| Motherson Technology Services Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+' | ||||||
| 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 AA/Stable/CRISIL A1+’ ratings on the bank facilities of Motherson Technology Services Limited (MTSL; formerly Motherson Sumi Infotech and Designs Ltd).
MTSL being the information technology (IT) arm of Motherson group, the rating reflects strong linkages with the group, , steady recovery in operating performance, expected improvement in financial risk profile in the current fiscal and support from the parent. These strengths are partially offset by a low share of non-group clients and operating losses in the business in the last two fiscals.
Revenue of MTSL is estimated to improve to by 15-20% in fiscal 2024, led by growing IT hardware and software and application requirement of the Motherson group, which contributes to 60-65% of the revenue of MTSL. The company has developed and enhanced IT capabilities to cater to the growing needs of organisation across industries such as manufacturing, healthcare and finance. Operating margins are expected to recover to 4-5% in fiscal 2024 after operating losses in the past two fiscals due to increase in employee costs and operating overheads.
MTSL is undertaking capex for construction of new office building in Noida. To part finance the capex, MTSL is receiving support from parent Samvardhana Motherson International Limited (SAMIL; rated CRISIL AA+/Stable/CRISIL A1+) with equity of Rs 129 crore infused by SAMIL in fiscal 2023 and expected equity infusion of Rs 71 crore in fiscal 2024. Debt levels are also expected to increase to an extent with debt of Rs 100-150 crore expected to be utilized for capex. However, steady accruals are expected to be sufficient for debt repayment and gearing is expected to remain below 2 times in the medium term. CRISIL Ratings believes parent company SAMIL will continue to extend need based support to MTSL. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has considered a consolidated approach and factored in support from the parent SAMIL
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong support from the parent MTSL is expected to receive strong operational and technical support from parent SAMIL. Key management personnel from the Motherson group are on the company’s board of directors. MTSL derives 60-65% of revenue from the Motherson group. The company has increased investment in shared services (cloud) and digital engineering to cater to non-group clients, and expects both Motherson group and non-group clients to contribute to incremental sales over the medium term.
MTSL meets various IT requirements (hardware, software and special applications) of the Motherson group, indicating its strategic importance to the group. The company serves over 250 factories of the group. It expects to bag a larger share of the IT spend of the group through strengthening IT capabilities and investing in various applications.
Improving diversity by growing business from non-group customers MTSL plans to increase revenue from both group and non-group customers. The company caters to several industries such as manufacturing, healthcare, financial services, and education. It is banking on cloud shared services and has more than 100 non-group customers.
While operating margins have moderated to negative levels in fiscals 2023 and 2022 as MTSL had increased its employee strength from to over 2,000 which had led to increase in operating overheads for the new businesses, it is expected to improve to 4-5% in fiscal 2024 as fixed cost absorption improves.
Weaknesses: Average financial risk profile Debt metrics have weakened in past two fiscals fiscal due to moderation in operating performance. However, debt metrics are expected to improve with MTSL's expected return to operating profitability in fiscal 2024. MTSL has received Rs 129 crore funds infusion in last quarter of fiscal 2023 and is expected to receive Rs 71 crore in fiscal 2024, which is expected to be utilized towards capex. Further, equity infusion in previous fiscal had offset the impact of weaker cash accruals. Total debt increased from Rs 72 crore as on March 31, 2021 to Rs 161 crore as on March 31, 2022. Debt levels are expected to increase over the medium term on account of expected drawdown of debt towards capex. However, CRISIL Ratings expects strong support from parent SAMIL to continue to fund investments, and debt obligations on need basis in future as well.
Moderate scale of operations: MTSL’s scale of operations is moderate compared to overall scale of its parent SAMIL. MTSL depends on the Motherson group for business, with the group currently accounting for 60-65% of revenue. The company plans to bring on board external customers to improve revenue diversity.
Exposure to intense competition for business from non-group customers With rapid evolution of the IT services sector, competition is intensifying as more companies vie for a share of the new IT business. As MTSL looks to increase non-group revenue, it has to compete with multiple players for new businesses. |
Liquidity: Strong Liquidity is likely to improve gradually over the medium term aided by expected improvement in profitability. Bank limits of Rs 88 crore remained moderately utilized at around 81% in the past 6 months ending January 2023. The promoters will continue to provide support in the form of equity with expected equity infusion of Rs 71 crore in fiscal 2024. Improved cash accruals as well as support from SAMIL will ensure to cover the maturing debt repayment obligations in the near term as well as the incremental working capital requirement. Need-based funding support from SAMIL is expected to continue. |
Outlook: Stable CRISIL Ratings believes MTSL will continue to benefit from the strong linkages with its parent SAMIL and expanding business operations with diversified customer base. |
Rating Sensitivity factors Upward factors
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About the Company MTSL is the information technology arm of the Motherson group. It is a digital transformation company specializing in helping businesses utilise data, analytics, IoT, and cloud-based applications to improve efficiency and facilitate new technologies. MTSL has partnered with over 200 customers in 47+ locations across the globe.
As on December 31, 2022, the company has achieved net loss of Rs 42 crore and net sales of Rs 544 crore on a consolidated basis. |
About the Group Samvardhana Motherson International Limited (SAMIL; formerly Motherson Sumi Systems Limited (erstwhile MSSL)), the flagship company of the Samvardhana Motherson group, was incorporated as a JV between erstwhile Samvardhana Motherson International Ltd (erstwhile SAMIL) and SWS in 1986.
On July 02, 2020, board of directors of erstwhile MSSL and erstwhile SAMIL have approved reorganization of business which entails demerger of the domestic wiring harness business from erstwhile MSSL into a new company, with similar shareholding structure as that of MSSL and subsequent merger of erstwhile SAMIL into erstwhile MSSL with the merged entity renamed as SAMIL. SAMIL now holds 100% stake in Samvardhana Motherson Automotive Systems Group BV ('SMRP BV, rated 'BB/Stable' by S&P Global Ratings'). Besides, SAMIL also holds 33.4% stake in the demerged DWH business housed under newly created entity Motherson Sumi Wiring Harness Limited (MSWIL) subsequent to completion of the transaction. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*interchangeable with LC of Rs 20 crore and BG of Rs 20 crore |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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