Moody's downgrades L&T's outlook to negative

Global rating agency Moody's today said rating of engineering firm Larsen & Toubro (L&T) could be downgraded in future due to increase in debt.     

The rating agency has changed the outlook on Larsen & Toubro's Baa2 issuer rating, which reflects moderate credit risk, to negative from stable.   

"The change in outlook reflects the increase in L&T's consolidated debt, which is higher than our previous expectations as a result of the company's rapid growth plans," Moody's Investors Service said in a release.     

It added that this increase in debt is evident at L&T's standalone level because of its large capital expansion programme as well as at its infrastructure development and finance subsidiaries.     

 

The rating could experience downward pressure if L&T's consolidated financial profile does not improve, it said.    

"In addition, continued strong growth in the infrastructure development and finance businesses is likely to lead to a downgrade, absent further equity injections on a consolidated basis," Moody's said.     

L&T's consolidated debt has increased from Rs 6,430 crore to Rs 18,400 crore over the last two years.     

It, however, said, despite the economic slowdown, L&T's core construction business has done well and is likely to maintain strong cash flow generation capacity, supported by a healthy order book with around 2 years of revenue.