Rating Rationale
July 27, 2017 | 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 Debentures 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 Ltd (Asian Paints) continue to reflect its leadership position in the domestic paints sector, healthy operating margin, and robust financial risk profile marked by healthy capital structure and surplus liquidity. These strengths are partially offset by susceptibility of profitability to volatility in raw material prices in the industrial paint segment.

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
* Market leadership in the paints industry: The Asian Paints group enjoys a dominant market share of around 45-50% in the organised domestic paints market (second-largest player has market share of about 15%). In the decorative paints segment, which comprises 70% of the Indian paints industry, Asian Paints is the market leader with a share of about 60%. The company also has a healthy position in the automotive industrial coatings segment, with a share of about 20% of the market. Driven by its leadership position, the group's revenue registered compound annual growth rate of 15% in the five years through fiscal 2017. CRISIL believes that the Asian Paints group will maintain its leadership position, driven by its strong brand equity, extensive distribution network, and wide product portfolio.
* Healthy operating margin: The group enjoys a healthy operating margin, which is higher than that of its peers. The healthy operating margin of 17.4% for fiscal 2017 is driven by ability to command a premium because of leadership position and its ability to partly pass on raw material price increases to customers. Backward integration through production of two important raw materials, penta erythritol (penta) and phthalic anhydride, also contributes to the healthy operating margin.
* Strong financial risk profile: Financial risk profile is robust, marked by a healthy capital structure and surplus liquidity. The group maintained low gearing of less than 0.1 time in the past five years, with minimal dependence on debt; its gearing was 0.07 time as on March 31, 2017. It had liquid surplus of Rs 2767 crores as on March 31, 2017. Cash accrual, expected at more than Rs 1000 crore per annum over the medium term, will be sufficient to fund capital expenditure (capex) after servicing modest repayment obligation of Rs 11-12 crores per annum.
* Susceptibility of profitability to volatility in raw material prices in the industrial paint segment: Operating margin has fluctuated in the 15-18% range in the past six years. While the domestic decorative business has the flexibility to pass on price increases, the industrial paints segment is partly susceptible to volatility in raw material (account for 55% of total cost of sales, with titanium dioxide and crude based derivatives accounting for a majority of the total raw material costs) prices. CRISIL believes that while the groups' dominant market position in decorative paint segment will enable it to maintain healthy margins in this segment however, it will remain exposed to volatility in raw material prices in the industrial segment.
Outlook: Stable

CRISIL believes Asian Paints will sustain revenue growth and healthy operating margin over the medium term. Financial risk profile, including liquidity, is expected to remain robust because of moderate funding requirement for capex and working capital.
Downside scenario
* Any steep decline in operating margin or market share in the domestic paints industry
* Large, debt-funded acquisitions or capex, which may affect financial risk profile

About the Company

Set up in 1942, Asian Paints is the largest paint company in India. About 80% of its revenue comes from the decorative paints segment and the remaining from the industrial paints segment and overseas operations. The company produces automotive industrial coatings under PPG Asian Paints Pvt Ltd (rated 'CRISIL AA-/Positive/CRISIL A1+'), a joint venture with PPG Industries, USA.

Asian Paints has 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 company has an industrial paints 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.
For fiscal 2017, net profit was Rs 2,016 crore on revenue of Rs 17,085 crore, against Rs 1,803 crore and Rs 15,842 crore, respectively, in fiscal 2016. In the quarter ended March 31, 2017, net profit and revenue were Rs 480 crore and Rs 4,416 crore (Rs 489 crore and Rs 4,354 crore for the corresponding period in the previous year).

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 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  10  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL AAA/Stable 
Short Term Debt  ST  50  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  562  CRISIL AAA/Stable/ CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL AAA/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST  153  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change  27-11-14  CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
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
Criteria for rating Short-Term Debt (including Commercial Paper)

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