Rating Rationale
July 10, 2024 | Mumbai
Philips India Limited
Rating outlook revised to 'Stable'; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.512 Crore
Long Term RatingCRISIL AA+/Stable (Outlook revised from 'Negative'; Rating Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
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 revised its outlook on the long-term bank facilities of Philips India Ltd (PIL) to ‘Stable’ from ‘Negative’ and reaffirmed the rating at ‘CRISIL AA+’. The short term rating has been reaffirmed at ‘CRISIL A1+’.

 

The outlook revision follows the revision in the rating outlook on the parent company, Koninklijke Philips NV (KPNV; rated ‘BBB+/Stable’ by S&P Global Ratings [S&P]), on account of better earnings predictability after reaching an agreement on pending legal claims, improved operating performance, and ongoing cost-savings programme. CRISIL Ratings has been applying its parent notch-up criteria for arriving at the ratings of PIL.

 

The operating income of PIL grew 5% in fiscal 2024 (on-year) to Rs 6,003 crore (provisional). The revenue growth was driven by 7% growth in the healthcare systems segment (48% of revenue in fiscal 2024) and 5% growth in the innovation segment (38% of revenue in fiscal 2024). The personal care segment, accounting for 13% of revenue in fiscal 2024, exhibited flattish performance. The company’s operating margin improved to ~7.7% in fiscal 2024 from ~7% in fiscal 2023, driven by margin improvement in the healthcare systems segment.

 

The financial risk profile remains strong, backed by networth of Rs 1,474 crore and negligible debt as on March 31, 2024. The debt protection metrics remain strong as reflected in interest coverage of ~13 times in fiscal 2024. The liquidity has remained strong with cash and equivalents of ~Rs 276 crore as on March 31, 2024, and unutilised fund-based working capital limit of Rs 450-500 crore.

 

The ratings continue to reflect the healthy market share of PIL in the healthcare and personal care segments and consistent growth in innovation services (software division). The ratings also factor in the company’s strong financial risk profile, driven by negligible debt and robust liquidity, and the strong technical and managerial support received from KPNV. The strengths are partially offset by modest profitability in the healthcare and personal care divisions and exposure to intense competition.

Analytical Approach

CRISIL Ratings has applied its parent notch-up criteria for factoring in the strong technical and managerial support from KPNV to PIL.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the healthcare segment and innovation services business: PIL enjoys a leadership position in key segments of premium medical equipment in India. Premium imaging technology and provision of end-to-end solutions for setting up medical centres help PIL maintain market leadership. The company’s global design and manufacturing facility at Pune delivers world-class ‘Made in India’ medical equipment. The innovation services segment, which supports the global technological needs of KPNV, should sustain its healthy growth trajectory over the medium term with increasing investment in innovation.

 

The personal care segment remained flat in fiscal 2024 due to increasing competition. Growth in this segment will be aided by leadership position in sub-segments such as male grooming, and mother and child care. CRISIL Ratings believes PIL will maintain its established market position over the medium term supported by new product launches and focus on the core healthcare business.

 

  • Healthy financial risk profile: The financial risk profile is strong, backed by a strong capital structure and robust debt protection metrics. The strong capital structure is reflected in networth of Rs 1,474 crore with negligible debt as on March 31, 2024. Support to the parent company in the form of sizeable dividend payout will remain monitorable.

 

Debt protection metrics will remain strong (interest coverage expected over 10 times over the medium term) in the absence of large debt-funded acquisition or capital expenditure (capex) plan. The company undertook capex of ~Rs 400 crore in fiscal 2024, which was funded through internal accrual. No large capex is expected over the medium term, apart from the regular maintenance capex.

 

  • Technological and managerial support from the parent: PIL is a 96.13% subsidiary of KPNV. The parent is involved in all strategic decisions, and provides technical and managerial support to PIL. PIL imports majority of the products for the healthcare and personal care divisions directly from the parent and group companies. The demerger of the domestic appliances business is in line with the global restructuring plan. KPNV provides technological and product support for PIL’s launches. PIL will remain strategically important to KPNV, given the parent’s long-term goal of increasing market penetration in emerging markets.

