CRISIL reaffirms Mahindra and Mahindra credit rating at ‘AAA / Stable/A1+'; Stock trades in red

13 Jan 2022 , 09:59 AM

CRISIL Limited has revised Mahindra and Mahindra Limited credit rating by inserting the Company’s Environment, Social and Governance (ESG) Profile and reaffirming the rating actions.

The credit rating agency on December 30, 2021, had reaffirmed 'CRISIL AAA / Stable / CRISIL A1+ ' ratings on the bank facilities and debt instruments of Mahindra and Mahindra Limited.

The total bank loan facilities rated are Rs1350cr. The Long-term rating was reaffirmed at CRISIL AAA/Stable and the Short-term rating was reaffirmed at CRISIL A1+.

The credit rating agency reaffirmed rating on different issues of non-convertible debentures (NCDs) Rs475cr, Rs500cr, and Rs500cr at CRISIL AAA/Stable (reaffirmed). For Rs1000cr commercial paper, CRISIL A1+ rating was reaffirmed.

“CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and debt instruments of Mahindra and Mahindra Ltd (M&M). The ratings continue to reflect the leadership position of M&M in the Indian tractor industry, its strong presence in the light commercial vehicles (LCVs) segment, and the benefits of diversification,” company shared CRISIL’s rating rationale.

It further said, the ratings also factor in the strong financial risk profile, supported by a robust balance sheet with low leverage and high financial flexibility. These strengths are partially offset by the decline in market share in the utility vehicle (UV) space over the last few years, and exposure to cyclicality inherent in the farm equipment (tractor) and automotive (auto) segments and risks pertaining to acquisitions and investments in subsidiaries/joint ventures (JVs).

During the first half of fiscal 2022, M&M’s operating income rose by 45% year-on-year to Rs25,068cr over a low base, coupled with strong growth in both auto and tractor volume. Volume, particularly in the UV segment was adversely hit by shortage of semiconductors. Operating margin moderated to 13.1% (220 basis points lower than the level in first half of fiscal 2021), largely due to steep input commodity inflation.

CRISIL Ratings expects the shortage of semiconductors to ease gradually over the next several months, and this, along with healthy demand from its new launches, particularly the XUV 700 and Thar, should support volume growth in the UV segment.

Improving economic activity and healthy demand from sectors such as e-commerce and logistics should lead to higher demand for LCVs. Tractor volume growth is expected to moderate given the high base, yet remain healthy aided by a strong rural economy. Operating margin should be supported by easing commodity inflation and multiple price hikes taken by the company.

At around 9.48 AM, Mahindra & Mahindra Ltd was trading at Rs877.10 per share down by Rs3.65 or 0.41% from its previous closing of Rs880.75 per share on the BSE.