Rating Rationale
July 24, 2019 | Mumbai
Berger Paints India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.700 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.500 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper of Berger Paints India Limited (Berger Paints).
 
The ratings continue to reflect the company's established market position in the domestic paint industry and its strong financial risk profile. These strengths are partially offset by limited, yet growing, presence in the non-decorative segment, and 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 Berger Paints, its subsidiaries and joint ventures (JVs), as all these companies are engaged in the same business. For analytical purposes, CRISIL amortises goodwill created upon acquisition for a period of five years.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established position in the Indian paints industry: Berger Paints has an established position in the decorative paints market, backed by strong brands (Silk, Luxol, Weathercoat, Rangoli, Illusions, and Jadoo), well-spread distribution network, and a wide product portfolio encompassing enamels, exterior emulsions, distempers, primers, and cement paints. It is present across all product segments, including decorative, general industrial, automotive, protective, and powder coatings.
 
The company is the second-largest player in the domestic decorative paints industry, and the market leader in the protective coating segment; it also has a small presence in the automotive and powder coating segments.
 
Aided by increased penetration into newer cities and towns, rapid urbanisation, and low per capita consumption of paints relative to global averages, Berger Paints is well-positioned to sustain a compound annual growth rate (CAGR) of 8-10% in revenue over the medium term.
 
* Strong financial risk profile: Financial risk profile is backed by a sizeable networth, comfortable debt protection metrics, and healthy cash-generating ability. Prudence in undertaking capital expenditure (capex) has ensured lower reliance on debt over the years. Liquidity is also supported by healthy surplus of around Rs 489 crore as on March 31, 2019.
 
Moderate capex of Rs 250-300 crore per annum should be funded through sufficient cash accrual of more than Rs 400 crore annually. This, coupled with continued focus on efficient working capital management, should help maintain strong credit metrics (gearing below 0.25 time over the medium term), besides enhancing liquid surplus.
 
Weaknesses
* Limited, yet growing, presence in the non-decorative segment: Around 80% of revenue comes from the decorative segment, and only about 20% is derived from the non-decorative segment (includes protective, powder and automotive coatings). This constrains the company's ability to fully leverage demand prospects in these segments.
 
* Susceptibility to volatility in raw material prices and limited pricing flexibility: Despite the organised paint industry being oligopolistic, manufacturers face competition from strong regional players, especially in mass-market products. Consequently, while paint manufacturers have adequate flexibility to pass on any increase in cost, ability to absorb benefits and thereby increase margin is limited. While Berger Paints will maintain its operating margin at 14-16%, any steep increase could be limited by competition.
Liquidity

Berger paints has ample liquidity driven by expected cash accrual of more than Rs 400 crore per annum against annual debt obligation of Rs 35 crore and Rs 195 crore in fiscals 2020 and 2021, respectively. Liquid surplus was Rs 489 crore as on March 31, 2019. Fund-based working capital limit of Rs 500 crore was moderately utilised. Accrual and cash and cash equivalents will be sufficient to meet debt obligation and fund capex and investment requirements in various subsidiaries.

Outlook: Stable

CRISIL believes Berger Paints' business risk profile will remain healthy over the medium term, supported by a strong market position, healthy revenue visibility due to favourable demand, and stable operating margin leading to healthy cash accrual. Financial risk profile will also remain strong, with moderate capex and low reliance on debt, besides build-up in liquid surplus.
 
Downward scenario
* Sharp deterioration in operating performance severely impacting cash generation
* Sizeable debt-funded acquisitions and material depletion of cash surplus
* Any unrelated diversification, especially if funded by large debt and weakening credit metrics

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 more than 80% of revenue from decorative paints, with revenue growing by a compound annual rate of ~10% between fiscals 2013 and 2019.
 
