With recovery in commercial vehicle (CV) sales and improving earnings, expect credit profile of CV OEMs to also remain stable in the near to medium term on back of higher internal cash flow generation and relatively limited capital expenditure requirements, says rating agency firm ICRA.

Although OEMs would continue to invest in developing new advanced trucking platforms, engines and other technologies, investments in new capacity expansion are expected to be negligible given the low (50-55%) capacity utilization levels at present, it adds.

The credit profile of OEMs in the CV space differs sharply with some of the OEMs having sizeable debt, while others maintaining lean balance sheets, states ICRA.

For instance, while Tata Motors has sizeable debt (at a standalone entity level), its credit profile continues to derive benefit from its holdings in Jaguar Land Rover (JLR), its strong refinancing capabilities and position within the Tata group.

On the other hand, Ashok Leyland too has initiated steps to reduce its debt burden by raising cash from equity dilution, divestment of non-core investments and scaling back capital expenditure plans.

While this has resulted in considerable improvement in its standalone credit metrics, its consolidated profile is influenced by investments in certain businesses (i.e. LCVs, Construction Equipment etc.), which are yet to stabilize.

The other two major OEMs- VE Commercial Vehicles(VECV) and SML Isuzu continue to maintain strong credit profile on back of staggered investments and healthy cash reserves.