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Monday, Jan 28, 2002

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ICRA takes Maruti off rating list

Anand Krishnamoorthy

NEW DELHI, Jan. 27

CREDIT rating agency ICRA Ltd has taken Maruti Udyog Ltd off any rating review after the top car manufacturer staged a turnaround and made profits in the first half of the current financial year, an ICRA official said.

"The company has returned to profitability. Its cash flow has improved and despite a declining (passenger car) market, Maruti's sales has improved considerably,'' the official told Business Line. "Also Maruti has been able to retain its market share, which is a creditable achievement.''

In November, ICRA began an annual routine surveillance of the Maruti ratings. ICRA has an `LAAA' (read as L triple A) rating on Maruti's long term debt and `A1+' (read A one plus) rating on the company's short term debt.

Both ratings are the highest possible ratings for the debt instruments and represent highest safety. As part of the surveillance, ICRA was paying attention to the company turning a loss maker in financial year 2000-01. Also the company's debt position was weakening due to rising market borrowing.

Maruti's market borrowing reached an all-time high of Rs 1,112.1 crore in the 2000-01 financial year, more than double the figure of Rs 546.1 crore in the previous year, as the company heavily invested in new models and capacity expansion.

This consisted of Rs 439.9 crore of long-term borrowing and Rs 672.2 crore of short term borrowing, all of which contributed to making the joint venture company a loss-maker for the first time, according to the annual report of the company.

However, aggressive cost cutting and improvement in sales has helped Maruti, a joint venture between the Indian Government and Japan's Suzuki Motor Corp, turn around this financial year. Maruti made a net profit of Rs 30 crore in April-September of 2001-02 as against a net loss of Rs 104 crore in the same six months of the previous financial year.

In 2000-01 (April-March), the company made a net loss of Rs 269.4 crore. Incidentally, officials of Suzuki Motor Corp would hold negotiations with the government from Monday regarding the government decision to divest its stake in the company.

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