Rating Rationale
July 09, 2020 | Mumbai
Samvardhana Motherson International Limited
Long-term rating placed on 'Watch Positive'; short-term rating reaffirmed
 
Rating Action
Rs.700 Crore Non Convertible Debentures CRISIL AA- (Placed on 'Rating Watch with Positive Implications')
Rs.400 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its long term rating on the non-convertible debentures of Samvardhana Motherson International Limited (SAMIL) on 'Rating Watch with Positive Implications'. Short term rating is reaffirmed at 'CRISIL A1+'.

The ratings action follows announcement by SAMIL and primary operating company of Samvardhana Motherson Group, Motherson Sumi Systems Limited (MSSL; rated 'CRISIL AA+/Negative/CRISIL A1+') that their board of directors have approved the group reorganisation plan which entails merger of SAMIL into MSSL.

The merger will be effective from 1st April 2021 and is subject to receipt of regulatory and other approvals inter-alia approval from shareholders, creditors, NCLT etc. as may be applicable The credit risk profile of SAMIL is expected to improve in line with the credit risk profile of MSSL post completion of the proposed merger. CRISIL will continue to monitor the progress of the transaction and will take appropriate rating action post completion of the same.

The ratings continue to reflect SAMIL's financial flexibility as the holding company of the Samvardhana Motherson group, being the largest shareholder in the group's primary operating company, MSSL as well as 49% stakeholder in the holding company of group's international business, 'Samvardhana Motherson Automotive Systems Group B.V (SMRP BV, rated  'BB/Stable' by S&P Global Ratings). The ratings are also supported by MSSL's healthy credit risk profile. These strengths are offset by SAMIL's exposure to market-related risks and dependence on refinancing requirements in case of large debt-raising in future.

The cover (ratio of marketable value of SAMIL and its promoters' stake in MSSL to outstanding debt including off-balance liabilities including guarantees etc.) of SAMIL increased to close to 5.8 times as on July 06, 2020 from ~4.9 times as on May 13, 2020. Additionally, as on April 27, 2020, the cash & equivalents at SAMIL stood at Rs 567 crore at standalone level and additional liquidity is also available in its subsidiaries. These cash balances are likely to be maintained in the near term. 

Analytical Approach

CRISIL has followed the holding company approach for analysing the credit risk profile of SAMIL. Furthermore, for the purpose of its analysis, CRISIL has included the standalone debt of SAMIL and off-balance sheet debt (primarily corporate guarantees given by SAMIL to its subsidiaries/joint ventures and group companies). For calculation of the cover over outstanding debt and guarantee, SAMIL's stake in MSSL as well as SAMIL's promoters' stake in MSSL in their individual capacity has been considered.

Key Rating Drivers & Detailed Description
Strengths
* Financial flexibility stemming from shareholding in MSSL and SMRP BV
SAMIL's financial flexibility stems from its 33.43% stake in MSSL, which translates into a market value of Rs 10462 crore (as on July 06, 2020) and its 49% stake in SMRP BV. SAMIL's key companies operate in various segments of the automotive components industry. Being an investment-holding company, SAMIL extends support to its subsidiaries and JVs via investments, loans and advances, or corporate guarantees to lenders for raising loan in its subsidiaries/JVs. While the cover has fallen owing to adverse movements in capital markets, the holdings in the key operating companies provide it financial flexibility to refinance existing and prospective debt exposure, if any. Cover remaining below 5 for considerable time will remain a key rating sensitivity factor.

The total debt (including off-balance sheet guarantees) stood at Rs 1973 crore (non-convertible debentures (NCDs) of Rs 700 crore, term loan of Rs 113 crore and corporate guarantees of Rs 1070 crore and a call / put option available on the optionally convertible debentures (OCDs) of a subsidiary amounting to Rs 90 crore). There is no commercial paper outstanding at present, and there are no maturing principal repayments on the outstanding NCDs and terms loans of SAMIL until February 2021.

While the maximum debt permissible (including off-balance sheet debt) as per debt covenants is Rs. 3,300 crore, overall debt exposure is expected to remain around the present level in the near term. SAMIL is also expected to maintain its existing shareholding in MSSL, except for retiring its debt.

* Healthy business profile of MSSL and reputation of the Samvardhana Motherson group
The group has a demonstrated and well-established management track record. Its flagship company, MSSL, registered a turnover of Rs 63,768 crore in fiscal 2020 and has established itself as the largest automotive-component company in India. The operating margin stood at 7.8% (net of Ind-AS 116 impact) in FY 2020. In fiscal 2021, Covid-19 outbreak is expected to impact the revenues by ~20% with moderation in the operating margin by around 100 bps to ~7%.

Weaknesses
* Market-related risks
SAMIL's credit risk profile will remain susceptible to market risks because its ratings derive considerable strength from the market value of its investment in MSSL, which has displayed volatility over the last one year. Financial flexibility, in terms of cover available, will, to a large extent, depend on prevailing market sentiments and the share price of MSSL. Any increase in systemic risks, leading to a sharp decline in the share price of MSSL, will be a key rating monitorable.

