Rating Rationale
June 01, 2018 | Mumbai
Saint-Gobain India Private Limited
Rating Reaffirmed 
 
Rating Action
Rs.100 Crore Commercial Paper Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISL has reaffirmed its rating on the Rs.100 Crore commercial paper programme of Saint-Gobain India Private Limited (SGIPL) at 'CRISIL A1+'.

The rating continues to reflect SGIPL's leading market position in the domestic float glass and plaster board industry, healthy product mix and technological support from parent, Compagnie de Saint Gobain SA (CSG; rated 'BBB/Stable/A-2' by S&P Global Ratings). Besides SGIPL has strong financial risk profile marked by healthy capital structure, surplus liquidity and strong cash generation. These strengths are partially offset by susceptibility to cyclicality in demand from end-user industries, and to price volatility in the domestic float glass and plaster board industries.

SGIPL is the market leader in the float glass and plaster boards segments in India with capacity of 2800 tonne per day (tpd) and 75 million square meter (msm) respectively. The company commenced operations on its new plaster board manufacturing unit in Jhagadia (Gujarat) in fiscal 2018. The operations in the unit are currently being ramped up and will reach optimal utilization by fiscal 2019. The company is also establishing a new float in Chennai with a capacity of 950 tpd which is expected to come on stream in fiscal 2019. Scale up of these new capacities in both float glass and plaster boards will further entrench SGIPL's market leadership position in these segments. Further, SGIPL also has better profitability when compared to peers, driven by SGIPL's strong market position and downstream expansion into value-added products. Operating margins were healthy at an estimated 21% in fiscal 2018 supported by higher revenue growth of (about 19% in fiscal 2018 on y-o-y basis), better realizations, and healthy capacity utilization, albeit increase in fuel prices and firm raw material prices. SGIPL also benefits from access to strong technical support available from its parent.

SGIPL's financial risk profile is also expected to remain healthy driven by the strong networth and sizeable liquid surplus. The company is expected to remain debt free over the medium term as cash generation from its business operations will be adequate to meet its capital expenditure requirements expected at Rs 900-1100 Cr in fiscals 2019 and 2020. Hence, the company's capital structure and debt protection metrics will continue to remain strong over the medium term.

Key Rating Drivers & Detailed Description
Strengths:
* Leading market position, driven by capacity leadership and strong brand
SGIPL is the largest player in the Indian float glass market. With nearly 50% of its 2800-tpd capacity equally split between northern and southern India, SGIPL is well-positioned to increase its domestic market share over the medium term. SGIPL's Gyproc business also has a leading position in the plaster board industry with a market share of around 65%; one-third of SGIPL's revenues come from this business.

CRISIL believes that SGIPL will further strengthen its market position in the domestic float industry over the medium term, driven by initiatives to increase its presence in the value-added and specialized glass segment. The company would continue to remain a leader in the plaster board industry.

* Healthy product mix and technological support from parent, leading to better profitability
SGIPL has been focusing on improving its product mix by increasing the share of value-added float glass products. In line with this strategy, the company has built downstream capacities to manufacture value-added products which contribute close to 35% of the company's revenue mix. Furthermore, the company's product mix and revenue profile has been further diversified with entry into plaster boards and refractories business through acquisitions.

SGIPL benefits from the extensive industry experience of its parent, and its strong operational integration in terms of technology, raw material linkages, and technical know-how for operating fail-proof power facilities, which are critical to avoid substantial wastage.

With rising fuel prices and import competition, realisations could come under marginal pressure. Nevertheless, CRISIL believes that SGIPL will maintain its profitability of at least 17%, given its leading market position, increasing proportion of value-added products, and strong linkages with its parent.

* Strong financial risk profile and strong financial support from parent
SGIPL is debt free and has strong networth estimated at over Rs 4,500 crore as of March 31, 2018. The company is expected to incur capex of Rs. 900-1100 Cr in fiscals 2019 and 2020 for expanding capacities in both glass and plaster boards segments. Expected cash generation in excess of Rs 850 crore per annum and sizeable liquid surplus (Rs. 450 Cr estimated as on March 31, 2018) will comfortably fund this large expansion. SGIPL will continue to be debt-free with strong capital structure. Besides, as liquid surplus strengthens further from fiscal 2020, financial risk profile will be comfortable to absorb business risks inherent in the float glass industry.

