| PPG Asian Paints Private Limited | ||||||
| Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities of PPG Asian Paints Private Limited (PPG Asian Paints). CRISIL Ratings has also withdrawn its rating on Rs.34 crore working-capital demand loan on receipt of ‘no objection certificate’ (NOC) from the banker. This is in line with CRISIL Ratings’ withdrawal policy.
The ratings continue to reflect the established position of PPG Asian Paints in the automotive paint industry, the operational support it receives from the parents - Asian Paints Ltd (Asian Paints; 'CRISIL AAA/Stable/CRISIL A1+') and PPG Industries Inc, USA (PPG Industries; rated 'BBB+/Stable/A-2' by S&P Global Ratings), and a strong financial risk profile. These strengths are partially offset by exposure to cyclicality in the automotive industry and volatility in raw material prices and limited pricing flexibility.
The company witnessed a strong operating income growth of 31% YoY during fiscal 2022 driven by growth pickup in the auto sector with new model launches and resumption of normal business activity post the impact of Covid 19 in fiscal 2021. The sharp growth in the aftermarket segment also provided support to the overall sales of the company.
Operating margin witnessed moderation in fiscal 2022 to 9% from 11% in fiscal 2021 on account of sharp increase in raw material prices which was not fully passed on to the customers. But the operating margins are expected to stabilize in the near to medium term and sustain at ~9-11% levels due to softening of raw material prices, price hikes coupled with better capacity utilization and cost optimization measures to be undertaken by the company.
Financial risk profile continues to remain strong, supported by debt-free balance sheet and sizeable liquid surplus of around Rs 209 crores as on March 31, 2022. Healthy cash accruals expected over the medium term should be sufficient to meet capital expenditure (capex) along with incremental working capital requirements. Hence, the company should sustain its net debt-free balance sheet over the medium term as well. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of PPG Asian Paints and its wholly owned subsidiaries -- PPG Asian Paints Lanka Pvt Ltd and Revocoat India Pvt Ltd -- as they are in the same line of business.
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:
Weaknesses:
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Liquidity: Strong PPG Asian Paints enjoys strong liquidity driven by healthy cash accruals and liquid surplus of about Rs 209 crores as on March 31, 2022. Further, it has access to fund-based limits of Rs 35 crore, which is 100% unutilised. Further capex along with increase in working capital requirements should be comfortably met from internal accruals and liquid surplus. |
Outlook: Stable PPG Asian Paints will continue to benefit from its established market position and strong clientele, leading to steady business performance over the medium term. The financial risk profile should also remain strong, supported by healthy cash accrual, prudent working capital management and moderate capex plan. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company PPG Asian Paints manufactures automotive paints and other industrial paints for automotive OEMs, and caters to the automotive refinish, marine and packaging segments.
The company was set up in 1997 as Asian PPG Industries, which restructured its business in fiscal 2013. As part of the restructuring, PPG Coatings India Pvt Ltd (a wholly owned subsidiary of PPG Industries) and AP Coatings Ltd (a wholly owned subsidiary of Asian Paints) were amalgamated with Asian PPG Industries. Thereafter, the liquid industrial paints, protective coatings, and powder business were demerged into Asian Paints PPG Pvt Ltd (a newly formed JV between PPG Industries and Asian Paints). Simultaneously, Asian PPG Industries was reconstituted as a private limited company and renamed PPG Asian Paints Pvt Ltd. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Interchangeable with letter of credit/bank guarantee |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Working Capital Demand Loan# | 35 | State Bank of India | CRISIL AA/Stable |
| Working Capital Demand Loan | 34 | State Bank of India | Withdrawn |
| Overdraft Facility | 1 | HDFC Bank Limited | CRISIL AA/Stable |
| Bill Discounting | 25 | HDFC Bank Limited | CRISIL A1+ |
Criteria Details
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