Fitch upgrades Ashok Leyland's rating outlook to 'stable'

Global ratings agency Fitch has upgraded the outlook of the Hinduja group auto firm Ashok Leyland to 'stable' from 'negative' on the back of the firm's improved performance in the domestic market.

Fitch has also reaffirmed Ashok Leyland's national long-term rating at 'AA-(ind)'-- which signifies 'expectations of very low default risk relative to other issuers' -- as also the company's Rs 75 crore long-term debenture programme.

"Fitch Ratings has revised the outlook on India's Ashok Leyland to stable from negative while affirming its national long-term rating at 'AA-(ind)'...The revision in outlook is underpinned by the significant improvement in Ashok Leyland's domestic sales volumes...," Fitch said.

Ashok Leyland's domestic sales in the medium and heavy commercial vehicles (M&HCV) segment went up by 22 per cent in 2009-10 to 57,139 units.

During the first quarter of the current fiscal, the company has registered domestic sale of 19,243 units.

"Ashok Leyland's EBITDA margins were 10.5 per cent in FY10 as against 7.8 per cent in FY09, and this looks sustainable due to stabilisation of material prices, an increase in pricing power for heavy CVs and fiscal benefits from its newly established plant in Uttarakhand," Fitch said.

The ratings firm said the auto maker's sound management of its working capital after the global economic recession in 2008-09, when it had to reduce its inventory by cutting down production, has paid off well.

"Since then, production has been normal with lower inventory and lower receivables...," it said.

Ashok Leyland had reported a net revenue of Rs 7,240 crore in 2009-10 and a net income of Rs 420 crore. During the first quarter of this fiscal, its revenue was Rs 2,350 crore and it had a net income of Rs 120 crore.

Fitch, however, said some concerns remain regarding the company like its under-utilisation of capacity and high material and labour costs and entry of larger domestic and multinational players in the M&HCV segment.

"To counter competition, Ashok Leyland is working on various product innovations like the 'U' truck, which is a modular platform for building customised vehicles," it added.