 

Weaknesses:

  • Modest profitability in the healthcare and personal care segments: Operating margin in the healthcare segment is expected to remain modest at 5-6% over the medium term. This segment is a significant revenue contributor (around 48% in fiscal 2024). Moreover, profitability has been weak in the personal care segment due to increasing competition leading to pricing pressure. However, this risk is mitigated to some extent by operating margin of ~14% in the innovation services segment in fiscal 2024, which is expected to sustain over the medium term.

 

  • Exposure to intense competition: PIL faces intense competition from General Electric Co (GE) and Siemens AG in the healthcare division. However, PIL benefits from its strong and established brand, large product portfolio and wide distribution network.

Liquidity: Strong

PIL had strong liquidity with cash and equivalents of ~Rs 276 crore as on March 31, 2024. The liquidity profile is also supported by fund-based working capital limits which were unutilised to the extent of Rs 450-500 crore over the past 12 months. Healthy cash accrual of over Rs 400 crore over the medium term will be sufficient to fund regular capex and incremental working capital requirement. No sizeable dividend payout is expected over the medium term.

Outlook: Stable

The revision of outlook to ‘Stable’ for PIL reflects the similar rating action by S&P on the parent, KPNV. CRISIL Ratings factors in parent support to PIL. The company will continue to benefit from its established market position, association with KPNV and healthy financial risk profile.

Rating Sensitivity factors

Upward factors:

  • Upgrade in the credit rating of KPNV by S&P by 1 notch or more
  • Significant improvement in the business risk profile, led by healthy growth in revenue and profitability

 

Downward factors:

  • Downgrade in the credit rating of KPNV by S&P by 1 notch
  • Any significant dilution of stake in PIL by KPNV, leading to weakening of linkages with the parent
  • Sizeable dividend payout or advances to the parent, materially impacting the liquidity position of PIL

About the Company

PIL sells personal care products and medical equipment, and meets a large part of the parent’s global technological requirement through its innovation centre. The company previously included the domestic appliances and lighting businesses in India, which were demerged in fiscals 2022 and 2016, respectively, in line with the parent’s global strategy.

Key Financial Indicators

Particulars

Unit

2024*

2023

Revenue

Rs.Crore

6003

5713

Profit After Tax (PAT)

Rs.Crore

243

260

PAT Margin

%

4.0

4.6

Adjusted debt/adjusted networth

Times

0.01

0.01

Interest coverage

Times

12.7

17.6

*Provisional

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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) Complexity Levels Rating Assigned with Outlook
NA Fund-based facilities NA NA NA 498 NA CRISIL AA+/Stable
NA Non-fund-based limit NA NA NA 2 NA CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 12 NA CRISIL AA+/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 510.0 CRISIL AA+/Stable   -- 25-07-23 CRISIL AA+/Negative 17-11-22 CRISIL AA+/Negative   -- Withdrawn
      --   -- 18-07-23 CRISIL AA+/Negative 01-03-22 CRISIL AA+/Stable   -- --
Non-Fund Based Facilities ST 2.0 CRISIL A1+   -- 25-07-23 CRISIL A1+ 17-11-22 CRISIL A1+   -- CRISIL AA+/Stable / CRISIL A1+
      --   -- 18-07-23 CRISIL A1+ 01-03-22 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 123 State Bank of India CRISIL AA+/Stable
Fund-Based Facilities 125 HDFC Bank Limited CRISIL AA+/Stable
Fund-Based Facilities 35 State Bank of India CRISIL AA+/Stable
Fund-Based Facilities 200 Citibank N. A. CRISIL AA+/Stable
Fund-Based Facilities 15 HDFC Bank Limited CRISIL AA+/Stable
Non-Fund Based Limit 2 State Bank of India CRISIL A1+
Proposed Long Term Bank Loan Facility 12 Not Applicable CRISIL AA+/Stable
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 Consumer Durable Industry
Mapping global scale ratings onto CRISIL scale
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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