Rating Rationale
June 01, 2022 | Mumbai
Butterfly Gandhimathi Appliances Limited
Ratings upgraded to 'CRISIL AA/Stable/CRISIL A1+'; Removed from ‘Watch Positive'
 
Rating Action
Total Bank Loan Facilities RatedRs.366.85 Crore
Long Term RatingCRISIL AA/Stable (Upgraded from 'CRISIL A-/Watch Positive'; Removed from 'Rating Watch with Positive Implications’)
Short Term RatingCRISIL A1+ (Upgraded from 'CRISIL A2+/Watch Positive'; Removed from 'Rating Watch with Positive Implications’)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has removed its ratings on the bank facilities of Butterfly Gandhimathi Appliances Limited (BGAL) from 'Rating Watch with Positive Implications’ and upgraded the long-term ratings to ‘CRISIL AA/CRISIL A1+’ from ‘CRISIL A-/CRISIL A2+’. CRISIL Ratings has also assigned the ‘Stable’ outlook to the long-term rating.

 

The resolution of rating watch follows the completion of acquisition through share purchase of BGAL by Crompton Greaves Consumer Electricals Limited (CGEL; rated 'CRISIL AA+/Stable/CRISIL A1+') in FY22. The announcement for the same was made in February 2022 wherein CGEL has stated that it has entered into agreements for the acquisition of 55% (approximately) of the paid up equity share capital of BGAL from its promoters and 26% as an offer for sale; subject to requisite regulatory approvals. The purchase of shares from the previous promoter is complete and CGEL has taken over the management and new board members have been assigned.

 

The rating upgrade showcases strong support from an established parent. CGEL operates in four key business segments - fans, lighting, pumps, and appliances. The company has a robust distribution network.  Established brand, wide product portfolio, and strong distribution reach has helped CGEL enjoy leading position in the domestic fans and residential pumps segments and gain significant share in water heaters. It is also the third largest lighting company in India. During fiscal 2022, CGEL reported revenue of around Rs.5400 crore with net profit of Rs.593 crores. Recent takeover by CGEL would help to further diversify the product base of the group in the home and kitchen appliance segment as well as help in extending the reach of BGAL to other parts of the country outside South India.

 

The rating action also factors in the strategic importance of BGAL to CGEL in penetrating into the appliances segment. The group is also in discussions with lenders to extend corporate guarantee for the bank facilities of BGAL from its parent.

 

The ratings reflect BGAL's established brand and diversified product profile, along with its comfortable financial risk profile. The ratings also factor in strong managerial and operational support expected from its parent. These strengths are partially offset by intense competition in the cookware/kitchen appliance industry and susceptibility of operating profitability to volatility in raw material prices.

Analytical Approach:

CRISIL Ratings has applied its parent notch-up framework to factor in support for BGAL from CGEL as the company will enjoy operational, financial, and managerial support from CGEL as CGEL has acquired majority shares and is expected to extend managerial support to BGAL.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong operational and financial support from parent: CGPL holds majority stake in BGAL and is expected to extend strong operational and managerial support. BGAL will derive implicit benefits being a subsidiary of CGPL and its association with the Crompton brand.

 

  • Established brand, and diversified product profile: The company sells liquefied petroleum gas (LPG) stoves, pressure cookers, mixer grinders, and vacuum flasks under the Butterfly brand, which has been highly popular in India for over 20 years. Business is catered to retail and institutional segments. BGAL also generates significant revenue contribution of more than 40% through ecommerce platforms and other online mediums owing to healthy brand recognition in the kitchen appliance segment.

 

  • Comfortable financial risk profile: The financial risk profile is comfortable marked by net worth and gearing of around Rs.203 crore and 0.26 times, respectively as on March 31, 2022. Further, apart from regular replacement capex largely to be funded through internal accruals, there are no major debt funded capex plans over the medium term. This along with consistent accretion to reserves is expected to further strengthen the capital structure.

 

Debt protection metrics continues to remain moderate with interest coverage and net cash accruals to debt (NCATD) of around 3.92 times and 50% respectively for FY22.

