Rating Rationale
August 05, 2022 | Mumbai
Berger Paints India Limited
Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'; Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.1400 Crore (Enhanced from Rs.1000 Crore)
Long Term RatingCRISIL AAA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.1000 Crore (Enhanced from Rs.700 Crore) Commercial PaperCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings’ ratings on the bank facilities and commercial paper programme of Berger Paints India Limited (Berger Paints) continues to factor the well-established market position in the domestic paint industry and healthy financial risk profile. The company is the second largest domestic player in the decorative paint segment and the largest player in the non-auto industrial paint segment. These rating strengths are partially offset by moderate segmental diversity in revenue, vulnerability in raw material cost and limited pricing flexibility.

 

Revenues for fiscal 2022 grew by 28% to Rs 8,762 crores from Rs 6,818 crores driven by robust growth in the decorative and industrial segment. The decorative segment contributed to 80% of the total overall sales while balance was contributed by the industrial segment. Demand pick up was stronger in Tier -I cities (i.e. larger cities and towns). Revenue growth of 10% is expected over the medium term, supported by launch of new products and painting campaigns, up-trading towards higher value products and capturing market share from the unorganized players. Operating margin witnessed moderation in FY22 to 15.8% from 17.7% in FY21 on account of sharp increase in raw material prices which was not fully passed on despite various price hikes undertaken by the company. RM prices accounted for 58% of total revenues in FY22 and around 55-60% of RM prices is linked to crude derivatives. Going froward, operating margins to remain healthy at about 16-17% levels over medium term supported by improved capacity utilizations, price hikes and recent softening of raw material prices.

 

The company’s financial risk profile continues to remain strong marked by high networth of Rs. 3644 crores and sizeable liquid surplus of around Rs 400 crores as on March 31, 2022. Capital expenditure (Capex) is expected to be around ~400 crores for fiscal 2023 on account of setting up new facilities and for maintenance. Even though, the rising working capital requirements are expected to be funded partially through short term borrowings, CRISIL Ratings expects the group to sustain its strong financial risk profile over the medium term.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Berger Paints, its subsidiaries and joint ventures (JVs), as these entities are in the same business. For analytical purposes, CRISIL Ratings has amortized goodwill created upon acquisition over five years.

 

Please refer Annexure – List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established position in the domestic paint industry: The Berger group has strong brands (Silk, Luxol, Weathercoat, Rangoli, Illusions and Jadoo), an extensive distribution network- (over 35,000 dealers) and a wide product portfolio, encompassing enamels, exterior emulsions, distempers, primers and cement paints. It is present across all segments, including decorative and general industrial, auto, protective and powder coating. It is also the second-largest player in the domestic decorative paints industry, and the market leader in the protective coating segment, with a small presence in the auto and powder coating segments. Sales have been increasing through the years led by increased penetration into newer cities and towns, rapid urbanization and low per capita consumption of paints relative to global averages. The strong brand, extensive distribution network and wide product portfolio should help the company sustain its strong market position over the medium term.

 

  • Strong financial risk profile: Tangible networth of Rs 3,644 crore against total debt of Rs 668 crore sas on March 31, 2022, kept gearing low at 0.18 time. Liquidity was adequate, supported by cash and marketable securities of Rs 400 crore as on same date. Return on capital employed (RoCE) was healthy at 29.4% in fiscal 2022. Strong cash accrual and continued focus on pruning the working capital cycle should help maintain the strong financial risk profile.

 

Weaknesses:

  • Limited, yet growing, presence in the non-decorative segment: Around 80% of revenue comes from the decorative segment, while the non-decorative segment accounted for the balance (including protective, powder and auto coatings). Concentration in revenue constrains the ability to fully leverage demand in these segments. The conglomerates looking to disrupt the decorative paints market is another monitorable.

