Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities of Asahi India Glass Ltd (AIS).

 

The ratings continue to reflect the healthy business risk profile of AIS as indicated by its established market position in the automotive (auto) and architectural glass segments and established clientele. The ratings also factor in the company’s strong operating efficiency, comfortable financial risk profile and the extensive industry experience of the promoters and technical and business support from AGC Inc (AGC; rated ‘A-/Stable/A-2’ by S&P Global Ratings). These strengths are partially offset by susceptibility to cyclicality in end-user industries, volatility in fuel prices and large capital expenditure (capex).

 

The revenue grew 8% year-on-year in fiscal 2024, with sales of Rs 4,357 crore driven by increase in demand in both automotive and architectural glass segments and higher realisation in the automotive segment, while realisation dipped in the architectural glass segment due to pricing pressure from imports and additional capacities in the market. The float glass prices are expected to have bottomed out and remain steady in the current fiscal. Overall, the operating performance is expected to remain healthy with revenue growth of 5-8% in fiscal 2025 owing to sustained improvement in demand from original equipment manufacturers (OEMs) and increasing use of glass in construction.

 

The operating margin declined to 16.9% in fiscal 2024 primarily owing to fall in realisation in the architectural glass segment. The margin is expected to remain steady during the current fiscal and is expected to improve to ~20% post commissioning of the new under-construction float glass plant as it will cater to in-house demand for automotive glass which is currently being met through imports from overseas. Overall, the net cash accrual is expected to remain healthy in the range of Rs 450-600 crore over the medium term (Rs 412 crore during the previous fiscal).

 

The debt protection metrics are expected to remain comfortable, over the medium term, with increase in profitability despite sizeable ongoing capex. AIS is setting up a new float glass plant with total capex of more than Rs 1,400 crore which is expected to get commissioned by the end of this fiscal. Capex of Rs 750 crore has been incurred till fiscal 2024. Gross debt to earnings before interest, tax, depreciation and amortisation (EBITDA) stood at ~2.6 times as on March 31, 2024. Although, the ratio is expected to be ~3 times in fiscal 2025 with increase in debt for ongoing capex, it is likely to reduce from fiscal 2026 onwards with commissioning and stabilisation of the plant. Overall, the debt to EBITDA ratio is expected to improve to below 2.5-3 times, over the medium term, and will remain a key monitorable. AIS also has strong financial flexibility due to continued support from the promoters, AGC and Maruti Suzuki India Ltd (MSIL; ‘CRISIL AAA/Stable’) which have strong credit profiles.             

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of AIS and its subsidiaries (AIS Glass Solutions Ltd, Integrated Glass Materials Ltd, GX Glass Sales and Services Ltd, AIS Distribution Services Ltd, AIS Adhesives Ltd and Shield Auto Glass Ltd) as these are integral to the operations of AIS. CRISIL Ratings has also factored in strong business linkages with the promoters AGC Inc (erstwhile Asahi Glass Co Ltd, Japan), a global leader in architectural and auto glass, and MSIL (erstwhile Maruti Udyog Ltd), a market leader in the passenger car industry in India.

 

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:

• Healthy business risk profile: Track record of over 37 years in the auto glass components industry has helped AIS build a dominant market position with 75% share in the passenger vehicle segment and key relationships with leading OEMs such as MSIL, Suzuki Motors, Hyundai Motor India, Tata Motors Ltd (‘CRISIL AA+/Stable/CRISIL A1+’), Mahindra and Mahindra Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Toyota Kirloskar Motor, Skoda Auto and Kia Motors India. Its 18-20% market share and established presence in architectural glass has led to 7.2% compound annual growth rate (CAGR) in revenue over the past five years.

 

The company has moderate revenue diversity between auto glass (63% revenue contribution) and architectural glass (37%). The presence in the auto aftermarket sales (above 20%) enhances diversity and pricing flexibility. The strong market position and technological edge due to association with AGC Inc have also led to a healthy operating margin of 16-20% over the past five years.

 

In fiscal 2024, revenue grew 8% on-year to Rs 4,357 crore and is expected to rise 5-8% in fiscal 2025 driven by increase in demand for both automotive and architectural glass. The automotive glass segment witnessed healthy growth of 21% year-on-year, driven by increased demand from OEMs and increasing glass usage in passenger vehicles and growth is likely to continue over the medium term. In the float glass segment, revenue declined 13% primarily due to a fall in realisations, as the float glass prices bottomed out due to imports and addition of capacities in the market.

 

Operating profitability was healthy at 16.5-20.0% over the past three years despite the impact of Covid-19 induced challenges on demand from OEMs and the construction segment. The margin is expected to remain at 16-20% in fiscal 2025 and expected to improve to above 20% post commissioning of the new float glass plant. The float glass plant will manufacture glass for captive use, which is currently being imported from overseas countries.

 

• Comfortable financial risk profile: Debt protection metrics are expected to remain comfortable over the medium term with increase in profitability despite sizeable ongoing capex. AIS is setting up a new float glass plant with total capex of more than Rs 1,400 crore which is expected to get commissioned by the end of this fiscal. Capex of Rs 750 crore has been incurred till fiscal 2024. Gross debt to EBITDA ratio stood at ~2.6 times as on March 31, 2024. Although, the ratio is expected to be ~3 times in fiscal 2025 with increase in debt for ongoing capex, it is likely to reduce from fiscal 2026 onwards with commissioning and stabilisation of the plant. Overall, the debt to EBITDA ratio is expected to improve to below 2.5-3 times over the medium term and will remain monitorable.

