MUMBAI, OCTOBER 10: Text of Crisil press release on Mahindra & Mahindra Ltd. CRISIL reaffirms ratings on Mahindra & Mahindra LimitedRs 500 mln Working Capital Demand Loans CRISIL AA+/Stable (Reaffirmed) Rs 7500 mln Bank Guarantee and Letter of Credit (Enhanced from Rs.2500 mln) CRISIL A1+ Rs 3000 mln Commercial Paper Programme CRISIL A1+ (Reaffirmed) Rs 3000 mln Short-Term Loan CRISIL A1+ (Reaffirmed) CRISIL's ratings on Mahindra & Mahindra (M&M) continue to reflect M&M's leadership in the Indian tractor and utility vehicle (UV) industry, and its healthy financial risk profile, supported by considerable financial flexibility arising from the market value of its investments. These rating strengths are partially offset by M&M's susceptibility to inherent cyclicality in tractor and automotive segments, and exposure to integration risk of multiple acquisitions, joint ventures (JVs), and collaborations through subsidiaries. M&M is the leader in India's tractor industry, with a market share of 42 per cent in 2010-11 (refers to financial year, April 1 to March 31), and 43 per cent for the three-months period ended June 30, 2011, and its established network in all regional markets. The company has also maintained its leadership in the UV industry in India, with a market share of 52.2 per cent in 2010-11 (56.2 per cent for the three months ended June 30, 2011). M&M reported a healthy growth in both its domestic tractor and UV segments, with volumes increasing by 21.7 per cent and 12.3 per cent respectively for 2010-11 over that in the previous year. The healthy growth is on the back of an already strong growth during 2009-10. Despite increase in raw material prices, the company's standalone operating margin remained healthy, at around 14.9 per cent, in 2010-11 (against 16.3 per cent in 2009-10), as the company was able to pass on the cost increases, registered strong volume growth and achieved better coverage of fixed costs. On the back of healthy volumes growth, M&M reported healthy growth in operating profits and cash accruals; the company's profit after tax (PAT) increased to Rs.26.62 billion in 2010-11 from Rs.20.88 billion in 2009-10. For the three months ended June 30, 2011, M&M reported a growth of around 20 per cent and 14.3 per cent in its domestic tractor and UV volumes respectively. CRISIL believes that, despite higher raw material prices, M&M's cash accruals will remain robust over the medium term - this would be underpinned by healthy revenue growth, the company's established market position, continued focus on product development, and scaled-up capacity at its new plant in Chakan, Pune (Maharashtra). In 2010-11, M&M acquired a 70 per cent equity stake in Ssangyong Motor Company Ltd (SYMC) for a total consideration of around USD378 mln. M&M has also invested around USD85 mln in bonds of SYMC. CRISIL believes SYMC's acquisition will help M&M emerge as a globally competitive UV player by leveraging SYMC's global presence and M&M's competence in sourcing and marketing strategy. While SYMC continues to incur operating losses, it has improved its monthly sales to around 10,000 vehicles during the first half of 2011 (refers to calendar year, January 1 to December 31), up from around 7000 vehicles during 2010. Although, M&M could face challenges in integrating SYMC's global sports utility vehicle (SUV) operations with that of its own, and improving operating profitability of SYMC, CRISIL believes that M&M, given its strong focus on product and vendor development, will be able to refresh the product portfolio of SYMC. M&M's business risk profile is expected to improve, given SYMC's established global distribution network and synergistic benefits that both the entities are likely to reap after integration of operations. M&M's financial risk profile is expected to remain healthy supported by healthy operating cash flows and robust debt protection metrics. Furthermore, M&M's financial flexibility is expected to remain strong, supported by the market value of its investments; the investments are currently valued much higher than its book value, enabling the company to access funds through dilution of equity ownership in subsidiaries. CRISIL believes that M&M's financial risk profile will remain strong over the medium term despite M&M's large capital expenditure (capex) and investment plans, and planned product development. This is underpinned by its low standalone gearing after conversion of bonds, healthy liquidity, and sizeable cash accruals. M&M is susceptible to cyclicality in the tractor and automotive industries. Furthermore, the performances of companies acquired by M&M in the European automotive forgings space and that of its subsidiary, Mahindra Automobile Distributors Pvt Ltd (MADPL; erstwhile Mahindra Renault Pvt Ltd [MRPL]), remained weak during 2010-11; CRISIL believes that these companies may need further financial support from M&M. OUTLOOK: STABLE CRISIL believes that M&M's operating performance and cash accruals will remain strong over the medium term, supported by its established market position in its core businesses, and the company's scaled-up capacities. M&M's financial risk profile is also expected to remain strong over the medium term, despite the increase in its debt level, because of the acquisition of SYMC and other future investments. The outlook may be revised to 'Positive' if there is a strong improvement in profitability of SYMC, sustained improvement in performance of M&M's weak subsidiaries, coupled with continued growth in M&M's revenues and profitability in its domestic operations. Conversely, the outlook may be revised to 'Negative' in case of larger-than-expected debt-funded investments (including acquisitions) or support to weak subsidiaries, resulting in sharp deterioration in M&M's capital structure, or if there is significant deterioration in the operating performance of SYMC. ABOUT THE COMPANY M&M is among the leading tractor manufacturers in the world and is the market leader in UVs in India. It also manufactures three-wheelers and has a presence in the passenger car segment through its subsidiary, MADPL. Over the past few years, M&M has made a number of mergers and acquisitions. It made many acquisitions in the engineering design and automotive components space. M&M has also formed a JV with Navistar International Corporation in the automotive original equipment manufacturing space. M&M also exports tractors, largely to the US and Asian countries, and UVs mainly to Africa, Latin America, Spain, and the member countries of the South Asian Association for Regional Cooperation (SAARC). In May 2010, M&M acquired a majority equity stake in Reva Electric Car Company, which has developed proprietary technology to manufacture electric cars. The Mahindra group, through its subsidiaries and group companies, has a presence in trading, retail, logistics, automotive components, after-market, financial services, hospitality, real estate, and information technology. SYMC is a Korean manufacturer of automobiles; its product portfolio includes three brands of SUVs, two brands of large sedans, a multi-purpose vehicle and a lifestyle pickup (sports utility truck). It also has a manufacturing plant for gasoline and diesel engines, and axles. SYMC has capacity of manufacturing 240,000 vehicles and 300,000 engine units, on a double-shift basis. Besides Korea, SYMC also has a presence in Europe, Russia, South America, the Middle East, Africa and Asia; it has more than 1,200 dealers globally. For 2010-11, M&M reported a net profit of Rs.26.62 billion (Rs.20.88 billion for the previous year) on net sales of Rs.230.45 billion (Rs.183.50 billion). For the three months ended June 30, 2011, the company reported a net profit of Rs.6.05 billion (Rs.5.62 billion for the corresponding period of the previous year) on net sales of Rs.66.73 billion (Rs.51.24 billion). Compiled by Abhijeet SawantPhone: +91 (22) 66866010. feedback@tickerplantindia.com Copyright (c) TickerPlant Ltd.
Copyright (c) TickerPlant Ltd.
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