Rating Rationale
July 26, 2018 | Mumbai
Asian Paints Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.715 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.10 Crore Non-Convertible Debenture CRISIL AAA/Stable (Reaffirmed)
Rs.50 Crore Short-Term Debt CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's ratings on the bank facilities and debt programmes of Asian Paints Limited (Asian Paints; part of the Asian Paints group) continue to reflect its leadership position in the domestic paints sector, healthy operating margin, and robust financial risk profile because of strong capital structure and surplus liquidity. These strengths are partially offset by Asian Paints' susceptibility to volatility in raw material prices and limited pricing flexibility.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Asian Paints and its subsidiaries and associates, together referred to as the Asian Paints group.

Key Rating Drivers & Detailed Description
Strengths
* Market leadership in the domestic paints industry: The group enjoys a dominant share of 45-50% in the organised domestic paints market (the second-largest player has a market share of about 15%). In the decorative paints segment, which comprises 70% of the Indian paints industry, the group has a share of about 60%. It also has a healthy position in the automotive industrial coatings segment with a market share of about 20%. Driven by its leadership position, the group's revenue registered a compound annual growth rate of 11% over the five fiscals through 2018. Strong brand equity, extensive distribution network, and wide product portfolio will help sustain strong market position over the medium term.

* Healthy operating margin: Though profitability has been higher than peers, it moderated marginally to 16.6% in fiscal 2018 from 17.4% in fiscal 2017 on account of increased competition, higher input costs, and headwinds in international operations. Nonetheless, margin will remain strong due to the group's ability to command a premium because of its leadership position; and also because it can partly pass on raw material price increases to customers.
 
* Strong financial risk profile: Gearing has been less than 0.1 time over the past five years due to minimal dependence on debt, and was 0.09 time as on March 31, 2018. The group had liquid surplus of Rs 1,877 crore as on March 31, 2018. Expected annual cash accrual of more than Rs 1,500 crore over the medium term will be sufficient to fund regular capital expenditure (capex).
 
Weaknesses
* Susceptibility of margin to volatility in raw material prices: While the group has the flexibility to pass on rise in prices to customers in the domestic decorative business, the industrial paints segment (accounts for 55% of total cost of sales, with titanium dioxide and crude-based derivatives comprising majority of total raw material costs) is partly susceptible to volatility in raw material prices. Hence, operating margin has fluctuated in the 15-18% range in the past six fiscals.
 
* Limited pricing flexibility: The organised paint industry is dominated by a few large players. Despite this, paint manufacturers face competition from strong regional players, especially in mass-market products. Consequently, while paint manufacturers have the flexibility to pass on cost increases, their ability to absorb cost benefits and thereby increase margins is limited. The Asian Paints group is the most cost-efficient player and also the price leader. However, while the group is likely to maintain its healthy margin, increasing profitability is expected to remain restricted by competition.
Outlook: Stable

CRISIL believes the Asian Paints group will continue to benefit from its market leadership, leading to sustained revenue growth and healthy operating margin over the medium term. Financial risk profile, especially liquidity, is expected to remain robust because of strong cash generation.
 
Downside scenario
* Any steep decline in operating margin or market share in the domestic paints industry
* Large, debt-funded acquisition or capex that may impact financial risk profile

About the Group

Set up in 1942, the Asian Paints group is the largest paint manufacturer in India. About 80% of its revenue comes from decorative paints and the remaining from industrial paints and overseas operations. The group produces automotive industrial coatings under PPG Asian Paints Pvt Ltd (rated 'CRISIL AA/Stable/CRISIL A1+'), a joint venture with PPG Industries, the USA. It is also present in the home improvement and d├'┬ęcor space in India through wholly owned subsidiaries, Sleek International Pvt Ltd (rated 'CRISIL A/Stable/CRISIL A1') for kitchens and wardrobes; and Ess Ess Bathroom Products Pvt Ltd for bath fittings.
 
The group has an installed paint capacity of around 11.3 lakh kilolitre per annum. It has six decorative paints plants in Ankleshwar (Gujarat), Medak (Andhra Pradesh), Kasna (Uttar Pradesh), Sriperumbudur (Tamil Nadu), Rohtak (Haryana), and Khandala (Maharashtra).
 
The group has an industrial paint plant in Taloja (Maharashtra), a phthalic plant in Ankleshwar, and a penta plant in Cuddalore (Tamil Nadu). Sales infrastructure is strong and comprises numerous stock points and a network of over 40,000 dealers with around 37,000 colour tinting machines. Operations span India and 14 countries in South-East Asia, South Asia, the Middle East, and South Pacific Islands through subsidiaries and joint ventures.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 19,506 17,524
Profit after tax (PAT) Rs crore 2,098 2,016
PAT margin % 10.8 11.5
Adjusted debt/adjusted networth Times 0.09 0.07
Interest coverage Times 85.94 88.27

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size   (Rs Cr) Rating Assigned with Outlook
NA Bill Discounting NA NA NA 187 CRISIL A1+
NA Bill Purchase Discounting Facility^ NA NA NA 250 CRISIL A1+
NA Cash Credit & Working Capital demand loan NA NA NA 125 CRISIL AAA/Stable
NA Letter of Credit NA NA NA 68 CRISIL A1+
NA Letter of credit & Bank Guarantee NA NA NA 85 CRISIL A1+
NA Non-convertible debentures# NA NA NA 10 CRISIL AAA/Stable
NA Short-term debt NA NA 7-365 days 50 CRISIL A1+
^Interchangeable with invoice/cheque discounting facility
#yet to be issued
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  0.00
26-07-18 
CRISIL AAA/Stable      27-07-17  CRISIL AAA/Stable  12-08-16  CRISIL AAA/Stable  13-08-15  CRISIL AAA/Stable  CRISIL AAA/Stable 
Short Term Debt  ST  50.00  CRISIL A1+      27-07-17  CRISIL A1+  12-08-16  CRISIL A1+  13-08-15  CRISIL A1+  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  562.00  CRISIL AAA/Stable/ CRISIL A1+      27-07-17  CRISIL AAA/Stable/ CRISIL A1+  12-08-16  CRISIL AAA/Stable/ CRISIL A1+  13-08-15  CRISIL AAA/Stable/ CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST  153.00  CRISIL A1+      27-07-17  CRISIL A1+  12-08-16  CRISIL A1+  13-08-15  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bill Discounting 187 CRISIL A1+ Bill Discounting 187 CRISIL A1+
Bill Purchase-Discounting Facility^ 250 CRISIL A1+ Bill Purchase-Discounting Facility^ 250 CRISIL A1+
Cash Credit & Working Capital demand loan 125 CRISIL AAA/Stable Cash Credit & Working Capital demand loan 125 CRISIL AAA/Stable
Letter of Credit 68 CRISIL A1+ Letter of Credit 68 CRISIL A1+
Letter of credit & Bank Guarantee 85 CRISIL A1+ Letter of credit & Bank Guarantee 85 CRISIL A1+
Total 715 -- Total 715 --
^Interchangeable with invoice/cheque discounting facility
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt

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