Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank loan facilities of Motherson Sumi Wiring India Limited (MSWIL) at ‘CRISIL AA+/Stable/CRISIL A1+’.

 

The ratings continue to reflect established market position of MSWIL in the wiring harness segment of domestic automotive components industry, long term relationships with most major auto original equipment manufacturers (OEMs), robust financial risk profile and strong parentage of Samvardhana Motherson International Limited and Sumitomo Wiring Systems. These strengths are partially offset by single product portfolio of MSWIL in automotive component industry, geographical concentration in the domestic market and exposure to cyclicality in auto sector.

 

MSWIL revenue has continued to grow in FY24, registering a growth of ~18% to ~Rs. 8,300 crores, compared to ~Rs. 7,000 crores in FY23. The growth was backed by healthy demand in the Indian automotive industry. The revenue is expected to increase by 8-10% in the medium term. The growth in revenue will be driven by an increase in the content per vehicle on account of premiumization. Operating profitability is expected to sustain at around 12-13% in the medium term, and around 12.2% in fiscal 2024 due to an increase in revenues and better absorption of fixed costs. The localization of component manufacturing also contributes to the margin improvement.

 

The company has planned a capex of Rs. 200 crores in FY25, funded entirely by internal accruals. Around 70% of this would be utilized for growth and expansion, the remaining 30% being utilized for productivity, quality improvement, as well as the maintenance of the replacement of the assets which have lived their useful life. It is going to set up 2 new facilities, which are expected to be operational starting early Q2 FY25, in addition to the 26 facilities in place. The new facilities will cater to both ICE (Internal combustion engine) as well as EVs (Electric vehicles) and will add 8-10% to the existing capacity, once they reach the optimal level of utilization.

 

MSWIL is focused on organic growth through increasing content per car. With domestic wiring harness segment of automotive components industry dominated by few players and MSWIL being the market leader, opportunities for inorganic growth through acquisitions are limited. Hence, leverage of MSWIL is expected to remain low.

Analytical Approach

CRISIL Ratings has taken a standalone approach for MSWIL.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in domestic wiring harness industry: MSWIL has an established market position and is the market leader in domestic wiring harness segment. Its dominant market position is further supported by established long term relationships with most major auto OEMs in India. MSWIL is focused on organic growth in domestic wiring harness industry. The revenue is expected to increase by 8-10% in FY25. The growth in revenue will be driven by an increase in the content per vehicle on account of premiumization.

 

• Diversified revenue profile across customers and vehicle segments: MSWIL’s revenue profile is well diversified across various domestic customers and segments, with top 10 customers contributing around 70%-80% of overall revenues. Healthy customer diversity is expected to moderate impact in case of slowdown in demand.

 

Further, MSWIL’s also enjoys moderate diversification in vehicle segment with around 58% of revenues being contributed by Passenger Vehicles (PV) segment and remaining revenues being contributed by Commercial Vehicles, 2 wheelers, off road vehicles etc.

 

With auto component sector revenues expected to grow by 8-10% in fiscal 2025, MSWIL is expected to benefit from the same. In the previous decade, MSWIL’s revenues have grown by CAGR of more than 10% whereas PV segment production has grown at around 2%.

 

• Strong parentage of Samvardhana Motherson International Limited and Sumitomo Wiring Systems: MSWIL enjoys strong parentage of Samvardhana Motherson International and Sumitomo Wiring Systems (SWS) which holds 33.4% stake and 25.1% stake in MSWIL respectively. SAMIL and SWS both have strong financial flexibility backed by robust financial position.

 

Further, MSWIL is also backward integrated with SAMIL and a significant percentage of raw materials and components are being sourced directly from parent companies SAMIL and SWS. MSWIL also utilizes manufacturing facilities and offices of SAMIL as per agreement at the time of group reorganization and demerger of domestic wiring harness business from SAMIL. 

 

• Strong financial risk profile: The financial risk profile remains robust backed by negligible debt. Total debt has reduced to Rs 8.6 crore in FY24 from Rs 81.8 crore in FY23. The networth of the company is expected to improve to ~Rs. 2100 crores in the medium term, compared to Rs. 1677 crores in FY24. The TOL/TNW is expected to be in the range of 0.7-0.8x in the medium term, compared to 0.84x in FY24. With 3-4 players dominating the domestic wiring harness market and opportunity for inorganic expansion through acquisitions remaining low, leverage is not expected to materially increase.

 

Debt protection metrics are also strong with adjusted interest coverage of ~37 times in FY24 and expected to improve further in the medium term.

 

Weaknesses:

• Product and geographic concentration: MSWIL derives its revenues from a single product line i.e. wiring harnesses. The product concentration exposes MSWIL’s operating performance to demand moderation in auto sector. Also, entire revenues are generated from sales within India, resulting in a concentration risk in case of an economic downturn in the domestic market.

 

Further, in case of slowdown in auto sector demand, premiumization of passenger vehicles may reduce which may also impact operating performance of MSWIL.

 

• Exposure to cyclicality in demand in automobile industry: MSWIL’s revenues, though diversified, remains closely aligned with performance and demand in automobile industry. Due to dependence on auto OEMs, MSWIL’s business prospects are exposed to cyclical demand patterns inherent to automobile industry and ability of auto OEMs to sustain their operating performance.

