labels: ford india, crisil, finance - general, investment - general
Ford India on CRISIL''s rating watch, following S&P''s revision of US parentnews
07 May 2005


CRISIL has placed the outstanding 'P1+' rating on the short-term debt programme of Ford India Private Limited (Ford India) on 'Rating Watch with Developing Implications'. The rating action follows Standard and Poor's (S&P) revision of its US parent, Ford Motor Company's (FMC) outstanding rating to 'BB+/Negative/B-1' from 'BBB-/Negative/A-3'. The outstanding rating on Ford India's short-term debt programme factors the financial, product and managerial support that Ford India receives from its parent.

The revision in FMC's rating to 'BB+/Negative/B-1' is due to S&P's "scepticism about whether, FMC's management strategies would be sufficient to contract mounting competitive challenges". S&P's concerns stem from the fact that FMC faces the prospect that its overall sport utility vehicle (SUV) business will not be able to generate the profitability it has enjoyed historically.

FMC's financial performance has been heavily dependent on the earnings of its SUVs. Recently, though, sales of its midsize and large SUVs have plummeted. Industry-wide demand for SUVs has evidently stalled, partly because of persistent high gasoline prices. In addition, competition has intensified due to a proliferation of new SUVs.

CRISIL is in dialogue with FMC to understand the implications, if any, post S&P's rating action on Ford India's operations and would announce the eventual rating after reviewing the implications.

FMC is the second-largest automotive company in the world with a strong presence in the North American and European markets. In 2004, it reported a net profit of US $3.50 billion as against a net profit of US $0.50 billion in 2003. Ford India currently manufactures the Ford Ikon, Ford Endeavour and Ford Fusion for the domestic market and Ford Ikon kits for the export market. It also sells the Ford Mondeo in the domestic market.

Ford Credit Kotak Mahindra unaffected
CRISIL's ratings on Ford Credit Kotak Mahindra Limited (Ford Credit) are not impacted by Standard and Poor's (S&P) downgrade of Ford Motor Company's (FMC) and Ford Motor Credit Company's (FMCC) corporate credit ratings (both companies being now rated BB+/Negative/B-1 vis-à-vis BBB-/Negative/A-3 earlier).

Ford Credit's current CRISIL ratings do not derive any uplift from S&P's ratings on FMC and FMCC. CRISIL's ratings on Ford Credit continue to reflect its healthy asset quality, good resources position and strong financial profile. Adequate capital levels and conservative asset-liability management characterize Ford Credit's strong financial profile. Ford Credit's standalone credit profile however benefits from the ongoing inputs from FMC and FMCC in terms of management and systems and preferred financier status for Ford dealers in India.

CRISIL's ratings on Ford Credit also reflect the limited diversity in the product portfolio of Ford Credit and its small addressable market. Ford India Limited's ability to widen its product portfolio and capture a higher share of the Indian automobile market and Ford Credit's capacity to increase its penetration levels within Ford India Limited's operations would benefit its business position going forward.

S&P's downgrade to non-investment-grade reflects its scepticism about whether management's strategies will be sufficient to counteract mounting competitive challenges. Of greatest immediate concern to S&P is that FMC faces the prospect that its overall sport utility vehicle (SUV) business will not be able to generate the profitability it has enjoyed historically. FMC's financial performance has been heavily dependent on the earnings of its SUVs.

Outlook: The competitive dynamics in the car finance industry are expected to put pressure on the Ford Credit's profitability. Nevertheless, CRISIL's believes that adequate spreads will be maintained by Ford Credit given its close relationship with Ford India Limited and the expected enhancements in the latter's product portfolio.

About the company: Ford Credit is in the business of car financing, and finances vehicles manufactured by Ford India Limited. It also extends financial support to the dealers of Ford India Limited. Ford Credit International Inc. (a 100 per cent subsidiary of FMCC) owns 55 per cent of Ford Credit while Kotak Mahindra Bank Limited and Mahindra and Mahindra Limited own 35 per cent and 10 per cent respectively. Ford Credit reported a total profit after tax of Rs.78.9 million for FY2004-05 (Rs.71.9 million in the previous year). The company had total receivables under auto finance of Rs.4.95 billion as at March 31, 2005 (Rs.4.23 billion a year back).


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Ford India on CRISIL''s rating watch, following S&P''s revision of US parent