Mumbai: Several automotive companies have taken the corporate bond route to raise capital to fund cash-flow mismatches, in the wake of the nationwide lockdown that has halted their production and sales.
In the past two weeks, at least five companies have either issued, or announced plans to issue, non-convertible debentures worth a total of Rs 5,500 crore, as per information available from filings with stock exchanges. These companies are Tata Motors, Mahindra & Mahindra, TVS Motor, Apollo Tyres and Motherson Sumi.
Revenue for automotive companies was negligible in the past one month, as factories and dealerships are shut. Further, they have significant fixed costs like employee salaries, resulting in cash-flow mismatches.
Ratings and research company Crisil forecast a revenue decline upwards of 20% for automakers in the aftermath of Covid-19. Capacity utilisation levels for several companies, especially commercial vehicle makers, may fall below their operating cost levels, resulting in operating losses.
Commercial vehicle players are likely to borrow, “given that they might report operating losses, which means that they need to have other funds to pay their interest also”, Crisil Research director Hetal Gandhi said.
Mahindra said the company had high cash levels with low debt, and its board had initiated several measures to conserve capital. “We have issued NCDs and will draw down on some bank lines to ensure we have a sufficient cash buffer to provide liquidity in any scenario while maintaining a healthy debt-equity ratio,” Mahindra Group chief financial officer Anish Shah said in an emailed response to ET’s queries.
An Apollo Tyres spokesperson said funds would be used for “general corporate purposes.” Tata Motors did not respond to an email seeking comment till time of going press Tuesday. Motherson Sumi and TVS Motor, which sent its statement to stock exchanges Tuesday, couldn’t be reached immediately.