Mumbai: Crisil has reaffirmed the AA-plus rating assigned to 14 different non-convertible debenture issues of Larsen & Toubro (L&T) amounting to Rs 2,478 crore.

Crisil has also reaffirmed the FAAA rating assigned to the fixed deposit programme of the company and the P1-plus rating assigned to the Rs 850-crore commercial paper programme.

The ratings reflected the management’s concerted efforts to reduce L&T’s debt levels and the corresponding improvement in its key debt protection ratios, says a Crisil statement. This offsets, to some extent, the profitability pressures predicted by adverse business conditions.

“While L&T continues to retain its business strengths in its construction and cement businesses, the subdued investment climate and heightened competition in the construction sector, coupled with a demand-supply imbalance and volatile realisations in the cement business, have resulted in a decline in the company’s operating margins in the last few years,” Crisil says.

In Crisil’s opinion, the company’s focus on equipment exports, where L&T is establishing itself, and the current supply overhang in key cement markets are likely to constrain any improvement in profitability.

The company has adopted various measures to improve profitability, such as cost reduction initiatives, tightening its working capital, reducing manpower and rationalising capital expenditure, which are positively factored into the rating.

The ratings take cognisance of Grasim Industries’ recent acquisition of a 12.89-per cent stake in L&T. In Crisil’s view, this move is expected to provide greater bargaining strength to the cement business of both companies, besides providing greater synergies in the areas of procurement and logistics.

The ratings do not assume any major change in L&T’s management policies in the light of this acquisition. Should there be any development on this front, Crisil says it would duly factor in the impact of the same on L&T’s credit profile.