May 21, 2014
Mumbai
Mahindra Gears & Transmissions Private Limited
 
Rating remains on 'Watch Developing' 
 
Total Bank Loan Facilities Rated Rs.840 Million
Long Term Rating CRISIL A+ (Continues  to be on 'Rating Watch with Developing Implications')
(Refer to Annexure 1 for Facility-wise details)

CRISIL's rating on the long-term bank facilities of Mahindra Gears & Transmissions Pvt Ltd (MGTPL) remains on 'Rating Watch with Developing Implications'.
 
CRISIL had placed the rating on watch with developing implications on June 20, 2013, following the announcement made on June 15, 2013, by Mahindra & Mahindra Ltd (M&M, rated 'CRISIL AA+/Stable/CRISIL A1+') and CIE Automotive SA Spain (CIE) to form a new entity, Mahindra CIE Automotive Ltd (Mahindra CIE), with merging of M&M's automotive component businesses, referred to as Systech, and CIE's European forging business. The merged Systech entities would include Mahindra Investments (India) Pvt Ltd, the holding company of MGTPL, Mahindra Forgings Ltd (which was renamed Mahindra CIE Automotive Ltd in November 2013), Mahindra Ugine Steel Company Ltd, Mahindra Composites Ltd, Mahindra Hinoday Industries Ltd, and Mahindra Gears International Ltd; but exclude Systech's steel, engineering services, and aerospace businesses. The deal is expected to take place in three stages with MGTPL's merger with Mahindra CIE expected to be completed by August 2014. Post the merger, CIE could effectively have a majority stake of around 51 per cent in Mahindra CIE, while M&M could hold around 20 per cent; the remaining stake will be with institutional and public shareholders.
 
CRISIL is in discussions with the management of M&M and MGTPL to better understand the implications of this transaction and the financial and business plans of the new consolidated entity in order to assess the impact on the credit risk profile of MGTPL. CRISIL will remove the rating from watch and take a final rating action once it has clarity on these issues.
 
The rating reflects the strong financial and operational support that MGTPL receives from its ultimate parent, M&M, and other Mahindra group companies. The rating also factors in the company's moderate business risk profile, supported by improving revenue diversity. These rating strengths are partially offset by MGTPL's average operating efficiency, moderate pressure expected on its capital structure, and key debt protection metrics because of large and partly debt-funded capital expenditure plans under implementation, and its moderately working-capital-intensive operations.

About the Company

MGTPL is a part of the Mahindra group. The company manufactures automotive components, mainly automobile gears that are used for transmission, engine, and differential gear boxes. The company has two manufacturing units, one each in Rajkot (Gujarat) and Pune (Maharashtra), with a combined capacity of around 4.8 million gears per annum.

MGTPL was originally incorporated in 1987 as SAR Auto Products Pvt Ltd (SAPPL), promoted by Mr. Ramesh D Virani and family, for manufacturing automotive gears. In January 2005, M&M acquired 51 per cent of MGTPL's equity shares to form Mahindra SAR Transmission Pvt Ltd in a joint venture with SAPPL. Between 2007 and 2009, M&M gradually acquired the entire shareholding of the Virani family to become the sole owner of MGTPL. In 2009-10 (refers to financial year, April 1 to March 31), M&M divested 46.66 per cent of its equity ownership in MGTPL to ICICI Venture Funds. Since then, M&M has increased its stake in MGTPL through equity infusion to fund MGTPL's ongoing large capacity expansion plan. At present, Mahindra Investments (India) Pvt Ltd, a part of the Mahindra group, holds 76.67 per cent stake in MGTPL, while ICICI Venture Funds holds 23.33 per cent.
 
For 2013-14, MGTPL reported a profit after tax of Rs.61.2 million (Rs. 0.1 million for the previous year) on net sales of Rs.1455 million (Rs. 1058 million).

Annexure 1 - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating
Cash Credit* 320 CRISIL A+/Watch Developing Cash Credit** 300 CRISIL A+/Watch Developing
Proposed Long Term Bank Loan Facility 17.8 CRISIL A+/Watch Developing Proposed Long Term Bank Loan Facility 162.8 CRISIL A+/Watch Developing
Rupee Term Loan 502.2 CRISIL A+/Watch Developing Rupee Term Loan 377.2 CRISIL A+/Watch Developing
Total 840 -- Total 840 --
* Interchangeable with letter of credit to the extent of Rs.70 million
** Interchangeable with letter of credit to the extent of Rs.60 million
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May 21, 2014

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