* Dependence on refinancing
Operational cash flow includes dividend (primarily from MSSL) and interest income. In December 2017, the company sold its 1.38% stake in MSSL for a consideration of Rs 1,077 crore. Proceeds from the stake sale were partly utilised for retirement of outstanding debt, leading to a reduction in SAMIL's debt levels. The company received a dividend of Rs 168.5 crore from its subsidiaries and JVs in fiscal 2019, including dividend income from MSSL of Rs 158 crore. Total debt, including guarantees, stood at Rs 1,883 crore (apart from a call / put option available on OCDs of one of its subsidiary amounting to Rs 90 crore at present, and is expected to remain at similar levels in the near term. From fiscal 2021, SAMIL will also start providing consultancy services in the form of centralised teams for corporate finance, company affairs, taxation, secretarial, and legal functions, are also offered to group entities entailing a steady cashflow. However, SAMIL may have to rely on refinancing, in addition to dividend income, to service principal portion of its debt obligation.
Liquidity Strong

SAMIL enjoys financial flexibility from its stake in MSSL (including stake of promoters in MSSL) at Rs. 11388 crore as on July 06, 2020). Additionally, as on April 27, 2020, the cash & equivalents at SAMIL stood at Rs 567 crore at standalone level. The company also holds additional liquidity at the subsidiary level. The cash balances are likely to be maintained in the near term. In addition, SAMIL is expected to receive steady inflow of dividends of about Rs 170 crore from MSSL and other operating entities. SAMIL has already received interim dividend of Rs.158 Crore from MSSL in March 2020. The company has only long term debt with maturities in February 2021 to December 2022. Maintenance of the significant liquidity will remain a key rating sensitivity.

Rating Sensitivity Factors
Upward Factors
* Reduction in debt levels of SAMIL or material increase in market value of stake in MSSL, leading to a substantial increase of cover of at least 7-8 times .
* Sustenance of business risk profiles of key operating entities
* Successful merger of SAMIL into MSSL
* Upward revision in MSSL's credit rating.

Downward Factors
* Cover deteriorating below 5 times (net of liquidity available), for a considerable time
* Downward revision in MSSL's credit rating by more than 1 notch.
* Merger with MSSL does not go through.

About the Company

SAMIL (formerly, Samvardhana Motherson Finance Ltd) was incorporated in 2004 as one of the holding companies of MSSL, the flagship company of the Samvardhana Motherson group. SAMIL is the largest shareholder in MSSL, which is listed on the Bombay Stock Exchange and the National Stock Exchange with a market capitalisation of Rs 31,295 crore (as on July 13, 2020). SAMIL also holds stake in other operating companies including SMRP BV, most of which are present in the automotive components segment. Both SAMIL and MSSL are promoted by Mr VC Sehgal who, along with his family, holds 90.46% stake in SAMIL; Sojitz Corporation, Japan, holds 6.46% stake, while the remaining is held by the employees of the group and the employees' welfare trust.

Key Financial Indicators (Standalone)
As on/for the period ended March 31 Unit 2020 2019
Revenue Rs.Cr 403  250
Profit After Tax (PAT) Rs.Cr 169 60
PAT margins % 41.9  24.0
Adjusted debt/adjusted networth Times 0.58 0.44
Interest coverage Times 3.67 2.02

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs.Crs.)		 Complexity Level Rating Assigned
with Outlook
INE750H07139 Non-Convertible Debenture 04-Dec-19 9.75% 04-Dec-22 700 Simple CRISIL AA-/Watch Positive
NA Commercial Paper NA NA 7-365 days 400 Simple CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  400.00  CRISIL A1+/(Watch) Positive  15-05-20  CRISIL A1+  05-12-19  CRISIL A1+  30-10-18  CRISIL A1+  29-12-17  CRISIL A1+  CRISIL A1+ 
        20-03-20  CRISIL A1+/Watch Developing  20-11-19  CRISIL A1+  10-01-18  CRISIL A1+       
        05-02-20  CRISIL A1+  14-08-19  CRISIL A1+           
            30-07-19  CRISIL A1+           
Non Convertible Debentures  LT  700.00
09-07-20  		CRISIL AA-/(Watch) Positive  15-05-20  CRISIL AA-/Stable  05-12-19  CRISIL AA-/Stable  30-10-18  CRISIL AA-/Stable  29-12-17  CRISIL AA-/Stable  CRISIL AA-/Stable 
        20-03-20  CRISIL AA-/Watch Developing  20-11-19  CRISIL AA-/Stable  10-01-18  CRISIL AA-/Stable       
        05-02-20  CRISIL AA-/Stable  14-08-19  Withdrawal           
            30-07-19  CRISIL AA-/Stable           
Non Fund-based Bank Facilities  LT/ST    --    --    --  30-10-18  Withdrawal  29-12-17  CRISIL A1+  CRISIL A1+ 
                10-01-18  CRISIL A1+       
All amounts are in Rs.Cr.
Links to related criteria
Criteria for rating holding companies (including debt backed by pledge of shares)
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for rating short term debt

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