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February 7, 2001
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Money > Stocks > Market Impact > Report February 7, 2001 |
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S&P downgrade to send Telco scrip on a slideNetScribes/Mahesh Shetty Analysts say car and truck maker Telco could see its scrip face a further downside following its recent downgrade by Standard & Poor's (S&P). In fact, the scrip could go down further in coming trading sessions, they say. On Wednesday, the Telco scrip closed at Rs 92.50 on the Bombay Stock Exchange, up marginally from its previous close of Rs 92.40 with a total of 1.67 million shares traded. S&P's downgrade from BB+ to BB comes from its perception of volatility in commercial vehicle (CV) demand and increased competition in the company's other business, B-segment passenger cars. Another rating agency, Moody's has also put the company under review for a possible downgrade. Meanwhile, Indian rating watchdog Crisil downgraded the company's Rs 1.77-billion non-convertible debenture from AA+ to AA. "The company's unfortunate luck with the Indica as well as its defensive stand in the CV market (against rival Ashok Leyland) is driving a downgrade like that," said an analyst at a Bombay-based brokerage house. "I'm sure Telco's not going to like the timing of this downgrade. They are working on the forthcoming rights issue and this (re-rating) is not going to help," he added. "Diesel prices are only rising and tough emission regulations are pushing up costs; there is a lot of pressure on margins. Telco's commercial vehicle volumes better start picking up soon," said an analyst at a leading Dutch investment bank in Bombay. Telco recently offered to replace more than 40 critical parts on all Indicas sold, which is between 90,000 and 100,000. All of those are not expected to turn up, but analysts said even 50 per cent asking for those replacements is a big bill. Estimates of the total cost of the recall range between Rs 450 million and Rs 900 million. Then there's the damage to the brand. For the third quarter ended December 2000, Telco reported a 100 per cent rise in losses to Rs 1.21 billion, while sales fell more than 25 per cent to Rs 17.62 billion.
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