Weakness:
* Exposure to risks related to demand moderation in end-user industry
The demand for both plasterboard and float glass is driven by demand from the construction and real estate industry. In addition, the float glass industry is also dependent on the processing and automotive sectors. Thus the company is exposed to cyclicality in these sectors.

The float glass industry also faces the risk of new float additions by existing and new players. This leads to lumpiness in capacity addition (as only large floats enjoy economies of scale), while increase in demand is gradual.

* Exposure to volatility in input prices and competition from imports
The primary cost for producing glass includes cost of raw material (soda ash, gypsum, sand, paper); and power and fuel and freight costs. This exposes the company to volatility in raw material and fuel prices.

Besides SGIPL is also partly exposed to threat of cheaper imports in both glass as well as plaster boards. Imports of float glass from Malaysia has been on the rise in the past few months prompting SGIPL to reduce prices. Further, in the plaster boards also, the anti-dumping duties on countries like China, Thailand, UAE and Indonesia have been revoked recently, which may lead to surge in imports from these countries and in turn may lead to pressure on prices.

Although SGIPL will be able to pass on part of the volatility to customers owing to its strong market position, CRISIL believes that SGIPL's business performance and profitability will nevertheless remain partly exposed to risks related to volatility in prices and demand.
About the Company

SGIPL is a wholly owned subsidiary of CSG, the world leader in the habitat and construction markets. CSG designs, manufactures, and distributes building and high-performance materials, and has presence in 66 countries. For 2017 (refers to calendar year, January 1 to December 31), CSG's net revenue was '¬40.8 billion.

Key companies of the Saint Gobain group in India include Grindwell Norton Ltd (abrasives and high performance refractories), Saint-Gobain Sekurit India Ltd (automotive glass), and Saint-Gobain Research India Ltd (research and development centre for the Saint-Gobain group).

In 2013-14, SGIPL acquired two group entities'Gyproc (manufactures gypsum plaster boards and plasters, and offers wall and ceiling solutions) and Saint-Gobain SEVA Engineering India Ltd (manufactures proprietary equipment and special purpose machines). In 2014-15, group companies SEPR Refractories India Ltd (fused cast refractories) and Saint-Gobain Crystals and Detectors India Ltd (crystal growth, radiation detection and measurement products) were merged with SGIPL. In 2017-18, SGIPL acquired Saint Gobain Research India Ltd (which mainly provides R&D services for group)

SGIPL has a 2350-tpd float glass unit in Sriperumbudur (after addition of Float 5 which will be commissioned by June 2018), 550-tpd plant in Gujarat, and 950-tpd unit in Bhiwadi with facilities to produce clear, tinted, and reflective float glass. Clear float glass account for most of the company's revenue. SGIPL also has a 40,000-tpa mirror line, a 36,000-tpa coater line, and a facility to manufacture 1.5 million units of automotive glass per annum.

SGIPL entered the plaster board and related products segment with the acquisition of Saint-Gobain Gyproc India Ltd (Gyproc). Gyproc is the leader in the plaster board industry with a market share of 65% and SGIPL derives one-third of its revenue from this business. The company has annual capacity of 75 million square meters (msm)'in Bengaluru (20 msm), Jind in Haryana (10 msm), Wada in Maharashtra (15 msm) and Jhagadia in Gujarat (30 msm). The company also has a 150,000-tonne-per-annum (tpa) plant for manufacturing formulated plaster at Wada.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs. Cr. 4,404 4,320
Profit After Tax (PAT) Rs. Cr. 595 374
PAT Margins % 13.5 8.7
Adjusted Debt/ Adjusted Net worth Times 0.05 0.13
Interest coverage Times NM 11

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 Commercial Paper Programme NA NA 7-365 days 100 CRISIL A1+
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
Commercial Paper  ST  100.00  CRISIL A1+      27-06-17  CRISIL A1+  03-06-16  CRISIL A1+  30-04-15  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

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