S & P Lowers Tata Engg Despite Sales Recovery

Even as Tata Engineering is showing signs of recovery due to an improvement in medium & heavy commercial vehicle (M&HCV) sales, it has been dealt a blow today by rating agency Standard & Poor (S&P), which downgraded the company's credit rating by a notch to 'BB minus' from BB.

S&P has removed Tata Engineering from the credit watch where it was placed earlier this fiscal, and has termed the rating outlook for the company as 'negative'.

S&P's (BB minus) rating stands for "less vulnerable" in the near term than other lower rated obligators. Its BB credit rating is awarded to companies "facing major ongoing uncertainties and exposure to adverse business, financial or economic conditions which could lead to the obligator's (Tata Engineering's, in this case) inadequate capacity to meet financial commitments".

In a release, S&P attributed the lowered rating to the "extremely weak operational profitability arising from the persistent weak demand in the Indian commercial vehicles market, sub optimal asset utilisation in the company's small car business, and strong competition from domestic manufacturers".

Craig Parker, director (corporate & infrastructure ratings) of S&P said, "The nine month financial results for fiscal 2002 indicate that the company has improved operating margins to 7.7 per cent from 5.6 per cent in the corresponding period."

"However, these financial performance indicators remain subpar, and the slower-than-anticipated increase in total unit sales to December 2001 indicate the continued financial stress experienced by the company," he said.

Praveen Kadle, executive director (corporate affairs) of Tata Engineering, said, "We have no programme for borrowing in the near future. We are currently repaying and pre-paying our high-cost debts. We do not foresee any impact due to S&P's downgrade."

In its third quarter results this fiscal, the company reported losses of Rs 55.54 crore, down from Rs 121.44 crore in the same period last year.

S&P said its rating factors in the restoration of profitability of the company's business operations through its ongoing cost reduction efforts, separation of manufacturing operations, continued financial flexibility by the Tata group and the Indian banking system.