AI assistant
Ashok Leyland Ltd. — Audit Report / Information 2020
Mar 25, 2020
60668_rns_2020-03-25_c04b7bc5-4ee6-4489-94c7-427d4d2f8e38.pdf
Audit Report / Information
Open in viewerOpens in your device viewer
March 25, 2020
==> picture [242 x 65] intentionally omitted <==
National Stock Exchange of India Limited BSE Limited Exchange Plaza Phiroze Jeejeebhoy Towers C-1, Block G, Bandra Kurla Complex Dalal Street Bandra (E), Mumbai - 400 051 Mumbai - 400 001 Scrip Code : ASHOKLEY Stock Symbol : 500477
Through : NEAPS Through: BSE Listing Centre
Dear Sirs/Madam,
Sub: Intimation under Regulation 30 (4) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 - Credit Rating
Pursuant to Regulation 30 (4) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 please find below the details of the revision in Credit Rating for the Company:
| Name of the agency |
Instrument | Amount **(Rs. crore) ** |
Rating Action |
|---|---|---|---|
| ICRA Limited | Long-term: Fund-based working capital limits |
2,000.00 | [ICRA]AA (negative); downgraded from [ICRA]AA+; outlook revised from stable |
| Long-term: Term loans | 500.00 | [ICRA]AA(negative);assigned | |
| Short-term: Non-fund-based limits | 1,200.00 | [ICRA]A1+;Reaffirmed | |
| Long-term: Non-convertible debenture |
600.0 | [ICRA]AA (negative); assigned | |
| Short-term: Commercialpaper | 2,000.00 | [ICRA]A1+;Reaffirmed | |
| Total | 6,300.00 |
A copy of the report from the credit rating agency covering the rationale for revision in credit rating is enclosed for your information.
Yours faithfully, for ASHOK LEYLAND LIMITED
==> picture [103 x 34] intentionally omitted <==
N Ramanathan Company Secretary Encl.: a/a
==> picture [596 x 92] intentionally omitted <==
==> picture [493 x 74] intentionally omitted <==
March 25, 2020
Ashok Leyland Limited: Long-term rating downgraded to [ICRA]AA (negative); short-term rating reaffirmed at [ICRA]A1+
Summary of rating action
| Instrument* | Previous Rated Amount (Rs. crore) |
Current Rated Amount (Rs. crore) |
Rating Action |
|---|---|---|---|
| Long-term: Fund-based working capital limits |
900.00 | 2,000.00 | [ICRA]AA (negative); downgraded from [ICRA]AA+; outlook revised from stable |
| Long-term: Term loans | - | 500.00 | [ICRA]AA (negative); assigned |
| Short-term: Non-fund based limits | 750.00 | 1,200.00 | [ICRA]A1+; Reaffirmed |
| Short-term: Unallocated | 255.00 | - | - |
| Long-term: Non-convertible debenture |
- | 600.0 | [ICRA]AA (negative); assigned |
| Short-term: Commercial paper | 2,000.00 | 2,000.00 | [ICRA]A1+; Reaffirmed |
| Total | 3,905.00 | 6,300.00 |
*Instrument details are provided in Annexure-1
Rationale
The rating action considers the expected deterioration in Ashok Leyland Limited’s (ALL) financial risk profile over the medium term with the longer than expected slowdown in domestic commercial vehicle (CV) industry and ALL’s increasing investment outlay in group entities. Demand sentiments remain weak amidst factors like slowing economic growth, surplus capacity, likely impact of COVID-19 on end user industries etc. This coupled with the higher than expected increase in debtfunded investments in group entities {including ~Rs. 390 crore in NBFC-arm, Hinduja Leyland Finance Limited (HLFL)} is likely to impact ALL’s debt coverage indicators over the next three to four quarters.
ALL’s dependence on the medium and heavy commercial vehicle (M&HCV) industry continues to be high despite some successful attempts at de-risking into light commercial vehicles (LCV). ALL’s sales volumes declined by 39% in the M&HCV segment and 6% in the LCV segment during 11m FY2020. To minimise the impact, the company has taken various cost control and stock correction measures, which supported by healthy financial flexibility with lenders is likely to mitigate the impact to an extent. The ratings remain tempered by vulnerability of ALL’s earnings to the inherent cyclicality in the CV industry, stiff competition in the industry, and subdued performance of few subsidiaries and group entities, necessitating continuous funding requirement. The ratings also consider ALL’s position as second largest player in the domestic M&HCV segment, its long operational track record, experienced management team, strong brand recall, product and technological capability and well-diversified network. The ratings also favourably consider ALL’s comfortable capital structure and strong liquidity position supported by healthy growth in revenues and earnings over the last three years (ending FY2019).
