health care. The market
capital of Dabur is Rs.86735.8 CR. It is one of the largest fast-moving consumer goods
companies in India.

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RATING: -AA

REMARK: - The company looks to be stable the ratios have been constant over the years
but still there is debt to equity ratio is around 2. For a company to be rated AAA one
should have debt to equity ratio as of ITC near to 0.

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NAME OF THE COMPANY: - FORTIS HEALTHCARE LTD

SECTOR: - HEALTHCARE

Fortis Healthcare as part of its hospital activities, holds interests in its subsidiaries which
includes the Company’s interest in its associates and joint ventures through which it
manages and operates a network of multi-specialty hospitals and diagnostic centers.
Market Capital of Fortis Healthcare is Rs.9704.99 Cr.

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RESULT: - B

REMARK: - The company has very low return and profitability such companies can slip
to C grade & end up defaulting.

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NAME OF THE COMPANY: - SUZLON ENERGY LTD

SECTOR: - POWER (GENERATION & DISTRIBUTION)

Suzlon Energy is primarily engaged in the business of manufacturing of wind turbine

generators ('WTGs') and related components of various capacities. Market Capital of this
company is Rs.3471 CR.

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RESULT: - D

REMARK: - The company is making no profit & interest coverage ratio is also negative.

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 CONCLUSION

This project offers a viewpoint on the value added for issuers, creditors and CRA (credit
rating) shareholders through rating agencies. This also provides an insight into the
obstacles faced, before sharing some final thoughts. A CRA will ensure that it has
adequate resources and devotes them to perform high-quality credit evaluations on all
commitments and rates issuers. When determining whether to rate or continue rating an
obligation or issuer, it will determine if it is capable of dedicating sufficient staff with
sufficient skill sets to perform a proper rating assessment, and whether its staff would
likely have access to sufficient information required for such an assessment. A CRA
should take appropriate steps to ensure that the information used in allocating a rating is of
sufficient quality to support a reliable rating.

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REFERENCE & BIBILOGRAPHY

 Screener

https://www.screener.in/company/IDEA/consolidated/

https://www.screener.in/company/RAIN/consolidated/

https://www.screener.in/company/WIPRO/consolidated/

https://www.screener.in/company/JSWSTEEL/consolidated/

https://www.screener.in/company/DABUR/consolidated/

https://www.screener.in/company/ZEEL/consolidated/

https://www.screener.in/company/FORTIS/consolidated/

https://www.screener.in/company/TATAMOTORS/consolidated/

https://www.screener.in/company/SUZLON/consolidated/
 Money control.
https://www.moneycontrol.com/india/stockpricequote/telecommunications-
service/vodafoneidealimited/IC8#sec_finanl
https://www.moneycontrol.com/india/stockpricequote/cement-
major/rainindustries/RC12
https://www.moneycontrol.com/india/stockpricequote/steel-
large/jswsteel/JSW01
http://www.moneycontrol.com/stocks/cptmarket/compsearchnew.php?search_data=&cid=
&mbsearch_str=&topsearch_type=1&search_str=TATA+MOTORS
https://www.moneycontrol.com/india/stockpricequote/computers-
software/wipro/W
https://www.moneycontrol.com/india/stockpricequote/personal-
care/daburindia/DI
https://www.moneycontrol.com/india/stockpricequote/mediaentertainment/zeeentertainm
ntenterprises/ZEE
https://www.moneycontrol.com/india/stockpricequote/hospitalsmedical-

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 services/fortishealthcare/FH
https://www.moneycontrol.com/india/stockpricequote/power-
generationdistribution/suzlonenergy/SE17
 Official website of the companies
 Finshiksha

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