Rationale

The ratings reaffirmation continues to reflect Mahindra CIE Automotive Limited's (MCIE) large scale of operations; comfortable leverage and coverage indicators with gearing at 0.3 times and TD/OPBITDA at 1.4 times as on June 2019; and well diversified presence across geographies, automotive segments, products, end user industries including passenger vehicles (PV), commercial vehicles (CV), two-Wheelers (2W) and Off-Highway segments. MCIE is expected to continue to benefit from CIE Automotive SA‘s (CIE) strong technological expertise along with its established relationships with global OEMs. The rating strengths are partially offset by MCIE's subdued return indicators (RoCE) as compared to other peers in similar rating category primarily due to sub-par performance of the German forging business, and the inherent cyclicality in the global automotive industry. Merger of Bill Forge Private Limited (BFPL) with standalone operations will result in improved synergies and, hence, profitability of the standalone operations though its overall impact on consolidated profile will be credit neutral. Recently acquired Aurangabad Electricals Limited (AEL) will help MCIE in entering Aluminum Die casting business which will further aid in diversification of business segments, product segment (aluminium casting) as well as that of client base. AEL's acquisition is expected to help Indian operation to report modest growth in CY2019, which otherwise could have witnessed over 15% decline in turnover. European business, which accounted for 58% of revenue during CY2018, is likely to witness muted growth amid slowdown in key geographies and weakness in the European CV market. With expected cash accruals of Rs 700-900 crore annually, and capex of Rs 400-500 crore, the company's credit profile is expected to further strengthen over the medium term. ICRA expects the company to maintain its credit profile through its organic and/or inorganic investment plans; although ICRA would evaluate the impact of any such investments on the credit profile on a case-by-case basis. Any large debt-funded acquisition or greenfield expansion will remain a key rating sensitivity for the firm. ICRA expects MCIE's credit profile to benefit from various cost rationalization and productivity improvement measures in India as well as overseas business; and the firm's focus on improving its product, segmental as well as customer mix along with better asset utilisation. With expected improvement in cash accruals and modest debt repayment obligations, the cash flow position of the company is expected to remain comfortable.