 

  • Vulnerability to volatility in raw material prices and limited pricing flexibility: Despite the oligopolistic nature of the organized paint industry, players face competition from strong regional players, especially in mass-market products. Consequently, while paint manufacturers have adequate flexibility to pass on the increase in cost, their ability to increase the margin is restricted. Hence, the operating margin was in the range of 14-17% for the past four fiscals.

Liquidity: Superior

Expected cash accrual of Rs 800-1000 crore per annum will provide cover for the expected yearly debt of Rs 1000 crore and Rs 900 crore, respectively, in fiscals 2023 and 2024. Liquid surplus was Rs 400 crore as on March 31, 2022. The fund-based limit of Rs 1100 crore was utilized at 82% as on May 2022.

Outlook: Stable

The business risk profile of Berger Paints will remain healthy over the medium term, driven by its established market position, sustained revenue growth and stable operating margin. The financial risk profile will remain strong, aided by healthy cash accrual and improvement in networth, led by steady accretion to reserve and moderate reliance on external debt.

Rating Sensitivity factors

Downward factors

  • Sustained decline in revenues by over 15% in the medium term or sharp decline in market share in the domestic paints industry
  • Intense competition or steep increase in input prices affecting profitability, resulting in steep decline in operating margin to below 12%
  • Large, debt-funded acquisition or capex that may impact financial risk profile
  • Material reduction in liquid surplus

About the Company

Berger Paints, incorporated in 1923, is one of India’s oldest paint companies. It manufactures paints and varnishes, and has a strong distribution network, including 110 stock points, catering to over 25,000 dealers. The company derives around 80% of revenue from decorative segment and the balance from the industrial segment.

 

The company has 14 manufacturing plants: Goa, Puducherry, Maharashtra (Jejuri), Uttar Pradesh (Surajpur factory in Greater Noida, Sandila and Sikandrabad), Rishra, Jammu and Howrah. It had commissioned a large greenfield unit in Hindupur, Andhra Pradesh, in September 2014, and a second unit in Naltoli, Assam, in 2016. The company also caters to overseas markets such as Nepal, Bangladesh, Poland and Russia. It has a production facility in Krasnodar, Russia, and two manufacturing units in Nepal. It has also acquired Bolix SA of Poland, which is a leading provider of external insulation finishing systems (EIFS) in Europe.

 

In June 2016, Berger Paints divested its three- and four-wheeler vehicle businesses (accounting for less than 1% of total turnover) into its existing JV (with Nippon Paints Automotive Coatings Ltd, Japan), Berger Nippon Paints Automotive Coatings Pvt Ltd, matched by an almost equal-sized auto four-wheeler business from Nippon Paints India. The rest of the general industrial and auto (two-wheeler and commercial vehicle) businesses will remain with Berger Paints.

 

In May 2017, Berger Paints acquired Saboo Coatings Pvt Ltd (which makes specialty liquid coatings used in farm and construction equipment, automobiles, fans, electronics, elevators, handicrafts and home furnishing) for Rs 83 crore. In July 2018, the former entered into a JV with Rock Paints Co, Japan, to manufacture auto refinish paints. Berger Paints holds 51% stake in the JV.

 

In November 2019, Berger Paints acquired 95.5% stake in Shalimar Tar Products Ltd (STP Ltd) for a consideration of Rs 130 crore. STP Ltd manufactures construction chemicals, waterproofing chemicals, construction admixtures and tar-based products.

Key Financial Indicators

Particulars

Unit

2022

2021

Revenue

Rs crore

8826

6841

Profit after tax (PAT)

Rs crore

833

720

PAT margin

%

9.4

10.5

Adjusted debt / adjusted networth

Times

0.18

0.16

Interest coverage

Times

27.6

27.9

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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

Maturity date

Coupon rate (%)

Issue size

(Rs crore)

Complexity level

Rating assigned

with outlook

NA

Fund-Based Facilities#

NA

NA

NA

1000

NA

CRISIL AAA/Stable

NA

Non-Fund Based Limit##

NA

NA

NA

400

NA

CRISIL A1+

NA

Commercial Paper

NA

7-365 days

NA

1000

Simple

CRISIL A1+

# Interchangeable between cash credit, working capital demand loan, packing credit, bill discounting, buyer's credit and short-term loans

