Global rating agency Moody's today assigned an investment grade rating with stable outlook to Mahindra & Mahindra, which the homegrown auto major's Group Chairman Anand Mahindra described as a 'Rise' moment.
M&M has been given a 'Baa3' credit rating -- the lowest among all investment grade ratings -- and Moody's said it reflects the "long track record of operations and, at the same time, its adoption of strong corporate governance practices".
However, the declining profitability of the company's automotive business, mainly because of the weak performance of its Korea-based subsidiary Ssangyong Motor, and the limited geographic diversification of the group's non-IT businesses constrain the rating to Baa3, Moody's added.
Elaborating on the first-time issuer rating to M&M, the agency said it takes into account the group's diversified business profile across many areas, including farm equipment, auto, IT, financial services, hospitality and real estate.
"M&M's credit profile is supported by its strong financial flexibility across listed but group-controlled companies -- based on the market value of its investments and which show substantial unrealised value," Moody's Vice-President and Senior Analyst Kaustubh Chaubal said.
The rating also factored M&M's leading market position in India in farm equipment and light commercial vehicle (LCV) goods carriers.
"At the same time, although the group's leading, albeit declining, market position in utility vehicles (UVs) is a strength, increasing competition in the UV segment is a concern," Moody's added.
Commenting on the rating action, Anand Mahindra said: "I am delighted about this investment grade rating by Moody's, which is truly a 'Rise' moment for the Mahindra Group. This achievement firmly anchors our Group aspiration to be among the top 50 most admired global brands by 2021."
'Rise' refers to a global brand-positioning campaign of the Mahindra Group.
M&M also said it is now amongst a very few select Indian corporates which enjoy Investment Grade rating. "It may be relevant to note that India's sovereign rating also stands at Baa3," it added.
An upgrade of M&M's rating will require continued strong operational and financial performance and a further diversification in its businesses.
At the same time, the Baa3 rating could come under pressure if M&M's business profile weakens because of a sustained loss of market share in its key operating segments of tractors, utility vehicles and light commercial vehicles in India, or if Ssangyong Motors continues to report losses.
It could also be under pressure if the company undertakes large debt-funded acquisitions that materially weaken its financial profile, Moody's said.
