ICRA has assigned A1+ rating to the Rs. 800 million non fund-based limits of VE Commercial Vehicles (VECV). ICRA has also assigned A1+ rating to the Rs. 1,200 million short-term debt/commercial paper programme of VECV. A1 is the highest credit quality rating assigned by ICRA to short-term debt instruments. The rated instrument carries lowest credit risk in the short term. Within this category, certain instruments are assigned the rating of A1+ to reflect their relatively stronger credit quality.
The rating favorably considers the partnership between AB Volvo, ranked No.2 in the global commercial vehicle (CV) market, and Eicher Motors Ltd., an established player in the medium commercial vehicle market in India.
ICRA expects VECV to benefit from the access to a global distribution network, strong technical skills and strong financial profile of AB Volvo, besides benefits of EML’s established brand image and products in the domestic CV market, widespread sales and distribution network in India and understanding of the Indian CV customers and dynamics related to the Indian road transportation industry.
The rating also derives comfort from the favorable cash position of the company on account of large funds infused by the foreign partner. The rating factors in the intensifying competition in the CV industry, sharp decline in the industry volumes, weak demand expectations over the short term and increased cost pressures.
However, the company’s strong financial risk profile characterized by the net cash position and low working capital requirements partially offsets the concerns. The rating also factors in relatively small contribution of revenues from engineering services that currently has weak profitability given it is still in gestation period, besides the small contribution from gears business that is currently operating at breakeven levels.
The rating favorably considers the partnership between AB Volvo, ranked No.2 in the global commercial vehicle (CV) market, and Eicher Motors Ltd., an established player in the medium commercial vehicle market in India.
ICRA expects VECV to benefit from the access to a global distribution network, strong technical skills and strong financial profile of AB Volvo, besides benefits of EML’s established brand image and products in the domestic CV market, widespread sales and distribution network in India and understanding of the Indian CV customers and dynamics related to the Indian road transportation industry.
The rating also derives comfort from the favorable cash position of the company on account of large funds infused by the foreign partner. The rating factors in the intensifying competition in the CV industry, sharp decline in the industry volumes, weak demand expectations over the short term and increased cost pressures.
However, the company’s strong financial risk profile characterized by the net cash position and low working capital requirements partially offsets the concerns. The rating also factors in relatively small contribution of revenues from engineering services that currently has weak profitability given it is still in gestation period, besides the small contribution from gears business that is currently operating at breakeven levels.
As per provisional results, VECV’s net sales stood at Rs. 9,850 million during the first six months ended December 2008 and profit after tax at Rs. 165.5 million.