Key rating drivers and their description
Credit strengths
Strong operational profile - ALL, by virtue of its long-standing presence, diversified product portfolio, strong brand recall, well-diversified network presence, product and technological capability and its products finding application across key end-user industries, is a dominant player in the domestic M&HCV industry with a market share of 34% in FY2019. ALL’s market share declined to 32% in 11M FY2020 amidst intense competition. Over the last one decade, ALL has transformed from a South-centric to a pan-India player and holds a strong market share in most of the geographies that it operates in. Aggressive network expansion in non-south markets, strong brand outreach, new product launches, increased acceptance
==> picture [493 x 21] intentionally omitted <==
1
==> picture [493 x 74] intentionally omitted <==
of its engines and technology, and strong servicing capabilities aided its market share gains. With the current transition to new emission norms (BS-VI) with effect from April 1, 2020 and its focus on new modular platform wherein it would work on a made-to-order production system, ALL expects to improve the market share with launch of more variants (in M&HCV, LCV and export segments), although vehicle pricing will be a key monitorable.
Comfortable credit metrics - ALL’s performance in the last three years (ending FY2019) was strong, supported by healthy demand from core industries, pickup in construction activities as well as pent-up demand post transition to Goods and Service Tax (GST). This coupled with turnaround in its key investee companies (especially the LCV-related subsidiaries[1] ) supported the improvement in ALL’s credit profile. ALL’s financial profile is characterised by comfortable capital structure and strong liquidity position supported by healthy growth in revenues and earnings in the last three years (ending FY2019). The standalone and consolidated gearing is estimated at 0.4x (standalone) and 0.6x (consolidated excluding NBFC related business) as of March 2020. The company’s liquidity position is supported by Rs. 1,700 crore of cash balances (as of January 2020) and sanctioned fund-based lines of Rs. 2,000 crore, on which the utilisation has been minimal.
Credit challenges
Vulnerability of earnings to the cyclicality and competition in CV industry - With over 85% of standalone revenues being derived from CV sales (in FY2019), ALL’s dependence on the inherently cyclical CV industry is high with close linkages of demand to economic development, industrial growth, investments in infrastructure and regulatory changes (emission norms, scrappage policy etc). CV demand has been sluggish in the last 18 months affected by slowing economic growth, revision in axle load norms, tightened lending environment and rise in operating costs impacting small fleet owners. ICRA expects the CV demand to remain subdued in FY2021. Also, the industry is characterised by intense competition with elevated pricing pressure from major players. ALL’s ability to maintain its market share and earnings profile and debt protection metrics will be key credit monitorable.
Around 88% and 91% of consolidated revenues and net profits respectively was derived from its standalone operations in FY2019. Due to the slowdown, ALL’s standalone revenues de-grew by ~32% while operating and net profits had declined by 54% and 78% respectively during the period Apr-Dec 2019. While the company has undertaken several cost control and stock corrective measures, the effect of lower revenues and higher dividend pay-out affected the cash accruals during 9M FY2020. During FY2020, the company paid out dividend of Rs. 1,093 crore and has declared an interim dividend of Rs. 0.5 per share in March 2020 (subject to approval of shareholders) taking the total pay-out to ~Rs. 1,270 crore. ALL has scaled down its standalone capital expenditure (capex) from Rs. 1,800 crore to ~Rs. 1,300 crore for FY2020; while the investment spend in its group entities is estimated at ~Rs. 600 crore (including ~Rs. 390 crore in NBFC-arm, HLFL). For FY2021, the cumulative spend on capex and investments is expected to be less than Rs. 700 crore.
Increased investment in group companies and subdued performance of key investee entities - Over the years, ALL has written off/closed several loss-making ventures and remains open to further pruning of investments, if required. While the funding support to the investee company have gradually reduced in recent years, the performance of few key investee entities remains subdued (especially Optare PLC and Ashok Leyland (UAE) LLC).
Breaking away from past trends, the company is increasing its stake in its NBFC arm during March 2020. Given the current market conditions, this investment is entirely debt funded. This coupled with subdued performance of key investee entities like (Optare PLC, Albonair GmBH, Ashok Leyland (UAE) LLC) will result in moderation of consolidated earnings and debt coverage indicators over the next few quarters. Nevertheless, some of these investments are aimed at strengthening technological capabilities and achieving business and geographical diversification. The ability of these investee entities to achieve self-sustenance and support the consolidated cash flows will remain critical credit monitorables.