The company has 13 manufacturing plants across India: Goa, Puducherry, Maharashtra (Jejuri and Taloja), Uttar Pradesh (Surajpur factory at Greater Noida, and Sikandrabad), West Bengal (Rishra and Howrah), Jammu, Andhra Pradesh (two units in Hindupur), and Assam (Naltoli and Nalbari). The company also caters to the overseas markets of Nepal, Bangladesh, Poland, and Russia. It has a production facility in Krasnodar, Russia, and two manufacturing units in Nepal. The company has also acquired Bolix SA of Poland, which is a leading provider of external insulation finishing systems in eastern Europe.
 
In June 2016, Berger Paints divested its auto three-wheeler and four-wheeler 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 remaining parts of the general industrial and auto (two-wheeler and commercial vehicle) business will continue to be with Berger Paints.
 
In May 2017, Berger Paints acquired Saboo Coatings Pvt Ltd (which makes speciality liquid coatings used in farm and construction equipment, automobiles, fans, electronics, elevators, handicrafts, and home furnishing) for Rs 83 crore.
 
In July 2018, Berger Paints entered into a JV with Rock Paints Co (Japan) to manufacture automotive refinish paints. Berger Paints holds 51% stake in the JV, which started operations in the fourth quarter of fiscal 2019.
 
The company acquired 51% stake in Saboo-Hesse Wood Coatings Pvt Ltd in January 2019.
 
The company is listed on the Bombay Stock Exchange and the National Stock Exchange.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 6005 5,203
Profit after tax Rs crore 497 461
PAT margin % 8.3 8.8
Adjusted debt/adjusted networth Times 0.2 0.2
Interest coverage Times 28.9 34.59

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 Date of redemption Coupon rate (%) Issue size
(Rs crore)
Rating assigned
with outlook
NA Fund-based facilities # NA NA NA 500 CRISIL AAA/Stable
NA Non-fund based facilities ## NA NA NA 200 CRISIL A1+
Na Commercial paper NA 7-365 days NA 500 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 Private Limited Fully consolidated Strong business and financial linkages
SBL Specialty Coatings Private Limited (Formerly known as Saboo Coatings Private Limited) Fully consolidated Strong business and financial linkages
Berger Jenson & Nicholson (Nepal) Private Limited Fully consolidated Strong business and financial linkages
Berger Paints (Cyprus) Limited consolidated with Berger Paints Overseas Limited Fully consolidated Strong business and financial linkages
Lusako Trading Limited consolidated with Bolix S.A and Group* Fully consolidated Strong business and financial linkages
Berger Becker Coatings Private Limited Fully consolidated Strong business and financial linkages
Berger Nippon Paints Coatings Indian Limited Fully consolidated Strong business and financial linkages
*Group includes Build-Trade Sp. z.o.o., Solthern External insulations Limited and Soltherm Insolations Thermique Exterieure SAS
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  500.00  CRISIL A1+      20-08-18  CRISIL A1+  15-12-17  CRISIL A1+    --  -- 
Short Term Debt  ST                      CRISIL A1+ 
Short Term Debt (Including Commercial Paper)  ST              31-10-17  CRISIL A1+  05-01-16  CRISIL A1+  -- 
                19-01-17  CRISIL A1+       
Fund-based Bank Facilities  LT/ST  500.00  CRISIL AAA/Stable      20-08-18  CRISIL AAA/Stable  15-12-17  CRISIL AAA/Stable  05-01-16  CRISIL AA+/Positive  CRISIL AA+/Stable 
                31-10-17  CRISIL AAA/Stable       
                19-01-17  CRISIL AA+/Positive       
Non Fund-based Bank Facilities  LT/ST  200.00  CRISIL A1+      20-08-18  CRISIL A1+  15-12-17  CRISIL A1+  05-01-16  CRISIL A1+  CRISIL A1+ 
                31-10-17  CRISIL A1+       
                19-01-17  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
Fund-Based Facilities# 500 CRISIL AAA/Stable Fund-Based Facilities# 500 CRISIL AAA/Stable
Non-Fund Based Limit## 200 CRISIL A1+ Non-Fund Based Limit## 200 CRISIL A1+
Total 700 -- Total 700 --
#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
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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