Mumbai, Aug. 31: Moody’s Investors Service has confirmed the Ba2 rating with a negative outlook of the senior unsecured debt of Tata Engineering and Locomotive Company Ltd (Telco).
Moody’s said that the confirmation reflects the significant progress that Telco had made in improving operating efficiencies and maintaining its dominant position in the domestic commercial vehicle sector.
However, the challenges that Telco would face include uncertain outlook for the intermediate term strength of the Indian economy, the considerable amount of capital investment that will be necessary to expand its position in the car market and the intensifying competitive environment it will face in the car sector.
According to Moody’s, a partnership with an established player in the car segment is essential to Telco’s long-term ability to preserve the economic value of the capital it is trying to build in this market.
However, the rating agency raised concern about the possibility of weakness in the Indian economy, which has further been heightened by the poor monsoon. “The disappointing level of rain could act as major drag on the agricultural economy and add to the government’s fiscal difficulties,” the agency noted.
A further risk is posed by the company’s exposure to the car sector. Despite Telco’s recent progress in the domestic car market, the sector also poses significant long-term risk for the company.