1 Ashok Leyland Vehicles Limited, Ashley Powertrain Limited and Ashok Leyland Technologies Limited were merged with ALL in FY2019
==> picture [493 x 21] intentionally omitted <==
2
==> picture [493 x 74] intentionally omitted <==
Liquidity position: Strong
ALL’s liquidity is strong with cash and liquid investments of over Rs. 1,700 crore as of January 2020, and sanctioned fundbased lines of Rs. 2,000 crore, on which the utilisation has been minimal. The company primarily uses the low-cost commercial paper (Rs. 2,000 crore) for funding its working capital requirements. While the ongoing slowdown shall restrict the operational cashflows in near-term, the same is likely to improve over the medium term.
Rating sensitivities
Positive triggers: Negative outlook on the long-term rating currently restricts an upgrade in the rating. Sustained improvement in earnings, cashflows and debt coverage metrics supported by a faster than expected revival in demand shall support a favourable rating action.
Negative triggers: Downward pressure on the rating could arise with sharp deterioration in ALL’s financial profile affected by longer than expected recovery in demand scenario, high debt funded capital expenditure/investment in group companies or dividend payouts.
Analytical approach
| Analytical Approach Comments |
|---|
| Applicable Rating Methodologies Corporate Credit Rating Methodology Rating Methodology for Commercial Vehicle Industry |
| Parent/Group Support Not Applicable |
| For arriving at the ratings, ICRA has considered the consolidated financials of ALL, |
| Consolidation / Standalone excluding the NBFC-subsidiary - Hinduja Leyland Finance Limited (HLFL). However, the analysis considers the ongoing and future funding support likely to be |
| extended by ALL to HLFL. |
About the company
ALL is the second-largest manufacturer in the M&HCV segment in India. ALL is the flagship entity of the Hinduja Group. ALL’s key products include buses, trucks, engines, defence and special vehicles. It has manufacturing plants located in Ennore (Tamil Nadu), Hosur (Tamil Nadu), Alwar (Rajasthan), Bhandara (Maharashtra), and Pantnagar (Uttarakhand). In FY2019, ALL merged its wholly-owned LCV-related subsidiaries namely Ashok Leyland Vehicles Limited, Ashley Powertrain Limited and Ashok Leyland Technologies Limited with itself to have operational synergies and greater flexibility in decision making.
Key financial indicators (audited)
| Standalone | Standalone | Consolidated# | Consolidated# | |
|---|---|---|---|---|
| FY2018 | FY2019 | FY2018 | FY2019 | |
| Operating Income (Rs. crore) | 26,356.4 | 29,055.0 | 29,635.6 | 33,196.8 |
| PAT (Rs. crore) | 1,717.7 | 1,983.2 | 1,813.8 | 2,194.6 |
| OPBDIT/OI (%) | 11.2% | 10.8% | 14.3% | 14.8% |
| RoCE (%) | 30.8% | 30.9% | 17.4% | 16.8% |
| Total Outside Liabilities/Tangible Net Worth (times) | 1.4 | 1.2 | 3.0 | 3.0 |
| Total Debt/OPBDIT (times) | 0.4 | 0.2 | 3.7 | 3.9 |
| Interest Coverage (times) | 20.1 | 44.6 | 3.5 | 3.3 |
| DSCR | 2.6 | 4.2 | 1.0 | 0.9 |
Source: ALL, ICRA research; OPBDITA: Operating Profit before Depreciation, Interest and Taxes; PAT: Profit after Tax; RoCE: Return on Capital Employed #Consolidated includes NBFC; however, the NBFC numbers has been excluded for analysis purpose
==> picture [493 x 21] intentionally omitted <==
3
==> picture [493 x 74] intentionally omitted <==
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for past three years
| Instrument Current Rating (FY2020) Chronology of Rating History for the past 3 years Type Amount Rated (Rs. crore) Amount Outstand ing (Rs. crore) FY2020 FY2018 FY2017 March 2020 July 2019 April 2019 March 2018 Sep 2017 Jan 2017 |
Instrument Current Rating (FY2020) Chronology of Rating History for the past 3 years Type Amount Rated (Rs. crore) Amount Outstand ing (Rs. crore) FY2020 FY2018 FY2017 March 2020 July 2019 April 2019 March 2018 Sep 2017 Jan 2017 |
|---|---|
| 1 Commercial paper Short term 2,000 NA [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ |
|
| 2Non-convertible Debenture Long term 195.0 195.0 [ICRA]AA (negative) - Withdrawn[ICRA]AA (positive) [ICRA]AA (stable) [ICRA]AA (stable) |
