CRISIL Ratings downgraded premium car manufacturer Mercedes-Benz India Pvt.

Ltd (MBIL) by a notch citing production cuts and weaker demand amid COVID19 outbreak. The Indian arm of global rating company S-P cut the creditworthiness to AA+ with negative outlook from triple-A/negative on long term bank credit facilities upto Rs 1,500 crore. “Given the strong linkages on account of the operational and financial support received from its parent, the revision in rating of Daimler has impacted the overall credit profile of MBIL,” the rating company said in a release. The rating action followed the latest revision by S-P Global Ratings of parent, Daimler AG's (Daimler's) long term ratings to 'BBB+/Negative' from 'A-/Negative' on account of weaker global demand outlook and production cuts taken by the company in view of the Covid-19 outbreak. German-based Dailmer is the main parent company for Mercedes cars worldwide.

MBIL's immediate parent, Mercedes-Benz AG (Mercedes-Benz; 100% subsidiary of the ultimate parent, Daimler) plays an important role in the overall Daimler group's revenue and profitability. New Delhi has locked down the whole country since March 25, a move aimed at preventing coronavirus that has killed thousands of people across the globe. The negative outlook reflects the high degree of uncertainty regarding the economic impact of the pandemic, its implications for global car sales, and how it could affect Daimler's performance and ability to manage the expected earnings decline and cash outflows, the rating company said. MBIL's long-term debt is in the form of external commercial borrowings from Daimler.

Besides, Daimler has also guaranteed MBIL's short-term working capital debt. MBIL's adequate liquidity is driven by expectation of support from the parent, Daimler, to provide ongoing and need-based support in case of exigencies. As on March 31, 2020, outstanding external short-term loans guaranteed by Daimler stood at Rs 1,729 crore on a sanctioned working capital and over draft limit of Rs 2324 crore.

Further, MBIL also had cash surplus of just over Rs 300 crore as on March 31, 2020. MBIL's production facility spread over 100 acres in Chakan, Pune assembles a wide range of models including sedans and sports utility vehicles (SUVs) largely imported in CKD condition from branches of Mercedes-Benz.