Ashok Leyland on Wednesday (25 March) informed that CARE Ratings revised outlook to negative from stable on the company's long/short term bank facilities worth Rs 3700 crore while reaffirming the rating at 'CARE AA+/ CARE A1+'.
Shares of Ashok Leyland fell 4.07% to Rs 34.20, extending losses for fifth day. The stock has fallen 46.85% in the past five sessions from a recent closing high of Rs 64.35 recorded on 18 March 2020.
Further, the ratings agency had assigned rating of CARE AA+ with negative outlook on the long term bank facilities - term loan of the company while reaffirming the ratings on the commercial paper (standalone) worth Rs 2000 crore at CARE A1+.
The ratings assigned to bank facilities and various debt instruments continue to draw strength from Ashok Leyland (ALL) being part of the Hinduja Group, ALL's long track record of operations with strong brand image & wide distribution network with pan-India presence, its strong market position in the domestic M&HCV(Medium & Heavy Commercial Vehicles) segment, its presence in all sub-segments of the CV(Commercial Vehicles) segment, improving market share of LCV(Light Commercial Vehicles) segment and continuation of comfortable leverage levels notwithstanding the increase in debt levels during 9mFY20 (refers to period from April 01 to December 31) to fund the capex.
The ratings continue to be tempered by moderate diversification of revenue stream with M&HCV segment accounting for significant portion of income and inherent risk associated with cyclical nature of the segment, ALL's exposure to group entities and increasing competition in the industry.
It added that improvement in level of diversification in revenue stream along with geographical diversification across vehicle segments could be positive for the company's ratings. However, continuation of negative growth in the sales volume beyond Q2FY21 and deterioration of capital structure on a sustained basis could negatively impact ALL's ratings.
The revision in outlook from stable to negative is on account of unfavourable CV (commercial vehicles) industry scenario. The moderation in the sales volume which started in May 2019 continued till February 2020. Due to various factors including slowdown in GDP growth, changes in axle load norms resulting in increase in capacity of existing vehicles, proposed transition from BS 4 to BS 6 and expected increase in prices of BS 6 models, sales volume growth for the industry is expected to remain muted in Q4FY20 and Q1FY21.
The outlook may be revised to stable if the sales volume growth shows meaningful positive growth for a period of six months, the ratings agency said in a statement.
On Saturday (21 March), Ashok Leyland said its board has decided to acquire a 6.99% stake in Hinduja Leyland Finance (HLFL) as against its original plan to acquire 19%. The decision was taken after considering the feedback on the proposal from minority stakeholders.
Ashok Leyland, flagship of the Hinduja group, is amongst the largest manufacturer of commercial vehicles in India and also amongst the biggest manufacturers of buses and trucks globally.
On a consolidated basis, the company's net profit slumped 93.3% to Rs 26.79 crore on a 30.5% fall in net sales to Rs 5148.15 crore in Q3 December 2019 over Q3 December 2018.
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