Crisil has downgraded its ratings on debt instruments issued by vehicle manufacturers Tata Motors and Ashok Leyland.
Tata Motors' ratings have been downgraded to A/Stable/P1 from AA- /Stable/P1+, while Ashok Leyland has been downgraded to AA-/Negative from AA/Negative.
The re-assessment of the ratings was in the light of the "challenging operating environment in the commercial vehicle (CV) industry", Crisil said in a release.
According to the rating agency, the downturn in sales could intensify, which would result in a decline in the CV manufacturers’ cash accruals, combined with a high proportion of fixed costs in their cost structure, and thereby would pressure in the bottom line and credit quality.
“In the case of Tata Motors, the downgrade reflects the significant impact of the weakening business environment in the company’s global and Indian operations, and the resultant strain on its financial risk profile," the agency said.
"For Ashok Leyland, the rating downgrade reflects an increase in the company’s business and financial risk because of the expectation of continued weak demand for medium and heavy commercial vehicles, coupled with an increase in leverage on account of the ongoing debt-funded capital expenditure,” the release added.
