Care downgrades Ashok Leyland's bank facilities, debentures to AA with negative outlook

Mumbai (Maharashtra) [India], May 7 : Care Ratings has downgraded Ashok Leyland's bank facilities totalling Rs 4,200 crore and debentures from AA-plus to AA with a negative outlook due to falling demand of commercial vehicles in the backdrop of coronavirus pandemic led economic slowdown.
Earlier, Care had revised the rating outlook assigned to bank facilities and instruments of Ashok Leyland on March 24 from stable to negative on account of unfavourable commercial vehicle industry scenario and muted growth expected in Q4 FY20 and Q1 FY21.
"The unprecedented nationwide lockdown is expected to adversely impact the economic growth rate. Amid the stressed ecosystem, recovery in demand for commercial vehicle industry can take longer than expected in turn resulting in moderation in profits for Ashok Leyland," said Care.
The rating also takes note of the impact of the pandemic on some subsidiaries of Ashok Leyland where funding support is expected to be extended in the near term.
In the near term, debt in relation to gross cash accruals is expected to increase on account of the increase in debt to fund its capex and subsidiaries. However, the company's liquidity remains comfortable with cash and liquid investments of Rs 1,279 crore as on March 31 and relatively low debt obligations in the near term.
Care said the ratings continue to draw strength from the company being part of the Hinduja Group, Ashok Leyland's long track record of operations with strong brand image and wide distribution network with pan-India presence.
Besides, it has a presence in all sub-segments of the commercial vehicles segment with strong market position in the domestic medium and heavy commercial vehicles segment, improved market share of light commercial vehicles segment and continuation of comfortable leverage levels.