13 Apr , 2021 By : Kanchan Joshi
NEW DELHI : Credit ratings firm Moody’s upgraded its outlook on Motherson Sumi Systems Ltd—one of the country’s largest auto parts manufacturer—to "stable" from "negative" and has reaffirmed its rating of Ba1 on the back of swift recovery in revenue and profitability in the second half of FY21 and prospects of a double-digit growth in the current fiscal.
Today's rating action reflects Moody's view that Motherson's revenue will grow by 8%-10% during fiscal 2022, following an almost 12?cline in the prior year because of the pandemic. The company's strong business profile based on its long-standing relationships with leading automotive original equipment manufacturers (OEMs), as well as good geographic and product diversification, will aid the recovery, the ratings firms said in a note.
"The rating affirmation and outlook change to stable reflect the sustainable recovery in Motherson's revenue and profitability from the trough during the coronavirus pandemic in the first quarter of the fiscal year that ended March 2021. We expect the company to sustain the recovery over the upcoming 12 to 18 months, strengthening its credit metrics, in particular debt/Ebitda leverage tracking below 3.0x," said Kaustubh Chaubal, vice-president and senior credit officer at Moody’s.
Motherson reported an unprecedented loss for the June quarter last year due to the covid-19 pandemic induced disruption in India and across the world which brought vehicle production to a grinding halt. The company though made a swift recovery in the subsequent quarters as carmakers across the globe ramped up production to meet the demand arising from shift towards personal mobility.
The ratings firm further added that the rebound in Motherson’s operations mirrors a continued recovery in global vehicle sales from the second half of 2020, which underpins Moody's stable outlook on the global automotive manufacturing industry. Moody's expects global auto unit sales to grow by 7% in 2021 and around 6% in 2022, following a steep fall of around 14% in 2020 amid the pandemic.
“Moody's favourably views the company's diversification strategy given that it will somewhat derisk its credit profile. In addition, Moody's expects Motherson to continue with a measured and disciplined approach in evaluating acquisitions and executing only those that fit not only the company's quantitative criteria but also other qualitative criteria," Moody’s noted.
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