Crisil has, however, assigned P1+ ratings to both the companies' commercial paper (CP) issues. While Ashok Leyland plans to raise Rs 100 crore through CPs, Telco will raise Rs 600 crore. The double-A rating assigned to Ashok Leyland's fixed deposit (FD) programme has been reaffirmed.

In its outlook for the commercial vehicle industry, the rating agency has said that it expects the continuing cyclical slowdown to lead to mounting pressure on the business and financial performance of the major players and result in heightened credit risk profile for the industry.

The commercial vehicle industrycontinues to remain linked to the economy and accounts for over 60 per cent of the country's transportation needs. "Given this position and the capacity constraints faced by the railways, the long-term growth indicators for the industry are strong," Crisil has said in its report.

However, the haulage market, which accounts for around 75 per cent of commercial vehicle sales, having been impacted adversely by the prevailing industrial environment, the sales volumes of commercial vehicles have declined significantly during 1997-98 and this trend has been continuing during the current year. Crisil believes that a reversal of this trend and a sharp recovery in sales volumes in the immediate future is not very likely and the industry would continue to face a challenging business environment over the near to medium term.

Although Crisil does not expect the prevailing trend to be permanent, the declining volumes have clearly impacted the financial performance and the profitability in the industry, given its highcapital and fixed costs intensity. Also, the companies in the industry are characterised by a reasonably large size and scale of operations, moderately high leveraging and sufficiently strong financial flexibility to tide over the prevailing slowdown in business.

Crisil believes that the major players in the commercial vehicle industry would not face any serious threat to their existing business positions on account of the industry being characterised by strong entry barriers in terms of capital intensity of operations, sales and service network, strong brand equity and product familiarity and moderate level of competition.

In Crisil's expectation, credit protection measures in the commercial vehicle industry will remain below previously anticipated levels over the medium to intermediate term and could adversely impact the outstanding ratings in the industry.