Detailed Rationale

Crisil Ratings has downgraded its rating on the long-term bank facilities of Mahle Engine Components India Private Limited (MECPL) to ‘Crisil BBB/Stable’ from ‘Crisil BBB+/Negative’.

 

The downgrade follows similar rating action on the ratings of the ultimate parent Mahle GmbH, wherein S&P Global Ratings on 27th March’2025, has downgraded the rating from S&P BB to S&P BB- and revised the outlook from Negative to Stable, owing to low earnings increase in its core business and the transition to e-mobility, combined with restructuring costs continues to weigh on the company’s free operating cash flow generation.

 

The rating continues to reflect strong financial, marketing and technological support provided by the parent and the established market position of MECPL in the domestic camshafts and valve tappets segments. These strengths are partially offset by a weak financial risk profile and susceptibility of revenue and profitability to volatility in input costs and cyclicality in the automotive sector.

 

Operating revenue for the first nine months of fiscal 25 was around Rs. 630 crores with an expectation of 5-7% annual revenue growth for fiscal 25. Operating revenue grew 4% year-on-year (y-o-y) in fiscal 2024 wherein MECPL reported revenue of Rs 834 crore (as against Rs 806 crore in the corresponding period of the previous fiscal), driven by stable demand from original equipment manufacturers (OEMs), increasing share of revenue from the aftermarket but with subdued exports. Going ahead, growth will be supported by healthy order traction from existing customers as well as supply of components to newer models.

 

Operating margins during 9MFY25 stood at 11.3% in comparison to 10.6% in fiscal 2024 driven by better realizations and increase in revenue proportion from replacement market coupled with softening of material costs. Operating margin had risen to 10.6% in fiscal 2024, in line with sequential improvement in gross margin (nearly 500 basis points or bps) from fiscal 23, as key raw material for the pistons divisions was sourced from the domestic market and softening of raw material prices and is likely to sustain in the range of 10-11% in the medium term. After reporting sequential losses at profit after tax level in the past, the company achieved breakeven in fiscal 2024 with a PAT of Rs 11 crores and is likely to maintain similar profitability over the medium term.  

 

Financial risk profile will remain moderate. However, with improving profitability and breakeven at PAT level in fiscal 2024, networth is likely to remain at Rs 140-160 crore over the medium term. Gearing is expected to lie in the range of 2.0-2.4 times over fiscals 2025 to 2027, improving y-o-y with accretion of profit and sequential reduction in overall debt.

 

Liquidity is supported by regular equity infusion from the parent. Equity of Rs 97 crore and 130 crore was infused in fiscals 2020 and 2022, respectively, by Mahle GmbH. Further support has also been extended by way of unsecured loans which stood at around Rs.54 crores as on 31st Dcember’2024. The company has overall sanctioned working capital limit of Rs 355 crore, out of which the utilisation stood at around Rs.160 crore currently (~45% utilization). All the bank loan facilities are backed by a corporate guarantee from the ultimate parent, Mahle Gmbh and further support through loans/equity would be forthcoming if required.

Analytical Approach

Crisil Ratings has factored in the operational and financial support from the parent, Mahle GmbH and has applied its ‘Criteria for notching up standalone ratings of companies based on parent support’.

Key Rating Drivers & Detailed Description

Strengths:

• Strong financial support from the parent: Being a part of the Mahle group, MECPL receives strong financial, marketing and technological support from the group. Further, the bank facilities of MECPL are backed by corporate guarantee from Mahle GmbH, which displays strong support from the ultimate parent. The parent infused Rs 130 crore and Rs 100 crore in fiscals 2022 and 2020, respectively. to support liquidity of MECPL and is likely to provide timely support over the medium term, to cover debt servicing, capital expenditure (capex) and other requirements. MECPL had also received a loan which stood at around Rs.54 crores as on 31st Dcember’2024 from the holding company in fiscal 2024, which reduced its dependence on bank debt.

 

Mahle GmbH is among the world's 20 largest auto component suppliers and one of the top three in its core business areas: engine systems and components, filtration and engine peripherals, and thermal management.  For calendar year (CY) 2023, revenue stood at EUR 12.8 billion (up by around 3% y-o-y) with operating margin at 7.2% (5.4% in CY 2022).

 

• Established market position in the camshafts and valve tappets segments: MECPL is a leading player in the domestic camshafts market. The company sells camshafts to OEMs such as Tata Cummins Ltd, Maruti Suzuki India Ltd (‘Crisil AAA/Stable/Crisil A1+’), and Mahle group companies, and has established relationships with these clients. MECPL generates 50-55% of its revenue from the top five customers. Around 75% of revenue comes from camshafts and pistons sold to OEMs, while the rest is generated from the aftermarket segment.

 

Weaknesses:

• Weak, albeit improving financial risk profile: After reporting sequential losses at PAT level in the past fiscals, financial risk profile has improved, marked by networth of Rs 128 crore as on March 31, 2024, due to breakeven at PAT. Going forward, net worth is likely to be in the range of Rs 140-160 crore, with accumulation of profit. Gradual reduction of debt should support the overall capital structure. Gearing and total outside liabilities to tangible net worth ratios were 2.56 times and 3.60 times, respectively as on March 31, 2024. Capex and any other requirements would be funded through a mix of debt and equity.

 

• Susceptibility of revenue and profitability to volatility in input costs and cyclicality in the automotive sector: Prices of key raw materials - steel scrap and non-ferrous metals and alloys such as nickel and molly - are highly volatile in comparison to the sticky selling price of MECPL’s products. This makes profitability vulnerable to volatility in raw material prices. However, gross margin improved by nearly 500 bps in fiscal 2024, led by domestic sourcing of key raw material for the piston division of the company and reduction in raw material prices.

Liquidity: Adequate

Cash accrual of Rs 60-80 crore expected per fiscal will suffice to cover the yearly debt obligation of Rs 30-40 crore over the medium term. Liquidity is supported by regular equity infusion from the parent (Rs 97 crore and Rs 130 crore in fiscals 2020 and 2022, respectively). Out of the overall sanctioned working capital limit of Rs 355 crore, around Rs.160 crore is currently utilized (~45% utilization). Bank facilities are backed by corporate guarantee from Mahle GmbH (MG), which displays strong support from the ultimate parent. Further MECPL has received an intercompany loan in fiscal 2024, that reduced dependence on bank debt, which stood at around Rs.54 crores as on 31st Dcember’2024.

Outlook: Stable

Crisil Ratings believes MECPL will continue to benefit from the strong financial support from its parent and its established market position in the auto component industry. Any further rating action on the parent remains monitorable.

Rating sensitivity factors

Upward factors:

• Improvement in financial risk profile, along with sustained growth in revenue and profitability
• Upgrade in the rating of parent Mahle GmBH by 1 or more notches or change in its strategic importance for MECPL.

 

Downward factors:

• Downgrade in rating on the parent, Mahle GmbH, by one or more notches or change in its stance of support or strategic importance for MECPL.
• Deterioration in the financial risk profile resulting in in overall gearing above 3 times on a sustained basis.

About the Company

Incorporated in 1983, MECPL (formerly, Migma Equipments Pvt Ltd) is a subsidiary of MHIPL, which is a subsidiary of Mahle GmbH. MECPL manufactures chilled camshafts, valve tappets, pistons and valve guides for the automotive sector. The company has manufacturing facilities in Chennai and at Pithampur near Indore.

Any other information: Not Applicable