Moody’s Investors Service on Monday changed the outlook on the issuer rating of Motherson Sumi Systems Ltd to negative from stable and at the same time it has affirmed the “Baa3” rating. Data from Bloomberg showed that total debt of Macrotech Developers Ltd stood at Rs 11,534.2 crore as on March 2019.
“The negative outlook principally reflects the weak performance of Motherson’s greenfield operations as well as slowing global auto sales, and our concerns around timely recovery, in turn weighing on the company’s consolidated earnings and cash flow generation,” said Kaustubh Chaubal, vice-president and senior credit officer, Moody’s Investors Service.
In its rating rationale, the rating agency said that Motherson’s European operations accounted for more than 40% of the company’s consolidated revenue in the fiscal year ending March 2019 (fiscal 2019). Weak auto demand particular in the company’s European operations and a delay in the ramp-up of its greenfield expansions have hurt the company’s credit profile.
Moody’s expects a 3.8% decline in global light vehicle sales in 2019 and another 0.9% decline in 2020. Moody’s negative sector outlook for auto part producers incorporates the expectation of a 100-150 basis points decline in profitability in 2019, with no significant recovery in 2020. The negative outlook on Motherson’s “Baa3” rating reflects these challenging industry conditions and the likelihood that the company’s credit metrics will remain close to their downgrade triggers.
The rating agency also said that Motherson’s business comprises wiring harness operations housed under the parent entity, Motherson, and its wholly-owned subsidiary PKC Group, rearview mirrors and modules and polymer products.
The rearview mirrors and polymer operations are undertaken through Motherson’s 51% owned subsidiary, Samvardhana Motherson Automotive Group, B.V (SMRP). “The affirmation of the Baa3 rating reflects the steady performance of Motherson’s operations excluding SMRP, which provide a significant cushion to the company’s consolidated metrics,” said the Moody’s in their report. On Monday the stocks ended the day at `125.60 up by Rs 3.35 or 2.74%.