Moody’s Revises Its Motherson Sumi Ratings Outlook To Negative
The ratings action—from ‘ratings under review’ to ‘negative’—concludes the review for downgrade that was initiated on March 27.
Moody’s Investors Service Inc has revised to negative its ratings outlook for Motherson Sumi Systems Ltd., on account of an expected weak financial performance this fiscal due to the Covid-19 pandemic.
The ratings action—from ‘ratings under review’ to ‘negative’—concludes the review for downgrade that was initiated on March 27, 2020, Moody’s said on Monday. It however affirmed Ba1 corporate family rating (CFR) for the auto components maker.
"The confirmation of Motherson's rating reflects our view that while the challenges brought by the coronavirus pandemic will keep the company's credit profile weak in the fiscal year ending March 2021, its financial metrics should start to recover the following year," Kaustubh Chaubal, vice president and senior credit officer at Moody’s Investor Service, said in a statement.
But even with a recovery, Motherson Sumi's leverage and profitability will stay weak for its Ba1 CFR, reflected in the negative outlook, Moody's said. The negative outlook also reflects weak liquidity and the company's upcoming refinancing tasks under more challenging market conditions, it added.
"The negative outlook indicates the risk of a downgrade if the global auto industry does not recover, with a slower-than-anticipated recovery in the company's financial metrics," Chaubal said.
Earlier this month, Motherson Sumi announced that it will split its domestic wiring harness business to form a new entity, and merge it with Samvardhana Motherson International Ltd., which currently holds 33% stake in the auto components firm.
Both transactions will be cashless and will be undertaken by an issuance of shares. The transaction currently awaits regulatory approvals and is expected to be completed by September 2021.
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On Monday, Motherson Sumi shares fell 0.10% to Rs 96.05 apiece on the BSE while the benchmark Sensex rose 0.27% to end the day at 36,693.69 points.