Liquidity: Strong

MSWIL has strong liquidity driven by expected cash accruals of more than Rs. 500 crores per annum in FY25 and FY26 and cash and bank balances of Rs.268 crores as on March 31, 2024. MSWIL also has access to fund-based limits of Rs.550 crores, utilized to the tune of 12% on an average (including NFB limits) over the 12 months ended March 2024. The company has negligible long-term debt and plans to incur capex of around Rs.200 crore for FY2024-25 funded by internal accruals. CRISIL believes the company has sufficient accruals to finance its capex requirements. Its unutilized bank lines are more than adequate to meet its incremental working capital needs, over the next one year.

 

ESG Profile:

CRISIL Ratings believes that MSWIL’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

Key ESG Highlights:

•         MSWIL plans to achieve net-zero emissions for its own operations by 2040 through various initiatives including

•         switching to renewable energy and improving energy efficiency.

•         Ridge Ventilators are installed on the roof for the natural exhaust system. This initiative has significantly contributed to our overall power conservation efforts.

•        To further reduce our carbon footprint, we prioritize the use of recyclable materials and avoid building materials that require excessive energy consumption during processing. This commitment to sustainable material selection supports our broader environmental goals.

•         The company’s scope 1 and 2 emissions and energy consumption intensities stood at ~0.00027metric ton Co2 per rupee as against 0.0003, which were lower than its listed peers.

•        MSWIL’s lost time injury frequency rate for workers stood at 0.3x (lower compared with its peers) and its share of female workforce (at ~15% for employees and ~51% for associates) was relatively higher than peers.

•        As on March 31, 2024, its governance structure is characterized by ~50% of its board being independent directors (five), one woman board director, split in position of chairperson and executive director, and extensive financial disclosures.

Outlook: Stable

CRISIL Ratings believes that MSWIL's credit profile will continue to remain robust backed by established market position in domestic wiring harness industry alongwith strong parentage of Samvardhana Motherson International Limited (SAMIL) and Sumitomo Wiring Systems (SWS).

Rating Sensitivity factors

Upward factors:

•          Increased diversity in product profile and geographic presence

•          Significant ramp up of operations with cash accruals sustaining above Rs 1000 crore

 

Downward factors:

•         Significant deterioration in business profile marked by decline in revenue and/or weakening of operating margins leading to annual cash accruals of less than Rs 250 crore for prolonged time

•         Sharp deterioration in financial risk profile due to any large capex or debt funded acquisition or deterioration in liquidity profile.

About the Company

Motherson Sumi Wiring India Limited (MSWIL) was established on July 02, 2020 and started operations from April 01, 2021 as a result of reorganization of Samvardhana Motherson International Limited (erstwhile Motherson Sumi Systems Limited) wherein the automotive wiring harness business for Indian OEMs was demerged from the parent company and established under MSWIL.

 

MSWIL is a joint venture with Sumitomo Wiring Systems, Ltd., a global leader in the manufacture of wiring harnesses, harness components, and other electric wires. The company is a full system solutions provider to its customers and is equipped to cater to their requirements in every step of the supply chain from the initial product design and validation, through tool design and manufacturing, finishing, and processing, assembly, production of integrated cutting edge Electrical & Electronic Distribution Systems for the power supply or data transfer across vehicles to sequencing in-line supplies.

 

MSWIL operates through its 26 facilities and is adding 2 new facilities, consisting of manufacturing and assembly sites and technical centres across India and employs more than 45,000 people.

 

MSWIL had achieved revenues and PAT of ~Rs 8,300 crore and Rs 638 crore in FY24 as compared to revenues and PAT of ~Rs 7,000 crore and ~Rs 480 crore in FY23.

About the Group

Samvardhana Motherson International Limited (SAMIL; formerly Motherson Sumi Systems Limited (erstwhile MSSL)), the flagship company of the Samvardhana Motherson group, was incorporated as a JV between erstwhile Samvardhana Motherson International Ltd (erstwhile SAMIL) and SWS in 1986.

 

On July 02, 2020, board of directors of erstwhile MSSL and erstwhile SAMIL have approved reorganization of business which entails demerger of the domestic wiring harness business from erstwhile MSSL into a new company, with similar shareholding structure as that of MSSL and subsequent merger of erstwhile SAMIL into erstwhile MSSL with the merged entity renamed as SAMIL. SAMIL now holds 100% stake in Samvardhana Motherson Automotive Systems Group BV ('SMRP BV, rated 'BB/Stable' by S&P Global Ratings'). Besides, SAMIL also holds 33.4% stake in the demerged DWH business housed under newly created entity Motherson Sumi Wiring Harness Limited (MSWIL) subsequent to completion of the transaction.

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs.Crore)	Complexity Level	Rating assigned with outlook
NA	Working Capital Demand Loan*	NA	NA	NA	150	NA	CRISIL AA+/Stable
NA	Cash Credit**	NA	NA	NA	150	NA	CRISIL AA+/Stable
NA	Letter of Credit#	NA	NA	NA	150	NA	CRISIL A1+
NA	Overdraft Facility^	NA	NA	NA	150	NA	CRISIL AA+/Stable

*Interchangeable with Overdraft, Letter of Credit and Purchase Invoice Finance

**Includes sub-limit of LC, Capex LC, SBLC for Buyer’s Credit and BG

#Includes sub-limit of BG, CC, WCDL and SBLC for Buyer’s Credit

^Includes sub-limit of STL and BG