Rating Rationale
September 25, 2017 | Mumbai
Mahindra and Mahindra Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.1100 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.475 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.500 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.300 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the existing debt programmes and bank facilities of Mahindra and Mahindra Limited (M&M) at 'CRISIL AAA/Stable/CRISIL A1+'.
The ratings continue to reflect a leadership position in the Indian tractor industry and healthy market position in the light commercial vehicle (LCV) segment. The ratings also factor in a strong financial risk profile, supported by a robust balance sheet with low leverage and high financial flexibility arising from a portfolio of business investments under a federal structure. These rating strengths are partially offset by exposure to inherent cyclicality in the farm equipment (tractor) and automotive (auto) segments, exposure to risks pertaining to acquisitions and investments in subsidiaries and joint ventures (JV), and steady decline of market share in UV space.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of M&M and its ventures in the utility vehicles, commercial vehicles, two-wheelers, agri-business and farm equipment segments, which are considered as its core businesses. The company also has investments in subsidiaries in information technology, financial services, hospitality, aerospace, consulting services, defence, chemicals, energy, industrial equipment, logistics, real estate, retail, components, and steel industries. CRISIL believes that these subsidiaries will receive support from M&M, depending on their strategic importance to it, and the extent of its shareholding and investment in them. CRISIL has made financial adjustments to factor in this support. Adjustments have also been made for the assets and liabilities as per CRISIL's capital allocation approach for the financing business undertaken by Mahindra & Mahindra Financial Services Ltd.

Key Rating Drivers & Detailed Description
* Leadership position in Indian tractor industry; healthy market position in LCVs
Strong market position in the tractor and LCV businesses will continue to support healthy business profile and steady cash flows. The company has maintained a market share of over 40% in the tractor segment over the past six years, and also improved its market position in the LCV segment. The company's market share in Indian tractor industry increased to about 43% in FY 2016-17 from about 41% in 2015-16, with growth of 23% in domestic tractor sales in fiscal 2017 as against 18% industry growth. Further, the company had a market share of over 47% in goods LCV (<7.5 tons) in 2016-17.
Cost-efficient operations, development skills, broad product portfolio, and increased production capacity will enable the company to maintain its market position in these segments over the medium term.
Improving revenue and geographical diversity will enable the maintenance of a stable business risk profile, despite the impact of cyclicality, competitive intensity, and moderate performance of some investments and business segments. This, along with healthy pricing power should ensure a stable operating profitability margin.
* Healthy financial risk profile supported by conservative capital structure, significant market value of investments
The financial risk profile is strong because of a sizeable networth, conservative gearing, and surplus liquidity. Positive free cash flow should help maintain a strong financial risk profile, given moderate capital expenditure (capex) and investments of about Rs 12,000 crore over the next three fiscals. The company's accruals are expected to be sufficient to cover the capex and investments comfortably in this period. High financial flexibility is driven by the market value of investments which are currently valued much higher than the book value, and should provide access to funds through dilution of equity in subsidiaries whenever necessary. The strong financial risk profile enhances the cushion against the impact of cyclicality and competitive intensity in the domestic auto sector.
* Declining market share in UV segment
Tepid success of recent launches, flagging sales of legacy models, amidst increasing competitive intensity in the UV space has resulted in the company losing substantial market share from more than 50% in FY 2011-12 to less than 30% in FY 2016-17. While the company has managed to hold a significant market share in larger UVs, its presence in the compact UV segment is much weaker. The UV market has shifted towards the compact segment; while competitive intensity in this space has increased owing to multiple product launches over the last few years.
Going ahead, efficacy of M&M's refreshed UV portfolio, along with successful launch of new products will be critical to avoid further weakening of its market position.
M&M is expected to leverage synergy benefits with SsangYong Motor Company over the medium term with initiatives in joint development of engines and common sourcing. CRISIL has also taken note of the company's proposed alliance with Ford Motor Company.
* Exposure to cyclicality in automotive and tractors segments 
The demand for tractors remains vulnerable to the monsoon; a bad monsoon can result in high intra-cycle volatility in demand for tractors. Monsoon and its impact on tractor sales volumes will therefore be key rating sensitivity factors. The domestic auto industry has also displayed a degree of cyclicality in line with industrial growth, in the past. The company will remain exposed to the cyclicality inherent in the tractor and auto businesses over the medium term. Also, the company is exposed to changes in regulation specially pertaining to diesel vehicles which may adversely impact its business risk profile which is a key monitorable.
* Exposure to risks pertaining to acquisitions, and investments in subsidiaries and JVs
Given its growth aspirations and acquisitive intentions, M&M may seek opportunities in strategic acquisitions in key products and markets. CRISIL understands from the management that such acquisitions will be within the company's core line of business and support improvement in its business risk profile. CRISIL believes that, in spite of such acquisitions, conservative gearing will be maintained. In addition, some of the investments in segments such as electric vehicles and medium and heavy CVs are expected to remain in the investment mode over the medium term.
Outlook: Stable

CRISIL believes M&M's strong financial risk position will help it absorb the impact of cyclicality and competitive intensity in its core auto and farm equipment business, and the moderate performance of some investments.
Downside scenario
* Any large, debt-funded investments (including acquisitions), support to weak subsidiaries, or lower-than-expected cash flow leading to considerable weakening of the financial risk profile.
* Further significant decline in UV market share, which results in considerable weakening of the company's overall market position in its automotive segment

About the Company

M&M is among the leading tractor manufacturers in the world and is the market leader in the UV segment in India. The Mahindra group, through its subsidiaries and group companies, has a presence in varied sectors, such as information technology, financial services, and vacation ownership. In addition, it has presence in the agribusiness, aerospace, components, consulting services, defence, energy, industrial equipment, logistics, real estate, retail, steel, commercial vehicles, and two wheeler industries.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs. Cr. 43,932 40,996
Profit After Tax Rs. Cr. 3,956 3,205
PAT Margins % 9.0 7.8
Adjusted Debt/Adjusted Net worth Times 0.12 0.15
Interest coverage Times 33.8 25.5

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs Cr) Rating Assigned with Outlook
INE101A08070 Debentures 04-Jul-2013 9.55% 04-Jul-2063 500.00 CRISIL AAA/Stable
INE101A08088 Debentures 27-Sep-2016 7.57% 25-Sep-2026 475.00 CRISIL AAA/Stable
NA Commercial Paper NA NA 7-365 days 300.00 CRISIL A1+
NA Working Capital Demand Loan NA NA NA 400.00 CRISIL AAA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 700.00 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  300  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Non Convertible Debentures  LT  975  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change  29-09-14  CRISIL AAA/Stable  CRISIL AA+/Stable 
Fund-based Bank Facilities  LT/ST  400  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change  26-12-14  CRISIL AAA/Stable  CRISIL AA+/Stable/ CRISIL A1+ 
                    29-09-14  CRISIL AAA/Stable/ CRISIL A1+   
Non Fund-based Bank Facilities  LT/ST  700  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Letter of credit & Bank Guarantee 700 CRISIL A1+ Letter of credit & Bank Guarantee 700 CRISIL A1+
Working Capital Demand Loan 400 CRISIL AAA/Stable Working Capital Demand Loan 400 CRISIL AAA/Stable
Total 1100 -- Total 1100 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
Criteria for rating Short-Term Debt (including Commercial Paper)

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