## Interchangeable between bank guarantees and letters of credit

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Beepee Coatings Pvt Ltd

100%

Subsidiary

SBL Specialty Coatings Pvt Ltd (formerly known as Saboo Coatings Pvt Ltd)

100%

Subsidiary

Berger Jenson & Nicholson (Nepal) Pvt Ltd

100%

Subsidiary

Berger Paints (Cyprus) Ltd consolidated with Berger Paints Overseas Ltd

100%

Subsidiary

Lusako Trading Ltd consolidated with Bolix SA and group*

100%

Subsidiary

Berger Rock Paints Private Limited

100%

Subsidiary

Berger Becker Coatings Pvt Ltd

48.98%

Joint venture

Berger Nippon Paints Coatings Indian Ltd

49%

Joint venture

STP Ltd

100%

Subsidiary
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 1000.0 CRISIL AAA/Stable   -- 08-09-21 CRISIL AAA/Stable 20-07-20 CRISIL AAA/Stable 24-07-19 CRISIL AAA/Stable CRISIL AAA/Stable
      --   -- 31-08-21 CRISIL AAA/Stable   --   -- --
      --   -- 21-07-21 CRISIL AAA/Stable   --   -- --
Non-Fund Based Facilities ST 400.0 CRISIL A1+   -- 08-09-21 CRISIL A1+ 20-07-20 CRISIL A1+ 24-07-19 CRISIL A1+ CRISIL A1+
      --   -- 31-08-21 CRISIL A1+   --   -- --
      --   -- 21-07-21 CRISIL A1+   --   -- --
Commercial Paper ST 1000.0 CRISIL A1+   -- 08-09-21 CRISIL A1+ 20-07-20 CRISIL A1+ 24-07-19 CRISIL A1+ CRISIL A1+
      --   -- 31-08-21 CRISIL A1+   --   -- --
      --   -- 21-07-21 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities& 195 Standard Chartered Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 25 DBS Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 15 JP Morgan Chase Bank N.A. CRISIL AAA/Stable
Fund-Based Facilities& 10 HSBC Bank Plc CRISIL AAA/Stable
Fund-Based Facilities& 43 State Bank of India CRISIL AAA/Stable
Fund-Based Facilities& 11 Axis Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 29 YES Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 120 RBL Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 49 Kotak Mahindra Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 70 BNP Paribas Bank CRISIL AAA/Stable
Fund-Based Facilities& 75 IndusInd Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 50 The Federal Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 158 ICICI Bank Limited CRISIL AAA/Stable
Fund-Based Facilities& 150 HDFC Bank Limited CRISIL AAA/Stable
Non-Fund Based Limit> 5 The Federal Bank Limited CRISIL A1+
Non-Fund Based Limit> 7 State Bank of India CRISIL A1+
Non-Fund Based Limit> 125 ICICI Bank Limited CRISIL A1+
Non-Fund Based Limit> 100 Standard Chartered Bank Limited CRISIL A1+
Non-Fund Based Limit> 10 HSBC Bank Plc CRISIL A1+
Non-Fund Based Limit> 95 RBL Bank Limited CRISIL A1+
Non-Fund Based Limit> 18 Axis Bank Limited CRISIL A1+
Non-Fund Based Limit> 24 YES Bank Limited CRISIL A1+
Non-Fund Based Limit> 7 Kotak Mahindra Bank Limited CRISIL A1+
Non-Fund Based Limit> 9 IndusInd Bank Limited CRISIL A1+
This Annexure has been updated on 05-Aug-2022 in line with the lender-wise facility details as on 05-Aug-2022 received from the rated entity.
& - Interchangeable between cash credit, working capital demand loan, packing credit, bill discounting, buyer's credit and short-term loans
> - Interchangeable between bank guarantees and letters of credit
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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