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ICRA improves rating on Escorts’ short term debt instruments

Escorts has been able to report a sustained healthy operational performance across business divisions, which has aided it in recording strong cash accruals, ICRA said in its report.Premium
Escorts has been able to report a sustained healthy operational performance across business divisions, which has aided it in recording strong cash accruals, ICRA said in its report.

  • Credit rating firm ICRA has withdrawn ‘A1 Plus’ rating assigned to tractor manufacturer, Escorts Ltd’s Commercial Paper Programme (CCP) and has improved the rating to ‘A one plus’ on the short-term debt instruments through which the company planned to raise 200 crore

Credit rating firm ICRA has withdrawn ‘A1 Plus’ rating assigned to tractor manufacturer, Escorts Ltd’s Commercial Paper Programme (CCP) and has improved the rating to ‘A one plus’ on the short-term debt instruments through which the company planned to raise 200 crore. The decision was taken considering the sound financial health of the company and adequate cash reserves in the balance sheet.

“The ratings outstanding for the company’s bank facilities continue to take into account favourably Escort’s healthy financial risk profile, with the company being nearly debt free, while having substantial unencumbered cash and liquid investments ( 2,580 crore as on September 30, 2021)," the rating agency said in a note.

It further added that over the past few years, Escorts has been able to report a sustained healthy operational performance across business divisions, which has aided it in recording strong cash accruals. A continuation of strong operational performance in the current fiscal, despite the adverse impact of the lockdowns following the spread of the Covid-19, coupled with the receipt of funds post the completion of the preferential issue, led to a further enhancement in the unencumbered cash and liquid investments.

“The company proposed to withdraw the rating as there is no amount outstanding against the rated instrument and since the company has adequate cash balances and investments on its books, the management does not envisage borrowing through the CP programme for the foreseeable future," Escorts said in a separate statement.

Ever since the unlocking of the economy began in May, sales of Escorts’ tractors surged due to robust recovery in rural economy due to good harvest and limited Covid cases. Hence, the company initially was not able to meet the demand since the supply chain was disrupted due to the lockdown measures.

“ICRA takes comfort from the strong recovery in farm sentiments post the relaxation of lockdown measures, which has led to robust growth in volumes for the agri-machinery division (drove 83% of revenues in 9M FY2021). Aided by an expectation of continuation of healthy farm sentiments led by a healthy rabi crop outlook, the agri-machinery division is likely to record a growth in revenues in the current fiscal," added ICRA in the note mentioned above.

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