| Samvardhana Motherson Auto Component Private Limited | ||||
| Rating upgraded to ‘CRISIL AA-/Stable’; Removed from ‘Watch Positive' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its rating on the long-term facilities of Samvardhana Motherson Auto Component Private Limited (SMAC) from ‘Rating Watch with Positive Implications' and upgraded the rating to ‘CRISIL AA-’ from ‘CRISIL A+’. Further, ‘Stable’ outlook has been assigned to the long-term rating.
The outlook and ration action follows similar rating action on the erstwhile parent, Samvardhana Motherson International Ltd (SAMIL) post the completion of the group reorganization process of Motherson Sumi Systems Ltd (MSSL) and SAMIL. Accordingly, SMAC will now be a subsidiary of the merged entity, MSSL (rated ‘CRISIL AA+/Stable/CRISIL A1+’)
Operating performance is expected to continue to improve over the medium term. Revenue is likely to be over Rs. 80 crore in the current fiscal. Addition of new clients and repeat orders from existing client should support the growth in fiscal 2022 and fiscal 2023 as well. Sub-optimal coverage of fixed costs, in conjugation with small scale of operatons have however led to operating level losses till fiscal 2021. Margins on the other hand, are expected to turn positive in the current fiscal, on the back of ramp up in orders coupled with more efficient cost management.
The company has availed additional loans to fund their ongoing capacity expansion project. This capex is due to shift of manufacturing facilities from Manesar to Bawal so as to consolidate operations and explore expansion opportunities. Despite increase in debt levels, financial risk profile is however expected to improve over the medium term supported by infusion of equity amounting to Rs. 20 crores by parent in September 2021. Further, need based financial support is also expected from the parent over the medium term. |
Analytical Approach The promoters have extended unsecured loans of Rs 68 crore as on September 30, 2021, of which Rs 8.5 crore has been classified under promoter loans (debt), and the rest are treated as equity. Also parent notch-up framework has been applied, considering the strong financial and business support from SMAC's parent, MSSL. |
Key Rating Drivers & Detailed Description Strengths:
SMAC is expected to receive strong operational and financial support from its parent, MSSL. Key management personnel from the Motherson group are on SMAC's board of directors. SMAC also receives technological assistance from the group. As the group's investments, related to the aluminium die casting segment will be channelled through SMAC, the latter remains important for the group. Parent has infused in equity of Rs. 20 crores in fiscal 2022 and unsecured loans of Rs 68 crore over fiscals 2021 and 2022, and may extend support via loans to fund cash losses in the medium term. It has also provided corporate guarantee to some of the bank facilities of SMAC.
Strong parentage has helped SMAC forge relationships with key automotive players. Continued order inflow should help SMAC ramp up its scale. Operating margin is also expected to improve over the medium term, from losses currently, backed by the scale up in operations and improving cost structure.
Weaknesses:
Revenue is expected to remain at Rs 70-90 crore in the medium term, which reflects the modest scale of operations. Increasing scale will be highly dependent on future partnerships and orders. The current slowdown witnessed by original equipment manufacturers may also pose risks to the planned ramp up.
Financial profile remains constrained by continued losses, higher dependence on debt, and weak debt metrics. Adjusted networth is however expected to turn positive in the next two fiscals owing to infusion of funds via equity and quasi equity by parent and improving profitability. Expected improvement in cash accruals, adequate cushion in bank limit and continued support from MSSL, should comfortably cover the maturing debt of Rs 12 crore, in fiscal 2022. Credit metrics and capital structure may remain under pressure, due to slower recovery in networth and fixed cost-intensive nature of business. Timely support from MSSL, nevertheless, is expected to be forthcoming. |
Liquidity: Strong Liquidity is likely to improve gradually over the medium term, aided by better profitability. Of the bank limit of Rs 8.0 crore, utilization remains moderate at 65% in the last 6 months ending August 2021. Improved cash accruals as well as support from MSSL will ensure to cover the maturing debt of Rs 12 crore, in fiscal 2022, as well as the incremental working capital requirement. Need-based funding support from MSSL is expected to continue. |
Outlook: Stable CRISIL Ratings believes SMAC will continue to benefit from the strong linkages with its parent and expanding business operations with diversified customer base |
Rating Sensitivity factors Upward factors
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About the Company Effective 22 January, 2022, SMAC has become 100% subsidiary of MSSL. SMAC specialises in aluminium die casting and machining manufacturing parts for two-wheelers and four-wheelers.
Revenue of SMAC was Rs 34 crore in the first five months ended August 31, 2021 with earnings before interest, depreciation and taxed (EBITDA) margin of 1.5% |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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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 02-Feb-22 in line with the lender-wise facility details as on 06-Oct-21 received from the rated entity.
Criteria Details
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