|
| 3 Fund based limits Long term 2,000 NA [ICRA]AA (negative) [ICRA]AA+ (stable) [ICRA]AA+ (stable) [ICRA]AA (positive) [ICRA]AA (stable) [ICRA]AA (stable) |
|
| 4 Term loans Long term 500.0 500.0 [ICRA]AA (negative) - - [ICRA]AA (positive) [ICRA]AA (stable) [ICRA]AA (stable) |
|
| 5 Non- fundbased limits Short term 1,200 NA [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ |
|
| 6Fund based limits Short term 0.0 NA - - - [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ |
|
| 7 Unallocated Short term 0.0 NA - [ICRA]A1+ [ICRA]A1+ - - - |
Amount in Rs. crore
Complexity level of the rated instrument
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website click here
Annexure-1: Instrument details
| Date of | ||||||
|---|---|---|---|---|---|---|
| Issuance / | Coupon | Maturity |
Amount Rated | Current Rating and | ||
| ISIN No | Instrument Name | Sanction | Rate | Date | (Rs. crore) | Outlook |
| NA | Cash Credit/WCDL | - | - | - | 2,000.00 | [ICRA]AA (negative) |
| NA | Non-fund based | - | - | - | 1,200.00 | [ICRA]A1+ |
| NA | Commercial paper | - | ~6% | 7-365 days | 2,000.00 | [ICRA]A1+ |
| NA | Term loans | Sep 2020 | ~8% | FY2026 | 500.0 | [ICRA]AA (negative) |
| NA | NCD | NA | NA | NA | 600.00 | [ICRA]AA (negative) |
Source: ALL
==> picture [493 x 21] intentionally omitted <==
4
==> picture [493 x 74] intentionally omitted <==
Annexure-2: List of entities considered for consolidation (as of 31.03.2019)
| Company name | Ownership | Consolidation Approach |
|---|---|---|
| Subsidiaries | ||
| Global TVS Bus Body Builders Limited | 66.67% | Full consolidation |
| Gulf Ashley Motor Limited | 92.98% | Full consolidation |
| Optare Plc and its subsidiaries | 99.11% | Full consolidation |
| Ashok Leyland (Nigeria) Limited | 100.00% | Full consolidation |
| Ashok Leyland (Chile) SA | 100.00% | Full consolidation |
| HLF Services Limited | 82.38% | Full consolidation |
| Albonair (India) Private Limited | 100.00% | Full consolidation |
| Albonair GmbH and its subsidiary | 100.00% | Full consolidation |
| Ashok Leyland (UAE) LLC and its subsidiaries | 100.00% | Full consolidation |
| Ashley Aviation Limited | 100.00% | Full consolidation |
| Joint ventures | ||
| Ashley Alteams India Limited | 50.00% | Equity method |
| Hinduja Tech Limited | 62.00% | Equity method |
| Associates | ||
| Ashok Leyland Defence Systems Limited | 48.49% | Equity method |
| Mangalam Retail Services Limited | 37.48% | Equity method |
| Lanka Ashok Leyland Plc | 27.85% | Equity method |
Note - Ashok Leyland Vehicles Limited, Ashley Powertrain Limited and Ashok Leyland Technologies Limited (erstwhile subsidiaries) were merged with ALL in FY2019
==> picture [493 x 21] intentionally omitted <==
5
==> picture [493 x 74] intentionally omitted <==
Analyst Contacts
Subrata Ray
+91 22 6114 3408 [email protected]
Pavethra Ponniah
+91 44 4596 4314 [email protected]
Sri Kumar K
+91 44 4596 4318 [email protected]
Relationship Contact
L Shivakumar
+91 22 2433 1084 [email protected]
Media and Public Relations Contact
Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]
Helpline for business queries:
- 91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
==> picture [493 x 21] intentionally omitted <==
6
==> picture [493 x 74] intentionally omitted <==
About ICRA Limited
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
For more information, visit www.icra.in
ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002 Tel: +91 124 4545300 Email: [email protected] Website: www.icra.in
Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001 Tel: +91 11 23357940-50
Branches
Mumbai + (91 22) 24331046/53/62/74/86/87 Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294 Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008 Bangalore + (91 80) 2559 7401/4049 Ahmedabad+ (91 79) 2658 4924/5049/2008 Hyderabad + (91 40) 2373 5061/7251 Pune + (91 20) 020 6606 9999
© Copyright, 2020 ICRA Limited. All Rights Reserved.
Contents may be used freely with due acknowledgement to ICRA.
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.
==> picture [493 x 21] intentionally omitted <==
7