Fitch Assigns 'BBB-(ind)'/ 'F3(ind)' to Magneti Marelli Motherson's Bank Loans

Fitch Ratings has today assigned India's Magneti Marelli Motherson Auto System Limited (MMM) a National Long-term rating of 'BBB-(ind)' (BBB minus(ind)). Fitch has also assigned ratings of 'BBB-(ind)' (BBB minus(ind)) to its term loans of INR250m, and 'BBB-(ind)' (BBB minus (ind))/'F3(ind)' to its fund based working capital limits (amounting to INR50m). The Outlook is Stable.

The ratings factor in the established presence and the strong relationship of its sponsors, Magneti Marelli SpA (part of the FIAT group) and Samvardhna Motherson Finance Limited (part of Sumi Motherson Group), with original equipment manufacturers in the international and domestic automotive industry. Fitch believes the expected management and technical support from the promoters, notwithstanding their extensive experience and relationships, would help MMM obtain adequate business in its product segments despite strong competition. Moreover, the investments in the business are not particularly high for the sponsors, so they are more likely to provide financial support to the company in future, if needed.

Rating constraints stem from the limited track record of MMM's operations (which started in September 2008), its currently small order book, and anticipated low operating margins. The agency notes that there is significant debt repayments expected to begin from May 2010 in relation to its projected operating cash flows. The continuing slowdown in the domestic automotive market may also affect business prospects in the short-to- medium term, negatively impacting the operating profitability and necessitating further promoter contribution to support operations. Fitch, however, notes that the increasing focus of global OEMs on India as a production hub, which would create long term demand for automotive components. The experience of its foreign sponsor in international markets would also offer competitive advantage to the company.

Positive rating factors include higher orders leading to a significant increase in revenues and profitability, and a lower than anticipated leverage in the short-to- medium term. Conversely, the inability to ramp-up operations as per projections, any time cost overrun on its anticipated capex plans resulting in higher borrowings and consequently higher leverage, a reduction in support from sponsors and non-infusion of equity by its sponsors as planned in FY10 and FY11, could all act as a negative trigger to the ratings.

Magneti Marelli SpA and Samvardhna Motherson Finance Limited signed an agreement in January 2008 to set up 50:50 JV, Magneti Marelli Motherson India Holding B.V. (MMM BV), which in turns holds the entire stake in MMM. The products covered as part of this JV includes automotive lighting parts, plastic air intake manifold and other power-train products except engine control unit (ECU), as well as brake and clutch pedal module. MMM currently has orders from FIAT India, Maruti Suzuki, General Motors India and Ford India.

MMM, incorporated in February 2008, has set up two production facilities in Pune and Manesar with an initial capex of INR500m spread over two years FY09 and FY10. The capex has been financed by a debt-equity mix of 50:50, with promoters' contribution being brought in by way of 10% equity capital and 90% compulsorily convertible preference capital. MMM has registered total revenues of INR103.61m and net loss of INR76.56m till YTD Feb'09.

Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.

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