Ford India on CRISIL''s rating watch, following S&P''s revision of US parent
07 May 2005
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.
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.