| Mercedes-Benz India Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities of Mercedes-Benz India Private Limited (MBIL).
On May 05, 2023, S&P upgraded credit ratings on Mercedes-Benz Group AG to ‘A/A-1’ from ‘A-/A-2’ and revised its outlook to ‘Stable’ from ‘Positive’. The rating action follows factors in increased predictability of company’s performance following a strong first quarter with EBIT margins above its full year 2023 guidance and a solid order book that lasts well into the second half of the year. CRISIL Ratings of ‘CRISIL AAA/Stable/CRISIL A1+’ on the bank facilities of MBIL however, remain unaffected by this rating action.
The ratings continue to reflect MBIL’s strong business risk profile backed by its dominant market position in the luxury passenger vehicle segment, improvement in operating performance in fiscal 2022, and strong operational & financial support from Parent Company (Mercedes-Benz Group AG: S&P A-/Stable/A-2). The rating also factors robust financial risk profile aided by strong balance sheet with adequate liquidity. These strengths are partially offset by macro-economic headwinds such as supply-chain constraints, volatility in commodity prices, currency depreciation, etc.
Revenues grew by nearly 70% to Rs. 6,278 crore in fiscal 2022 while operating margins improved by ~913 basis points (bps) to 12.5% on the back of strong growth in volumes, increase in realizations per unit, and positive operating leverage benefits. Post easing of COVID-19 lockdown restrictions and resumption of economic activity, the Company witnessed strong demand off-take, thereby resulting in strong volume growth of ~63% y-o-y. Top-line performance further benefitted from higher realizations due to favorable product mix and partial price hikes due to input cost inflation. Margins improved significantly on account of shift in business model to retail based from distributor based, and better capacity utilization enabling higher cost absorption. The trend is expected to continue over the medium term, with operating margins sustaining above fiscal 2022 levels.
MBIL’s financial risk profile remains robust on the back of strong credit metrics. Gross leverage (Total Debt / OPBDIT) stands at 0.4 time as on March 31, 2022, a sharp correction from 3.4 times in previous fiscal. Given the robust demand outlook, thereby ensuring strong top-line and operating profitability growth over the medium term, key debt protection metrics is expected to further improve. Furthermore, the Company’s balance sheet remains strong, with TOL / TNW (Total Outside Liabilities / Total Net-worth) sustained below 1.0 time during the previous two fiscal years.
The ratings also reflect the Company’s strong liquidity, driven by large, unencumbered cash balance of Rs. 1,129 crore as on March 31, 2022. Liquidity is expected to remain strong supported by cash surplus, strong cash accruals, and modest capex and fixed obligation payments.
The ratings continue to reflect the Company’s strong operational and financial linkages with Mercedes-Benz Group AG. Mercedes-Benz Group AG shall provide necessary financial support in case of distress, which is highly unlikely to occur over the medium term given the strong financial and business risk profiles. |
Analytical Approach The ratings of MBIL factors in support expected from its ultimate parent, Mercedes-Benz Group AG. CRISIL Ratings believes MBIL will, in case of exigencies, receive distress support from its Parent for timely repayment of debt obligations, considering the strategic importance of MBIL for the Parent and corporate guarantee extended by Mercedes-Benz Group AG for MBIL’s external borrowing. |
Key Rating Drivers & Detailed Description Strengths:
MBIL dominates the luxury car industry in India, reflected in its market share of around ~40% in fiscal 2022. Luxury car sales in India witnessed a steep decline in fiscal 2020 and fiscal 2021 due to BS-VI emission norms and COVID-19 pandemic disruption. Post COVID-19 pandemic, Mercedes operating performance improved better than its peers, demonstrating its strong market position. Also, the early starter advantage, longstanding presence of 27 years in India, and the largest product basket among peers, have helped MBIL, retain market share dominance.
MBIL has effectively leveraged its established presence in the Indian market, strong brand, and focus on service and customer satisfaction to develop a crop of loyal customers. As compared with peers in the luxury car market in India, MBIL offers the largest product portfolio of ~approx. 23 models across price points which significantly benefit its business risk profile. With the new launches planned in fiscal 2023, MBIL is expected to further solidify its leading market position in the domestic luxury car market. In addition, during fiscal 2023, the Company launched the “Mercedes-Benz S-class” EV version and intend to launch new EV variants at different price points every new year.
Being a wholly owned subsidiary of Mercedes-Benz Group AG (MBGAG), MBIL benefits from access to the latter’s extensive product portfolio, superior technology and design, and manufacturing expertise in the luxury car segment.
MBIL, in India, in turn is one of the key centers in Mercedes-Benz’s global completely knocked down (CKD) production network (India, Brazil, Indonesia, Malaysia, Thailand and Vietnam). MBIL’s production facility spread over 100 acres in Chakan, Pune assembles a wide range of models including sedans and sports utility vehicles (SUVs) – largely imported in CKD condition from branches of Mercedes-Benz. A state-of-the-art paint shop in keeping with Mercedes-Benz global standards has also been established at Chakan. Mercedes Benz’s models from across the globe are steadily being introduced into the Indian market, and some vehicles are also customized to customers’ needs in India.
