Detailed Rationale

Crisil Ratings has downgraded its rating on the long-term bank facilities of Berger Becker Coatings Private Limited (BBCPL) to ‘Crisil BBB+/Stable’ from ‘Crisil A-/Negative’.

 

The downgrade factors in the weakening of the business risk profile of BBCPL, evident by lower-than-expected operating margin and hence, the net cash accruals. After disruption in business operations, during fiscal 2023, amidst fire incident taking place in Jan’23, the business operations are yet to recover fully till date. Revenue declined by 7% during fiscal 2024 and while it may witness an on-year growth of 15-20% in the ongoing fiscal, the overall business risk profile shall remain constrained on account of lower-than-expected operating profitability, and hence the net cash accruals. Operating profitability stood at 5.2% during 9M fiscal 2025, down from 6.7% and over 8%, during fiscal 2024 and Crisil’s expectation for fiscal 2025, respectively. This, along with regular dividend outgo, shall lead to the net cash accruals of Rs 8-10 crore during fiscal 2025, as against Crisil’s earlier expectation of over Rs 15-17 crore. Savings in insurance premium and stabilization of new capacities shall aid the margin improvement over the medium term, however, the extent of stated improvement and its sustenance, thereafter, will remain a key monitorable.

 

The rating continues to factor in the company’s comfortable financial risk profile amidst low dependence on external debt. Receipt of insurance premium during fiscal 2024 and further receipt expected over the medium term are deployed/likely to be deployed towards rebuilding of lost capacities along with setting up of back integration plan for resin manufacturing, thereby keeping the reliance on external debt low. Resultantly, leverage profile shall continue to remain healthy, hence, providing financial flexibility. Liquidity, too, stands strong aided by sizeable cushion available in bank lines and low term debt repayments.

 

The rating reflects the established market position and reputed clientele in the coatings segment, and comfortable financial risk profile. These strengths are partially offset by modest scale of operations and lower operating margin.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of BBCPL.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position and reputed clientele: Over the past two decades, BBCPL has forged strong relationships with some of the largest coated steel manufacturers in India.The clientele comprises the JSW group, Arcelor Mittal and Jindal group with no major customer contributing more than 9% of the total revenues in fiscal 2024. Significant market presence of these customers has led to repeat orders, making BBCPL one of the largest producers of industrial coating paints in India. It has been able to retain clients despite the disruption in operations due to the fire breakout at the Goa plant. The company currently has capacity to produce about 21,600 tonne of coatings, which is likely to support the business risk profile.

 

• Comfortable financial risk profile: Networth is expected at Rs 155-160 crore as on March 31, 2025 (Rs 153.7 crore as on March 31, 2024), owing to expected accretion to reserves, though partly constrained on account of dividend outgo. The capital structure has been strong, led by steady accretion to reserve and low reliance on debt, as seen in gearing projected at 0.4-0.5 time and TOLANW ratio at 0.7-0.8 time, as on March 31, 2025 (against 0 time and 0.54 time, respectively, as on March 31, 2024). Receipt of insurance premium during fiscal 2024 and further receipt expected over the medium term are deployed/likely to be deployed towards rebuilding of lost capacities along with setting up of back integration plan for resin manufacturing, thereby keeping the reliance on external debt low. Debt protection metrics may continue to be healthy owing to adequate operating profitability, as indicated by interest coverage ratio expected above ~23 times in fiscal 2025 and more than 11 times over the medium term (~16.1 times for fiscal 2024); and net cash accrual to adjusted debt ratio expected at 0.3-0.4 times in fiscal 2025 and improving over the medium term.

 

Weaknesses:

• Modest scale of operations: Despite continuous growth in revenue, the scale remains moderate. The company is expected to achieve revenue of Rs 300-320 crore backed by Rs 230 crore booked till December 2024 and expected capacity utilisation to support the growth. (Rs 272 crore reported for fiscal 2024). This growth is on a already lower base of operations in fiscal 2024 that were impacted by a fire breakout in January 2023. Despite this, the company shifted its plant and machinery to Nagpur so as to minimise the impact. Currently, the company plans to add new capacities of 3600 MT in Goa Plant (in addition to existing 3600 MT in Goa plant) which are expected to be operational by September 2025, whose successful commercialization remains monitorable. The company is one of the market leaders in the coatings industry, with healthy demand coming in from end users like automobiles, electronics, steel and various other industries, which is expected to bring sustainable growth in the business over the medium term and thus improvement in scale of operations will be closely monitored.

 

• Lower operating margin: The company's operating profitability declined to 5.2% in the first nine months of fiscal 2025, compared to 6.7% in fiscal 2024 and the expected 8% for fiscal 2025 due to rising insurance premium of Rs 4-5 crore, booking of provision for doubtful debts and inventory losses expected to be booked for obsolete inventory in the mobile coating segment. The operations will continue to operate at lower profitability owing to larger fixed overheads being incurred. As a result, combined with regular dividend payments, the net cash accruals for fiscal 2025 are now expected to be lower, ranging from Rs 8-10 crore, down from the previously anticipated Rs 15-17 crore. While cost savings from reduced insurance premiums and the stabilization of new backward integrated production capacities are expected to contribute to margin improvement over the medium term, the extent and sustainability of this will remain a key rating sensitivity factor.

Liquidity: Adequate

Average bank limit utilisation was 16% in the 12 months through December 2024. Net cash accrual is expected to be Rs 9-10 crore in fiscal 2025, excluding insurance claims, and is likely to increase to Rs 18-20 crore over the medium term, which would be sufficient to meet minimal annual debt obligation of Rs 5 crore. Average cash and bank balance were Rs 8.89 crore as on March 31, 2024, while current ratio was healthy at 2.32 times. Crisil Ratings believes the net cash accrual and cushion in bank limit shall be sufficient to meet any business requirement over the medium term.

Outlook: Stable

Crisil Ratings believes BBCPL will continue to benefit from the extensive experience of its promoters and established relationships with customers.

Rating sensitivity factors

Upward factors:

• Timely completion and stabilisation of capex with receipt of insurance claims, leading to further improvement in financial risk profile
• Steady increase in operating income with sustenance of operating margin at 8-9%, leading to more-than-expected net cash accrual
• Efficient working capital management strengthening financial risk profile

 

Downward factors:

• Decline in operating income below Rs 250 crore with sustained fall in operating margin under 6%, leading to lower-than-expected net cash accrual
• Delay in stabilisation of facilities impacting the business and financial risk profiles
• Significant stretch in working capital cycle or any further large, debt-funded capex constraining the financial risk profile

About the Company

BBCPL, incorporated in 1996, manufactures coil coatings and specialty paints, a niche segment in the industrial coatings sector. The company is a joint venture between Sweden-based Becker Industrial Coatings (51% stake) and Berger Paints India Ltd ('Crisil AAA/Stable/Crisil A1+'; 49%). Its manufacturing plants are in Goa and Nagpur.

Key Financial Indicators

As on / for the period ended March 31		9M-2025*	2024	2023
Operating income	Rs crore	230.26	171.91	180.09
Reported profit after tax (PAT)	Rs crore	11.08	17.28	16.50
PAT margin	%	4.81%	10.05	9.16
Adjusted debt/Adjusted networth	Times	0.00	0.12	0.03
Interest coverage	Times	NA	54.23	305.45

*Provisional Unaudited Numbers

Any other information: Not Applicable