 

The adjusted networth is expected to increase to Rs 2,500 crore in fiscal 2025 from Rs 2,222 crore at the end fiscal 2024, backed by healthy cash accrual. The total outside liabilities to tangible networth (TOLTNW) ratio should remain below 1.5 times, over the medium term, from 1.4 times as on March 31, 2024.

 

• Experienced management supported by strong promoters: AIS enjoys strong backing of the Labroo family (20.9% shareholding), AGC Inc (22.2% shareholding) and MSIL (11.1% shareholding). Chairman and Managing Director, Mr Sanjay Labroo, who has over three decades of industry experience, manages the company. AGC Inc, which is the leading glass manufacturer in the world with 12% global market share in the float glass segment and 30% in the auto glass segment, provides technical support to AIS. The promoters supported AIS when it faced a liquidity stretch in the past.

 

Weaknesses:

• Large capex requirement: AIS operates in a capital-intensive industry where a downturn in the end-user industries may affect profitability. The company has successfully commissioned phase 2 of the Patan plant in fiscal 2024 which has resulted in an increase in auto glass capacity. AIS is undergoing major capex of more than Rs 1,400 crore in setting up a new float glass plant for captive use which is expected to get commissioned by the end of this fiscal. It will be funded through debt and internal accrual. The company has incurred ~Rs 750 crore till fiscal 2024. The impact of the capex on profitability will affect the debt protection metrics, and hence, remains monitorable.

 

• Susceptibility to inherent cyclicality in the auto industry: AIS derives 63% of its revenue from the OEM segment, which is inherently cyclical. In the past, auto OEMs were adversely hit by the pandemic as well as slowdown in the Indian economy and recovered only from the second half of fiscal 2021. Shortage of semi-conductor chips also impacted the industry in fiscal 2023. The performance of AIS also remains vulnerable to economic downturns.

Liquidity: Strong

Cash and equivalent stood at Rs 179 crore as on March 31, 2024. Annual cash accrual of Rs 450-550 crore over the next two fiscals should comfortably cover debt obligation of Rs 374 crore and Rs 265 crore, respectively, and equity requirement of the capex. AIS has historically been able to refinance debt when cash accrual has fallen short of debt obligation. The total fund-based limit of Rs 535 crore had low utilisation of ~32% on average over the 11 months through February 2024. Unutilised bank lines should be adequate for meeting any incremental working capital requirement.

 

ESG profile of AIS

CRISIL Ratings believes the ESG profile of AIS supports the company’s already strong credit risk profile. The sector has moderate environmental and social impact, driven by its raw material sourcing strategies and energy-intensive processes. AIS has continuously focused on mitigating its environmental and social impact.

 

Key ESG highlights:

• In fiscal 2023, the company’s energy consumption intensity reduced 20% on-year to 960 GJ/crore of revenue. This was aided by various steps taken by the company to improve efficiency such as power factor correction in HT transformer, heat recovery from compressor, among other measures.
• AIS’s share of renewables in total energy consumption during fiscal 2023 stood at ~7%. Furthermore, all its manufacturing sites have installed effluent and sewage treatment plants.
• The company’s attrition rate of permanent employees continued to remain at ~16% in fiscal 2023 (as compared to ~15% in the last fiscal). However, share of female employees continued to remain low at ~5% in fiscal 2023. 
• The company’s governance structure is characterised by ~50% of its board being independent, ~30% women board directors and extensive financial disclosures.

Outlook: Stable

CRISIL Ratings believes AIS will continue to benefit from its established market position and comfortable financial risk profile.

Rating Sensitivity factors

Upward factors

• Heathy growth in revenue along with successful commissioning and stabilisation of the ongoing capex leading to improvement in profitability and cash accrual increasing to over Rs 500 crore on sustained basis
• Continued healthy financial risk profile, particularly debt protection metrics, and prudent working capital management with debt to EBITDA ratio below 2.5-3 times on sustained basis

 

Downward factors

• Weakening of the operating performance leading to decline in cash accrual below Rs 300 crore on sustained basis
• Higher-than-expected, debt-funded capex impacting the debt protection metrics with gross debt to EBITDA ratio remaining above 3-3.5 times on sustained basis

About the Company

AIS is India's largest integrated glass solutions company and a dominant player in the auto and architectural glass segments. It commands over 75% market share in the Indian passenger car glass market. It has significant presence in the auto and architectural glass value chains through the following business verticals: auto glass, architectural glass (float, soft coat, hard coat, architectural processing) and consumer glass (auto and architectural glass).

 

AIS has manufacturing units in Bawal, Haryana; Taloja, Maharashtra; Roorkee, Uttarakhand; Chennai, Tamil Nadu; and Patan, Gujarat; and three auto glass assembly units.

Key Financial Indicators (Consolidated)*

As on/for the period ended March 31	Unit	2024	2023
Operating income	Rs.Crore	4357	4021
Profit after tax (PAT)	Rs.Crore	325	362
PAT margin	%	7.5	9.0
Adjusted debt/adjusted networth	Times	0.9	0.7
Adjusted Interest coverage	Times	4.3	7.9

*As per analytical adjustments made by CRISIL Ratings

Any other information: Not Applicable