| Samvardhana Motherson International Limited | ||||
| Long-term rating continues on 'Watch Positive'; short-term rating reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings on the non-convertible debentures of Samvardhana Motherson International Limited (SAMIL) continues to be on 'Rating Watch with Positive Implications' while rating on commercial paper is reaffirmed at 'CRISIL A1+'.
The ratings factors in the healthy market value of SAMIL’s stake in Motherson Sumi Systems Ltd (MSSL, rated ‘CRISIL AA+/Stable/CRISIL A1+). MSSL is the primary operating company of the Samvardhana Motherson group. The cover (ratio of marketable value of SAMIL and its promoters' stake in MSSL to outstanding debt, including off-balance liabilities including guarantees etc.) of SAMIL increased to ~16 times as on August 18, 2021 from ~6.5 times as on September 29, 2020. Total debt (including off-balance sheet guarantees) stood at Rs 1453 crore, comprising non-convertible debentures (NCDs) of Rs 700 crore and corporate guarantees of Rs 753 crore as of June 2021, and may not change significantly in the near term.
The ratings were placed on Watch on July 9, 2020, following an announcement by SAMIL and MSSL that their board of directors have approved the group reorganisation plan, which entails the merger of SAMIL into MSSL. As approvals from the stock exchanges and Securities Exchange Board of India (SEBI) has been received, the merger application has also been filed with the National Company Law Tribunal (NCLT). After receipt of approval from NCLT, the merger should be completed in the next two to three months.
The credit risk profile of SAMIL should improve in line with that of MSSL, post completion of the proposed merger. CRISIL Ratings will continue to monitor the progress of the transaction and take appropriate rating action post completion of the same.
The ratings continue to reflect the financial flexibility of SAMIL as the holding company of the Samvardhana Motherson group. Apart from being the largest shareholder in MSSL, SAMIL holds a 49% stake in Samvardhana Motherson Automotive Systems Group BV (SMRP BV, rated 'BB/Stable' by S&P Global Ratings), which is the holding company of group's international business. The ratings are also supported by MSSL's healthy credit risk profile. These strengths are offset by exposure to market-related risk and dependence on refinancing requirements in case of large debt-raising in future. |
Analytical Approach CRISIL Ratings has followed the holding company approach to analyse the credit risk profile of SAMIL. Furthermore, for the purpose of its analysis, CRISIL Ratings has included the standalone debt of SAMIL and off-balance sheet debt (primarily corporate guarantees given by SAMIL to its subsidiaries/joint ventures and group companies). To calculate the cover over outstanding debt and guarantee, SAMIL's stake in MSSL as well as SAMIL's promoters' stake in MSSL in their individual capacity has been considered. |
Key Rating Drivers & Detailed Description Strengths:
SAMIL's financial flexibility is backed by its 33.43% stake in MSSL, which translates into a market value of Rs 22623 crore (as on August 18, 2021) and its 49% stake in SMRP BV. Key companies under SAMIL operate in various segments of the automotive components industry. Being an investment-holding company, SAMIL supports its subsidiaries and JVs via investments, loans and advances, or corporate guarantees to their lenders. Total debt (including off-balance sheet guarantees) stood at Rs 1453 crore, constituted by NCDs worth Rs 700 crore and corporate guarantees of Rs 753 crore.
While the maximum debt permissible (including off-balance sheet debt) as per covenants is Rs. 3,300 crore, overall debt should remain around the present level in the near term. SAMIL is also expected to maintain its existing shareholding in MSSL, except for retiring its debt.
The group has a demonstrated and well-established management track record. Its flagship company, MSSL is the largest automotive-component company in India, reporting a turnover of Rs 57,370 crore and operating margin of 6.93% (net of Ind-AS 116 impact) in fiscal 2021. In fiscal 2022, impact of the second wave of the Covid-19 pandemic on operations of MSSL remains a key monitorable.
Weaknesses:
SAMIL's credit risk profile remains susceptible to market risk because its ratings draw considerable strength from the market value of its investment in MSSL, which has been volatile over the past one year. Financial flexibility, in terms of cover available, will largely depend on prevailing market sentiment and the share price of MSSL. Any increase in systemic risk, leading to a sharp decline in the share price of MSSL, will be closely monitored.
Operational cash flow includes dividend (primarily from MSSL) and interest income. In December 2017, the company sold its 1.38% stake in MSSL for a consideration of Rs 1,077 crore. Proceeds from the stake sale were partly utilised to retire the outstanding debt, thereby reducing SAMIL's debt levels.
Total debt, including guarantees, stood at Rs 1453 crore on August, 18, 2021, and should be stable in the near term. SAMIL’s plans to roll out consultancy services to its group entities from fiscal 2021, via centralised teams in areas of corporate finance, company affairs, taxation, secretarial, and legal functions, should provide a steady cashflow. However, the company may have to rely on refinancing, in addition to dividend income, to service the principal portion of its debt obligation. |
Liquidity: Strong SAMIL enjoys financial flexibility from its stake in MSSL (including stake of promoters in MSSL) valued at Rs 22623 crore as on August 18, 2021. The company only has long-term debt with NCDs of Rs 700 crore maturing in December 2022. |
Rating Sensitivity factors Upward factors:
Downward factors
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About the Company SAMIL (formerly, Samvardhana Motherson Finance Ltd) was incorporated in 2004, as a holding company of MSSL, the flagship company of the Samvardhana Motherson group. SAMIL is the largest shareholder in MSSL, which is listed on the Bombay Stock Exchange and the National Stock Exchange with a market capitalisation of Rs 67,422 crore (as on February 19, 2020). SAMIL also holds stake in other operating companies, including SMRP BV, most of which are present in the automotive components segment. Both SAMIL and MSSL are promoted by Mr VC Sehgal who, along with his family, holds 90.46% stake in SAMIL; Sojitz Corporation, Japan, holds 6.46% stake, while the remaining is held by the employees of the group and the employees' welfare trust. |
Key Financial Indicators
*includes exceptional income of Rs 217 crore |
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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Criteria Details
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