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India rating agencies raise TELCO's long-term debt

BOMBAY, Feb 26 (Reuters) - Indian rating agencies CRISIL and ICRA Ltd said on Wednesday they had upgraded Tata Engineering and Locomotive Company Ltd's (TELCO) long-term debt rating on the back of strong growth in sales volumes and cost savings.

The Credit Rating and Information Services of India Ltd (CRISIL) raised TELCO's debt to 'AA' from 'AA-', while ICRA raised it to 'LAA' from 'LAA-', both representing an upgrade within the 'high safety' grade.

The company is breaking even at lower volumes in its business categories as a result of a large reduction in working capital and an improvement in efficiency and productivity, the agencies said in separate statements.

Consequently, the company will achieve a significant reduction in costs in the current fiscal year to March, they said.

TELCO is part of the Tata group, India's second-largest conglomerate by sales. It is the country's largest truck and bus maker.

The company, which posted a profit for October-December for the fourth straight quarter, had lost money in the preceding seven quarters mainly due to a cyclical decline in its mainline truck business and an investment of 17 billion rupees in developing a new car called the Indica.

The Indica failed to lure enough buyers after its 1999 launch, but in 2001 TELCO rolled out an improved version, causing car sales to surge. Volumes in the car division have been further boosted by robust sales of the company's recently launched sedan the Tata Indigo.

CRISIL said that the company's credit risks included its ability to sustain its lean working capital structure, to achieve its targeted sales volumes, to stick to its two-year capital expenditure plan and to improve the current break-even levels in its businesses.

ICRA said it expected the company to incur significant capital expenditure to meet its product development requirements in the next four to five years, although cash generation from its truck, bus, utility vehicle and car businesses is expected to be adequate to meet these requirements.