MBIL also receives managerial and financial support from the parent. All the board members in MBIL are nominated by Mercedes-Benz Group AG, and a significant section of the top management, including the Managing Director, are from the parent. Further, the parent has shown support to MBIL, and the same is evidenced from the Rs. 1,756 crore equity infusion in fiscal 2021 to support the Indian operations. MBGAG’s substantial cash reserves, and net worth provide adequate flexibility to offer additional support to MBIL in case of exigencies. Furthermore, MBGAG has guaranteed MBIL’s short-term working capital debt.
Given MBIL’s strategic importance to MBGAG and its leading domestic market position in the luxury car market, CRISIL Ratings expects MBGAG will continue to provide necessary support to MBIL.
Financial risk profile of MBIL continues to remain robust. The Company has managed to de-leverage its balance sheet from total debt levels of Rs. 2,258 crore at the end of fiscal 2019 to Rs.295 crore at the end of fiscal 2022. Consequently, gross leverage has improved from 7.7 times in fiscal 2020 to 0.4 time in fiscal 2022. Furthermore, capital structure management remains robust, as reflected in TOL / TNW which stands below 1.0 time at the end of fiscal 2022 (vs. 3.9 times at the end of fiscal 2020; 4.4 times at the end of fiscal 2019). Cash accruals are likely to largely suffice to meet the modest capital expenditure (capex), and working capital requirement over the medium term, thereby limiting debt intake.
Weaknesses:
Luxury cars constitute 1.98% of the overall passenger vehicle (PV) market in India, one of the lowest amongst large economies. China and US for example have 16% and 10% share of luxury cars, respectively. Additionally, while the number of luxury car manufacturers in India has steadily increased over the years, the overall market size has remained more or less stagnant at under 40,000 units in the past five years.
With more players and models vying for a share of the slowly growing pie, competition in the domestic luxury car market may intensify, resulting in price competition and lower realisations. While MBIL’s dominant market position supported by its strong brand, extensive product portfolio and wide retail network partially offsets this risk, CRISIL Ratings believes, MBIL’s market position and operating profitability movement over the medium term, will depend on its ability to launch successful variants and models and also the domestic market conditions.
Except for fiscal 2019, where the company had a one-time export order from the US to supply 4,080 units, MBIL derives its entire revenue from the domestic market. The wide presence of the parent across the globe restricts export opportunities for MBIL. This exposes the company to the inherent cyclicality in the Indian passenger vehicle industry, though the luxury segment is the least volatile of all segments. The demand patterns in this industry have displayed cyclicality in the past, in line with economic growth, financing availability, and consumer sentiments. These variables will continue to impact demand patterns for luxury cars in India. |
Liquidity: Superior MBIL's strong liquidity is driven by strong cash surplus and internal cash accruals, and expectation of support from the parent, Mercedes-Benz Group AG, to provide ongoing and need-based support in case of exigencies. MBIL’s long-term debt as on 31st March 2022, is in the form of external commercial borrowings from MBGAG. Besides, MBGAG has also guaranteed MBIL’s short-term working capital debt. As on 31st March 2022, long-term loans from MBGAG stood at Rs. 295 crore, which is expected to be re-paid in fiscal 2023. The Company’s cash surplus stood at Rs. 1,129 crore as on March 31, 2022, and given the expected strong internal cash accruals, the same is more than sufficient to meet debt re-payment obligations, and modest capex and working capital requirements. |
Outlook: Stable CRISIL Ratings believes that MBIL will maintain its dominant position in the domestic luxury car segment, supported by a large and successful product portfolio, new launches, strong distribution network, and access to MBGAG’s technology. Its profitability too is expected to improve supported by better sale volumes. MBIL’s financial risk profile is expected to gradually strengthen in fiscal 2023, supported by better business performance and modest capital spending. Further, timely support from the parent is expected to be forthcoming in the event of any exigency. |
Rating Sensitivity factors Downward factors
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About the Company Established in 1994, MBIL pioneered the luxury car market in India. MBIL is part of Mercedes-Benz’s Global Production Network and plays an important role in the CKD production network in Brazil, Indonesia, Malaysia, Thailand and Vietnam.
MBIL’s production facility in Chakan, Pune, with total capacity of 20,000 units per annum, is capable of assembling a wide range of models including Sedans (C-Class, E-Class, S-Class and as well as Maybach) and SUVs (GLA, GLC, GLE and GLS) – the largest portfolio among luxury car manufacturers in India. MBIL is also the first luxury carmaker to start locally manufacturing AMG performance models comprising the AMG GLC 43 4MATIC Coupe and the AMG A35 4M saloon. |
About the Group Mercedes-Benz Group AG, headquartered at Stuttgart, Germany, is a leading global auto manufacturer focused on the premium and luxury car and van segment. Business Units are divided into Mercedes-Benz AG, for supply of cars and vans and Mercedes-Benz Mobility AG, a captive finance operation that supports the former.
In February 2021, Mercedes-Benz Group AG’s board had announced its decision to spin off its truck and bus business and prepare for a separate listing of the truck entity.
Mercedes-Benz Group AG is a listed company. The biggest shareholders as of December 31, 2022, were investor, Chinese BAIC Group (10%); Mr. Li Shufu (Tenacion 3 prospect invest. Ltd., 9.7%); Kuwait Investment Authority (5.6%). The rest is free float. |
Key Financial Indicators
*CRISIL Ratings-adjusted numbers |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 12-May-23 in line with the lender-wise facility details as on 27-Mar-23 received from the rated entity.
Criteria Details
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