Motherson Sumi Systems fell 2.06% to Rs 61.90 after Moody's Investors Service assigned a Ba1 corporate family rating (CFR) to the company and has withdrawn the company's Baa3 issuer rating.
At the same time, Moody's has placed the Ba1 CFR under review for further downgrade. The outlook has been revised to rating under review from negative.
"The rapid and widening spread of the coronavirus outbreak is creating a severe and extensive credit shock for Motherson," says Kaustubh Chaubal, a Moody's vice president and senior credit officer. "The review for downgrade of the Ba1 CFR will focus on the impact from the outbreak on manufacturing operations, consumer demand, and on any government support and countermeasures taken by Motherson."
The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The auto parts supplier sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment, the ratings agency said.
More specifically, the weaknesses in Motherson's credit profile, including its exposure to final consumer demand for automobiles, has left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Motherson remains vulnerable to the outbreak continuing to spread, it further said.
"The downgrade is driven by Motherson's already weak positioning in the Baa3 rating category before the current market stress, with financial metrics below our expectation for a Baa3 rating," adds Chaubal.
Given that auto parts suppliers has been one of the sectors most significantly affected by the shock as described above, Motherson's Ba1 CFR is on review for further downgrade.
The level of cash, availability under liquidity facilities, financial maintenance covenant pressure, and the pressure of refinancing debt maturities coming due over the next 12-24 months will be major considerations in Moody's review of liquidity profiles. Moody's expects to conclude the review within 90 days.
Given the current market situation Moody's does not anticipate any short-term positive rating pressure. A stabilization of the market situation leading to a recovery in metrics to pre-outbreak levels could lead to positive rating pressure.
Moody's could downgrade the rating if Motherson fails to return to meaningful operating profit generation in the second half of 2020 allowing it to reduce the cash burn.
The scrip continued to extend losses for second day. In the past two sessions, the stock has fallen 4.92% from a recent closing high of Rs 65.10 recorded on 26 March 2020.
Motherson Sumi Systems is one of the world's leading specialized automotive component manufacturing companies for OEMs.
The auto ancillary's consolidate net profit slumped 30.5% to Rs 270.51 crore on a 4.9% fall in net sales to Rs 15436.46 crore in Q3 December 2019 over Q3 December 2018.
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