Skoda Auto India Private Limited

Ratings placed on 'Watch Negative' and Notice of Withdrawal

Total Bank Loan Facilities Rated Rs.3940 Million Long Term Rating CRISIL AA (Placed on 'Rating Watch with Negative Implications' and 'Notice of Withdrawal')

(Refer to Annexure 1 for Facility-wise details)

CRISIL has placed its ratings on the bank facilities of Skoda Auto India Private Limited (SAIPL) on 'Rating Watch with Negative Implications'. CRISIL's rating action follows Standard & Poor's (S&P's) placement of its 'A/A-1' rating on VIPL's parent, Germany-based Volkswagen AG (VW), on 'Credit Watch with Negative Implications'. CRISIL has placed its ratings on VIPL's bank facilities on 'Notice of Withdrawal' for a period of 180 days on the company's request. The ratings shall be withdrawn at the end of the notice period, in line with CRISIL's policy on withdrawal of rating on bank loans.
 
S&P's 'CreditWatch' placement on September 24, 2015, follows VW's announcement that it will take a EUR 6.5 billion charge to cover the costs of a global recall of vehicles which show discrepancies between diesel test results and actual road use. This follows an announcement by the U.S. Environmental Protection Agency (EPA) that VW had violated U.S. environmental laws in relation to 482,000 diesel cars sold in the U.S. during 2009-2015. S&P expects that substantial remediation costs to correct the engines of the affected cars, fines from regulators and impact on VW's reputation and operational performance may negatively affect creditworthiness of VW. S&P believes that long-term ratings on VW may be lowered by one or more notches, depending on assessment of the impact of the recall on the group's credit metrics and underlying business prospects. S&P will resolve the watch after assessing the potential impact on the group's leverage metrics, future profitability, cash flow, business prospects and governance. CRISIL will take an appropriate rating action on SAIPL's bank facilities thereafter.
 
The ratings continue to reflect the strong business and financial support provided by VW to Volkswagen group India and strong credit risk profile of VW. These rating strengths are partially offset by modest financial risk profile of the Indian subsidiaries and their exposure to intense competition in the domestic passenger car industry.
 
For arriving at the ratings, CRISIL has combined the business and financial risk profiles of all the Indian entities of VW - Volkswagen India Pvt Ltd (VIPL), Volkswagen Group Sales India Private Limited (VGSIPL) and SAIPL. This is because of increasing resource optimization and financial linkages among the three entities. The combined entity is referred to as Volkswagen group India.

Incorporated in 2007, VIPL and VGSIPL are subsidiaries of Volkswagen AG. VIPL has a manufacturing plant in Pune (Maharashtra) with capacity of 110,000 vehicles per annum; its establishment cost was Rs.39 billion. This plant produces Polo and Vento of the Volkswagen brand. The plant also manufactures the Fabia and Rapid models for SAIPL. VGSIPL is the sales and marketing arm for the Volkswagen, Audi, Porsche and Lamborghini brands.
 
SAIPL, incorporated in December 1999, is a subsidiary of Skoda Auto A.S Czech Republic, which is, in turn, a wholly-owned subsidiary of Volkswagen AG. SAIPL has an assembling facility at Aurangabad (Maharashtra); it assembles Skoda brands (Octavia/Laura, Yeti, and Superb), Volkswagen brands (Passat and Jetta), and Audi brands (A4, A6, Q5); it has capacity to produce 41,180 cars per annum.
 
For 2014-15 (refers to financial year, April 1 to March 31), Volkswagen group India's domestic volume were 83,890. The domestic volumes achieved in 2014-15 included 45012 from the Volkswagen brands, and 14877 from the Skoda brands. This translated into an overall domestic passenger car market share of 3.19 per cent in 2014-15. Apart from this, Volkswagen group India achieved good volumes in exports (64,994 vehicles) during 2014-15.

Annexure 1 - Details of various bank facilities

Current facilities Previous facilities Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating Cash Credit & Working Capital demand loan 3390 CRISIL AA/Placed on 'Watch Negative' and Notice of Withdrawal Cash Credit & Working Capital demand loan 3390 CRISIL AA/Stable Working Capital Demand Loan 550 CRISIL AA/Placed on 'Watch Negative' and Notice of Withdrawal Working Capital Demand Loan 550 CRISIL AA/Stable Total 3940 -- Total 3940 --