Fitch downgrades outlook on Ashok Leyland rating to negative

Fitch Rating today revised the outlook on Ashok Leyland Ltd’s (ALL) issuer rating from stable to negative due to the current slowdown in the medium and heavy commercial vehicles industry. It, however, affirmed the rating “AA (Ind)”.

Hinduja group company’s debt level is also expected to increase due to substantial size and scale of capital expenditure plans over a period of three years (2008-09-2010-11). The company plans to spend around Rs 3,700 crore in expanding its manufacturing capacity from 84,000 vehicles per annum to 184,000 vehicles.

Any significant increase in financial leverage will likely impact the rating, especially if the slowdown persists. The Outlook revision also reflects the expected deterioration, over the short term, in the company's margins in light of firm input prices.

However, Fitch notes that ALL has been undertaking de-risking initiatives and 33 per cent of its revenues in FY08 came from passenger buses, engines, defence sales, spare parts sales and exports.
 
The financial risks are partly offset by the company's financial flexibility which reduces refinancing risks. However once the new capacities and investments start generating returns, the agency expects ALL's debt metrics to show improvements, Fitch said.