 

Weaknesses:

  • Intense competition in the cookware/kitchen appliance industry: The branded kitchen appliance industry is highly competitive, marked by players such as TTK Prestige Ltd (TTK; CRISIL AA/Stable/CRISIL A1+), Philips India Ltd (PIL; CRISIL AA+/Stable/CRISIL A1+), Hawkins Cookers Ltd, Maharaja Appliances Ltd, and Panasonic India Pvt Ltd. Some competitors, such as TTK and PIL, have pan-India presence, and have established brand recall across product categories. Intense competition is likely to constrain business risk profile over the medium term.

 

  • Susceptibility of operating margin to volatility in raw material prices: Operating margin is susceptible to volatility in prices of steel and aluminium, which form one of the key input materials. Any sharp movement in their prices could impinge on the overall margin

Liquidity: Strong

Average month-end bank limit utilization for the last 12 months through April 2022 was less than 20%. Estimated net cash accruals of over Rs.40 crore is expected to remain sufficient against repayment obligations of around Rs.5 crore in FY23. Current ratio was moderate at around 1.44 times as on March 31, 2022.

Outlook: Stable

CRISIL Ratings believe BGAL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward Factors

  • Strong revenue growth rate while operating margin improves to more than 10%
  • Geographical and product diversification in revenue profile leading to improvement to more than 12 percent
  • Significant improvement in the credit profile of the parent

 

Downward Factors

  • Deterioration in TOLTNW to more than 2 times and/or interest coverage less than 2.5 times.
  • Any large debt funded capital expenditure, adversely impacting the financial risk profile.
  • Deterioration in the credit profile of the parent

About the Company

BGAL is the flagship company of the Butterfly group. It manufactures traditional kitchen appliances under the Butterfly brand. The company is listed on National Stock Exchange and BSE Ltd. The company has been acquired by CGEL in FY22.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

1,005.30

869.64

Reported profit after tax

Rs crore

16.13

36.16

PAT margins

%

1.60

4.16

Adjusted Debt/Adjusted Net worth

Times

0.26

0.15

Interest coverage

Times

3.82

4.61

 

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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.)

Complexity

Level

Rating Assigned

with Outlook

NA

Cash Credit

NA

NA

NA

135

NA

CRISIL AA/Stable

NA

Letter of Credit

NA

NA

NA

80

NA

CRISIL A1+

NA

Proposed Cash Credit Limit

NA

NA

NA

20

NA

CRISIL AA/Stable

NA

Proposed Long Term

Bank Loan Facility

NA

NA

NA

111.35

NA

CRISIL AA/Stable

NA

Term Loan

NA

NA

Mar-24

20.5

NA

CRISIL AA/Stable

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 286.85 CRISIL AA/Stable 03-03-22 CRISIL A-/Watch Positive 01-04-21 CRISIL A-/Stable 22-09-20 CRISIL BBB+/Stable 27-12-19 CRISIL BBB+/Stable CRISIL A3+ / CRISIL BBB/Positive
      --   -- 24-03-21 CRISIL A-/Stable   -- 31-01-19 CRISIL A3+ / CRISIL BBB/Positive Withdrawn
Non-Fund Based Facilities ST 80.0 CRISIL A1+ 03-03-22 CRISIL A2+/Watch Positive 01-04-21 CRISIL A2+ 22-09-20 CRISIL A2 27-12-19 CRISIL A2 CRISIL A3+
      --   -- 24-03-21 CRISIL A2+   -- 31-01-19 CRISIL A3+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 5 CRISIL AA/Stable
Cash Credit 105 CRISIL AA/Stable
Cash Credit 8 CRISIL AA/Stable
Cash Credit 17 CRISIL AA/Stable
Letter of Credit 5 CRISIL A1+
Letter of Credit 10 CRISIL A1+
Letter of Credit 5 CRISIL A1+
Letter of Credit 60 CRISIL A1+
Proposed Cash Credit Limit 20 CRISIL AA/Stable
Proposed Long Term Bank Loan Facility 111.35 CRISIL AA/Stable
Term Loan 20.5 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
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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