| MothersonSumi Infotech & Designs Limited | ||||||
| Rating reaffirmed at 'CRISIL AA / Stable'; 'CRISIL A1+ ' assigned to Bank Debt; Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ ratings on the long term bank facilities and has assigned its ‘CRISIL A1+’ ratings to the short term bank facilities of MothersonSumi Infotech and Designs Limited (MIND).
The rating was upgraded to ‘CRISIL AA/Stable’ on February 02, 2022 which reflected the completion of merger of Samvardhana Motherson International Ltd (SAMIL; upgraded to 'CRISIL AA+/Stable/CRISIL A1+' from CRISIL AA/Watch Positive/CRISIL A1+) with Motherson Sumi Systems Ltd (MSSL; CRISIL AA+/Stable/CRISIL A1+).
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. Post receipt of NCLT order and completion of this merger, credit profile of MIND has improved due to change in parent with stronger credit profile.
The rating reflects MIND being the information technology (IT) arm of the Motherson group, healthy operating performance, comfortable financial risk profile and support from the parent. These strengths are partially offset by a low share of non-group clients.
Revenue of MIND is estimated to improve to ~Rs. 540 crore in fiscal 2022, led by growing IT hardware and software and application requirement of the Motherson group, which contributes to 70-75% of the revenue of MIND. The company has developed and enhanced IT capabilities to cater to the growing needs of organisation across industries such as manufacturing, healthcare and finance. In medium term, operating income is estimated to increase to Rs 620-800 crore. Owing to increase in employee costs and operating overheads largely for new businesses to expand its capabilitie and slower ramp up of new business will lead to moderation in margin and losses in current fiscal. However, the same is expected to recover to 4-5% in medium term with scaling up of the new businesses.
Increasing investment in IT capabilities has led to debt rising to Rs 107 crore in fiscal 2022, from Rs 19 crore as on March 31, 2018. MIND will continue to strenghthen its IT capabilities with investment of Rs 30-50 crore over the medium term. This will be funded through internal accrual of Rs 24-40 crore per fiscal and expected infusion of ~Rs 125 crore from parent. As a result, gearing will likely remain at 0.12-0.14 time over the medium term. Support from the holding company through a loan of Rs 31.5 crore estimated as on March 31, 2022, has limited dependence on external borrowing. CRISIL Ratings believes parent company MSSL will continue to extend support to MIND if needed. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has considered a consolidated approach and factored in support from the parent.
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:
MIND is expected to receive strong operational and technical support from parent MSSL. Key management personnel from the Motherson group are on the company’s board of directors. MIND derives 70-75% of revenue from the Motherson group. The company has increased investment in shared services (cloud) and digital engineering to cater to non-group clients, and expects this segment to contribute 50% to sales.
MIND meets various IT requirements (hardware, software and special applications) of the Motherson group, indicating its strategic importance to the group. The company serves over 250 factories of the group. It expects to bag a larger share of the IT spend of the group by strengthening IT capabilities and investing in various applications.
MIND plans to increase revenue from non-group customers to around 50% from the current 20-25%. The company caters to several industries such as manufacturing, healthcare, financial services, and education. It is banking on cloud shared services and has more than 100 non-group customers.
The operating margin will moderate to negative levels in fiscal 2022 as MIND increases its employee strength from the current 2,000 to more than 3,300 and increase in operating overheads for the new businesses. Post the investment phase, the margin is likely to improve to 4-5% as fixed cost absorption improves.
Debt metrics to weaken in current fiscal due to moderation in operating performance and debt funded capex being carried out. Debt metrics are expected to moderate current fiscal with moderation in operating profitability. MIND is expected to received Rs 125 crore funds infusion in first quarter of fiscal 2023 which is likely to offset the impact of weaker cash accruals and will result in reduction in total debt in the near term. Total debt increased from Rs 72 crore as on March 31, 2021 to Rs 138.5 crore as on December 31, 2021 which is likely to remain below Rs 50 crore in the medium term post equity infusion. CRISIL expects strong support from promoters to continue to fund investments, and debt obligations on need basis in future as well.
Weaknesses:
MIND’s scale of operations is modest compared with its peers that commenced operations at the same time. MIND depends on the Motherson group for business, with the group currently accounting for 70-75% of revenue. The company plans to bring on board external customers to improve revenue diversity.
With rapid evolution of the IT services sector, competition is intensifying as more companies vie for a share of the new IT business. As MIND looks to increase non-group revenue, it has to compete with multiple players in most of the business verticals. |
Liquidity: Strong Bank lines are used sporadically. The promoters will continue to provide support in the form of promoter loans, expected funds infusion of ~Rs 125 crore in fiscal 2023 and the Motherson group has also articuled support to MIND. Healthy financial flexibility of the group has led to comfortable interest rates from bankers. The company is borrowing at 7-7.5%, in line with other Motherson group companies. |
Outlook: Stable CRISIL Ratings believes MIND will continue to benefit from the strong linkages with its parent and expanding business operations with diversified customer base. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company MIND is the information technology arm of the Motherson group. It is a digital transformation company specialising in helping businesses utilise data, analytics, IoT, and cloud-based applications to improve efficiency and facilitate new technologies. Over the past 20 years, MIND has partnered with over 200 customers in 47+ locations across the globe.
As on December 31, 2021, the company has achieved net loss of Rs 43 crore and Net sales of Rs 383 crore on a consolidated basis. |
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)
*Interchangeable with LC of Rs 20 crore and BG of Rs 20 crore |
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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This Annexure has been updated on 16-Mar-2022 in line with the lender-wise facility details as on 06-Aug-2021 received from the rated entity.
Criteria Details
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