| Motherson Lease Solution Limited | ||||
| Rating Reaffirmed | ||||
| 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' rating on the long-term bank facilities of Motherson Lease Solution Limited (MLS).
The rating continues to reflect healthy counterparty risk profiles of the Samvardhana Motherson group (SMG), steady cash flow from lease rentals to Motherson Auto Limited (MAL; 'CRISIL AA/Stable') and its wholly owned subsidiary, MLS and comfortable debt protection metrics. The rating also factors in strong business and financial linkages with, and support from, SMG. These strengths are partially constrained by the performance of MAL and MLS being directly linked to the growth prospects and performance of SMG companies.
The primary income of MAL is through lease rental from its land and buildings on which SMG has its plants and offices in India while MLS earns through lease rental from the vehicles and equipment provided to SMG.
The revenue was Rs 132 crore in fiscal 2023 and ~Rs 108 crore in 9M fiscal 2024. Revenue is expected to grow by 5-7% annually over the medium term driven by escalations in rentals, increase in leasing of vehicles in MLS and commencement of leasing of Noida property admeasuring 5 acres. The consolidated debt service coverage ratio (DSCR) at MAL is expected to remain comfortable at above 1.5 times over the medium term. |
Analytical Approach CRISIL Ratings has taken a consolidated view of MAL combining with business and financial risk profiles of the wholly owned subsidiary, MLS, which leases vehicles and equipment to SMG.
Further, CRISIL Ratings has applied the group notch-up to the rating of MAL. This is because promoters of MAL also own SAMIL and have supported MAL through inter-corporate deposits. Leveraging of the common group name helps MAL negotiate better financial and operating terms with stakeholders, on behalf of smaller group companies. It also ensures high moral obligation for SMG to support MAL, if required.
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: MAL acts as the lessor for factories and corporate and registered offices of SMG companies. Nearly 100% of the lease rentals come from subsidiaries and joint ventures of SMG. Renewal, vacancy, and counterparty risks are low as SMG entities occupy most of the space leased out. Hence, cash flow will continue to be supported by leasing income from SMG companies over the medium term.
MLS leases moveable fixed assets and provides insurance solutions to the SMG companies. The vehicles are leased for five years, after which they are sold in the open market. For equipment, the lease period is 3-7 years. MLS also provides insurance solutions to group companies, though revenue contribution of this business remains low. The entire vehicle requirements of the group are met by MLS, thus ensuring steady cash flow in the form of operating leases. Furthermore, counterparty risk is low as all customers are SMG companies. Growing asset base under lease should continue to augment income and cash flow over the medium term.
Comfortable debt protection metrics Debt protection metrics were moderate, with interest coverage and net cash accrual to total debt ratios of 2.8 times and 0.21 times, respectively, in fiscal 2023. Also, interest coverage ratio is estimated at around 4 times in fiscal 2024. DSCR is expected to be comfortable through the tenure of loan. The debt protection metrics are expected to remain comfortable over the medium term with limited borrowings and steady operating performance. Furthermore, net cash accrual is expected to be Rs 90-100 crore over the medium term against annual term debt repayments of Rs 55-60 crore.
A debt service reserve account (DSRA) is not available for the loans; however, working capital line of Rs 259 crore (Rs 130 crore for MAL and Rs 129 crore for MLS; total undrawn lines of Rs 121 crore) is available as of January 2024 in case of any cash flow mismatch or delay in receipt of rent.
Strong business and financial linkages with, and support from, SMG MAL is critical for operations of SMG entities, as the group does not prefer to work on third-party rented premises for setting up factories to ensure continuity of operations. Further, the corporate office is held by MAL and leased out to group companies. Some of the companies operate on a small scale, which increases the economic incentive for centralised operations.
Also, MLS plays an important role in driving the group’s philosophy of high return on capital employed. By availing leasing services through MLS, capital of the group entities does not get blocked in non-core assets, while centralised leasing and insurance services drives efficiency within SMG entities. This also results in tax benefits for both MLS (through higher depreciation) and SMG entities (through operating lease rentals).
Though currently self-sufficient, promoters and group companies are expected to support both the entities in case of contingencies. Leveraging of the common group name helps the entities negotiate better financial and operating terms with all stakeholders on behalf of smaller group companies and ensures high moral obligation for SMG to support MAL and MLS, if required.
Weakness: The services provided by MAL and MLS are mainly for entities within SMG. Thus, growth in rental income would be directly linked to expansion of operations or new entities being set up within the group. However, as these are long-term lease contracts, with escalation clauses, cash flow from existing rental arrangements should be sufficient for debt servicing.
Any change in the credit risk profiles of the key operating companies in the group will remain a rating sensitivity factor. |
Liquidity: Strong Liquidity remains strong. The cash flows from rental income and existing assets is more than sufficient to cover debt obligation. A DSRA is not available for loans; however, working capital lines of Rs 259 crore is available in case of any cash flow mismatch or delay in receipt of rent and these remain largely ~41% unutilised for the twelve months through January 2024. Promoters of SMG group will support both the entities in case of exigency. |
Outlook: Stable CRISIL Ratings believes the company is likely to achieve stable revenue growth and generate steady cash flow over the medium term driven by its leasing services to SMG entities. The company will continue to derive strong support from SMG. The company will also benefit from the sustenance of a comfortable financial risk profile in the absence of major debt-funded capex plans in the future. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company MAL, incorporated in 1983, is promoted by Mr Vivek Chaand Sehgal, Mr Laksh Vaaman Sehgal, and Ms Renu Alka Sehgal.
The company owns the land and building on which SMG companies have their plants, registered offices, and corporate offices in India. The arrangement for leasing services is via long-term contracts.
MLS, incorporated in 2009, is a wholly owned subsidiary of MAL. MLS leases assets and provides insurance solutions within the SMG companies. Assets such as vehicles and equipment are provided on lease to group companies. MLS also offers insurance solutions: guidance, advisory, and procurement and claim settlement services. |
Key Financial Indicators: MLS
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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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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Criteria Details
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