Rating Rationale
September 28, 2018 | Mumbai
L G Electronics India Private Limited
Long-term rating upgraded to 'CRISIL AAA/Stable'; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.662.5 Crore (Reduced from Rs.762.5 Crore)
Long Term Rating CRISIL AAA/Stable (Upgraded from 'CRISIL AA+/Positive')
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long-term bank facility of L G Electronics India Private Limited (LG India) to 'CRISIL AAA/Stable' from 'CRISIL AA+/Positive' and reaffirmed the short-term rating at 'CRISIL A1+'. CRISIL has also withdrawn proposed long term facility of Rs 100 crore based on request from the company, this is in line with CRISIL''s policy on withdrawal of ratings.

The upgrade reflects expected sustaining of healthy operating performance over the medium term. LG India is the market leader in the washing machine and refrigerator segments, and has strong presence in the panel television and air conditioner (AC) segments. Product profile is diverse, with none of the product segments accounting for more than one-third of total revenue. The company is expected to sustain its market position on the back of wide dealership network, introduction of new advanced products like water purifier, air purifier and high end ceiling fans, product innovation using next generation technologies, and technological links with LG Electronics, South Korea (LG Korea; rated 'BBB/Stable' by S&P Global Ratings).

Furthermore, LG India is expected to benefit from its strong operating efficiencies. Operating margin (averaging over 12% in the three fiscals through 2018) has been healthy and return on capital employed (80%) strong. Financial risk profile is also expected to remain healthy on the back of nil debt levels, strong cash generation, and moderate capital expenditure (capex).

The ratings reflect LG India's leadership position across a diversified product portfolio, robust financial risk profile, and operational and technological links with LG Korea; rated 'BBB/Stable' by S&P Global). These strengths are partially offset by exposure to volatility in raw material prices and foreign exchange (forex) rates, and to intense competition in the consumer durables segment.
 

Key Rating Drivers & Detailed Description
Strengths:
* Leading position in major product categories: The company is one of India's leading players in the consumer durables industry, with sustained market leadership in the refrigerator and washing machine segments, and a strong position in the panel television and AC segments.

* Robust financial risk profile: LG India had no debt and a strong networth of Rs 3001 crore as on March 31, 2018. It is likely to generate healthy cash accrual over the medium term, driven by its market leadership across segments. The financial risk profile is expected to remain healthy over the medium term due to substantial cash accrual and no large capital expenditure plan.

* Strong operating capabilities: LG India has manufacturing facilities at Greater Noida and Pune, while distribution and after-sales service network is spread across India. Expansion of capacity has resulted in healthy logistical benefits, reduced delivery time, and increased geographical coverage. Given high financial flexibility, the company has the ability to increase production capabilities to cater to any increase in demand.

* Operation and technical linkages with parent: LG India benefits from LG Korea's strong international brand equity and high technological capabilities. It also sources raw materials and components for its high-end product range from parent. LG India will continue to benefit from strong linkages with its parent, for which, India is a key growth market.

Weaknesses:
* Exposure to volatility in raw material prices and forex rates: Raw materials, primarily copper, aluminum, and steel (including compressors), account for about 70% of the cost structure; 35-40% of raw materials are imported. While LG India partially hedges its forex exposure, profitability is susceptible to volatility in raw material prices as well as forex rates.

* Exposure to intense competition: Other multinational corporations such as Samsung India Electronics Ltd, Whirlpool of India Ltd ('CRISIL AA/Stable/CRISIL A1+'), and Sony India Pvt Ltd ('CRISIL AA/Stable') as well as Indian players such as Voltas Ltd, and Godrej and Boyce Manufacturing Company Ltd ('CRISIL AA/ FAA+/Stable/CRISIL A1+'). Ability to maintain market leadership position amid intense competition will be a key rating sensitivity factor.
Outlook: Stable

CRISIL believes LG India is likely to maintain its strong financial risk profile over the medium term, backed by healthy business risk profile and cash accrual, and absence of debt. Liquidity is expected to remain sufficient despite dividend payouts to parent.

Downside scenario
* Steep decline in sales growth or operating profitability due to increase in competition
* Sizeable dividend outflow to parent adversely impacting financial risk profile.

About the Company

LG India was incorporated in 1997 as a wholly owned subsidiary of LG Korea. LG India's product portfolio is amongst the widest for consumer durables player in India. It manufactures and sells a wide range of consumer durables: panel displays, refrigerators, washing machines, ACs (Room and commercial ACs), microwave ovens, mobile phones, personal computer monitors, water purifiers, and air purifiers. The company is a market leader in most segments of the consumer durables industry. It began operations in India by trading in goods imported from parent. In 1998, it established its manufacturing facility in Greater Noida. In 2004, it set up a facility in Pune also. The two facilities manufacture  panel display TVs, refrigerators, ACs, washing machine, refrigerator compressor, and water purifier.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 16963 15762
Profit After Tax (PAT) Rs crore 1451 1270
PAT Margin % 8.6 8.1
Adjusted debt/adjusted networth Times 0 0
Interest coverage Times 903.92 1054.15

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 Letter of Credit^ NA NA NA 90.0 CRISIL A1+
NA Short-Term Loan@ NA NA NA 125.0 CRISIL A1+
NA Working Capital Demand Loan# NA NA NA 447.5 CRISIL AAA/Stable
NA Proposed Long Term Bank Loan facility NA NA NA 100.0 Withdrawn
^Interchangeable with import credit loan and bank guarantee
@Interchangeable with foreign bill discounting and export credit loan
#Interchangeable with overdraft, foreign bill discounting, export credit loan, import credit loan, purchase bill discounting, sales bill discounting, letter of credit, and bank guarantee
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
Fund-based Bank Facilities  LT/ST  572.50  CRISIL AAA/Stable/ CRISIL A1+      19-06-17  CRISIL AA+/Positive/ CRISIL A1+  14-01-16  CRISIL AA+/Stable/ CRISIL A1+  10-07-15  CRISIL AA+/Stable/ CRISIL A1+  CRISIL AA+/Stable/ CRISIL A1+ 
            28-04-17  CRISIL AA+/Positive/ CRISIL A1+           
Non Fund-based Bank Facilities  LT/ST  90.00  CRISIL A1+      19-06-17  CRISIL A1+  14-01-16  CRISIL A1+  10-07-15  CRISIL A1+  CRISIL A1+ 
            28-04-17  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
Letter of Credit^ 90 CRISIL A1+ Letter of Credit^^ 65 CRISIL A1+
Proposed Long Term Bank Loan Facility 100 Withdrawn Proposed Long Term Bank Loan Facility 100 CRISIL AA+/Positive
Short Term Loan@ 125 CRISIL A1+ Short Term Loan@ 150 CRISIL A1+
Working Capital Demand Loan# 447.5 CRISIL AAA/Stable Working Capital Demand Loan# 447.5 CRISIL AA+/Positive
Total 762.5 -- Total 762.5 --
^Interchangeable with import credit loan and bank guarantee
@Interchangeable with foreign bill discounting and export credit loan
#Interchangeable with overdraft, foreign bill discounting, export credit loan, import credit loan, purchase bill discounting, sales bill discounting, letter of credit, and bank guarantee
^^Interchangeable with bank guarantee
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 Consumer Durable Industry
CRISILs Criteria for rating short term debt
Mapping global scale ratings onto CRISIL scale

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