Moody's downgrades Motherson Sumi outlook to negative on weak performance

Rating firm Moody's Investors Service on Monday downgraded the rating outlook of auto component maker Motherson Sumi Systems outlook to negative from stable, mainly on account of weak performance of the company.

However, it has retained the company's rating at Baa3.

"The negative outlook principally reflects the weak performance of Motherson's greenfield operations as well as slowing global auto sales, and our concerns around timely recovery, in turn weighing on the company's consolidated earnings and cash flow generation," a Moody's Vice President and Senior Credit Officer Kaustubh Chaubal said in a statement.

The company's European operations accounted for more than 40 per cent of the company's consolidated revenue in the fiscal year ending March 2019.

"Weak auto demand, in particular in the company's European operations, and a delay in the ramp-up of its greenfield expansions have hurt the company's credit profile," it said.

The rating agency expects a 3.8 per cent decline in global light vehicle sales in 2019 and another 0.9 per cent decline in 2020.

Moody's negative sector outlook for auto part producers incorporates the expectation of a 100-150 basis points decline in profitability in 2019, with no significant recovery in 2020, it added.

"The negative outlook on Motherson's Baa3 rating reflects these challenging industry conditions and the likelihood that the company's credit metrics will remain close to their downgrade triggers," the rating agency said.