| PG Electroplast Limited | ||||||
| Ratings reaffirmed at 'CRISIL A-/Stable/CRISIL A2+' | ||||||
| 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 A-/Stable/CRISIL A2+' ratings on the bank loan facilities of PG Electroplast Limited (PGEL, part of the PG group).
The ratings reflect the group’s established market position in plastic moulding component business. The group is one of the leading contract manufacturers/vendors for air conditioners (ACs), washing machines and other plastic moulded components for white goods. It has a diversified clientele across most popular white goods brands such as Carrier Midea, Voltas, LG India, Whirlpool, Reliance Digital, Onida, Godrej and Acer. The group reported healthy compound annual growth rate of 27% in operating revenue over the six fiscals through fiscal 2022, backed by continuous addition of customers (original equipment manufacturers), product diversification, capital expenditure (capex) and in-house research and development.
In H1FY23 group has booked the revenue of Rs.862 cr. (Rs. 335 cr. in H1FY22) and with health unexecuted order book of more than Rs.2000 crore as on July 2022 group is expected to clock in the revenue of more than Rs. 1800 cr. for the full fiscal. Owing to the strong demand company is expanding its existing capacity, company has increased the washing machine capacity (from 65 thousand/month to more than 1.15 lakhs/ month) and further expanding RAC capacity to 200,000 indoor units/month (from 1.25 lakhs units/month) and 100,000 outdoor units/month (from 50,000 thousand/month units) on annual basis during fiscal 2023. Margins are expected to be at 7-8% for fiscal 2023 against ~6.1% in H1FY23 (6.3% in H1FY22) as the commodity prices are softening. Improvement in margins remains monitorable due to high fixed overhead cost of new plants.
The capital structure as marked by moderate TOL/TNW ratio which has been consistently increasing over the past few years due to debt funded capex. However, backed by sizeable accruals (y-o-y) and hence strong networth, the TOLTNW ratio is expected to be at below 2.5 time as of March 31, 2023. Going forward, despite debt funded capex plans, the ratio is estimated to remain at similar levels supported by healthy accruals.
The ratings reflect the group’s established position and the promoters' extensive experience in manufacturing plastic components for the consumer durable goods industry, healthy product diversity along with well-established clientele and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition in the consumer electronics segment, vulnerability to cyclicality in end-user industry and large working capital requirement. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of PGEL and its 100% subsidiaries, PGTL and PG Plastronics Pvt Ltd (PGPPL). The entities, collectively referred to as the PG group, are under common management and in the same business and have operational and financial linkages.
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: Established market position and extensive experience of the promoters: The group has a strong market position in the plastic components segment, which contributed 42% to total revenue in H1FY23 2022 followed by room ACs and washing machines. It supplies to various industries such as consumer electronics, sanitaryware and mobile handsets. The promoters’ experience of more than 30 years in the consumer durables industry, the company's established position and their healthy relationships with customers will continue to support the business. In the past, PGEL has completely shifted from assembling CRT based colour televisions (CTVs).; It had shut down its CTV assembling facility in April 2013 and had started manufacturing plastic moulds for air conditioners and refrigerators.
Healthy product diversity and well-established clientele: The group supplies to leading brands such as LG electronics India Pvt Ltd (CRISIL AAA/Stable/ CRISIL A1+), Whirlpool India Ltd (CRISIL AA+/Stable/CRISIL A1+) Carrier Midea India Pvt Ltd, Voltas, Sansui, Godrej and Orient Electric Ltd. It supplies to all the leading players in the washing machine and domestic refrigeration and air conditioning (RAC) market. In FY2022, company had launched the fully automatic washing machine platforms. The Washing Machine (WM) and AC Indoor Unit (IDU) business has seen robust growth, WM business grew 119%, and AC business grew 185% Y-o-Y ending fiscal 2022 group has large product portfolio manufacturing plastic parts for a comprehensive range of consumer electronic products such as air conditioners (ACs), air Coolers, refrigerators and washing machines
Comfortable financial risk profile: Capital structure remains healthy owing to moderate reliance on external funds. Total outside liabilities to adjusted networth (TOL/TNW) ratio was 2.4 times as on March 31, 2022. The group's net worth is comfortable at Rs.311 crore in fiscal 2022 on account of sustained profitability and improved scale of operations. The net worth has increased also due to capital infusion in form of equity shares allotted for Rs. 40.30 cr. additional Rs. 36 cr. raised in form of Debentures in July 2021 and issued convertible warrants of Rs. 3.76 cr. in Dec 2021. Debt protection metrics is expected to remain comfortable, with interest coverage and net cash accrual to total debt ratios expected to be more than 3.5 times and 0.22 time, respectively, in fiscal 2023 With expected improvement in profitability, the debt protection metrics should remain strong over the medium term.
Weaknesses: Exposure to intense competition in the consumer electronics segment: The domestic consumer electronics market is intensely competitive on account of entry of several large players over the past few years, which has affected profitability of most players such as PGEL. Additionally, raw material price fluctuations accentuate the pressure on profitability because of the players’ inability to pass on cost increases to their customers. Therefore, profitability will remain a competitive for most players in the industry on account of intense competition and expectation of economies of scale benefits to be passed on to large consumer goods brands in the domestic market.
Large working capital requirement: Consolidated gross current assets were at 194 days as on March 31, 2022, GCA days are expected to be in range of 150-190 in FY23 as the majority of sales in the second half of the fiscal driven by the demand for ACs in summer. However, the working capital cycle is supported by payables of 80-100 days. The working capital requirement will remain large over the medium term considering the healthy growth prospects and ramp-up of volume in the AC segment from fiscal 2022. Working capital requirement should remain large over the medium term considering the healthy growth prospects and ramp-up of volumes in the AC segment from fiscal 2023 in subsidiary PG Technoplast Pvt Ltd. |
Liquidity: Adequate Cash accrual, expected at Rs.70-90 crore in fiscal 2023 and 2024 will sufficiently cover yearly debt obligation of Rs.40-50 crore. Bank limit utilisation averaged 35% for the 12 months through Nov 2022. Cash balance was healthy over Rs.25 crore as of September 2022. Current ratio was 1.11 time as on March 31, 2022. Internal cash accrual, cash and equivalent, and unutilised bank lines will be sufficient to meet debt obligation and incremental working capital requirement over the medium term. |
Outlook: Stable CRISIL Ratings believes the PG group will continue to benefit from the extensive experience of the promoters and established relationships with clients. |
Rating Sensitivity factors Upward factors: * Increase in revenue by more than Rs. 1800 and stable operating margin of around 7.5% leading to higher cash accrual. * Improvement in the working capital cycle and financial risk profile, with gearing to be maintained below 1 times.
Downward factors: * Large, debt-funded capex weakening the financial risk profile, with gearing of more than 2 times * Decline in net cash accrual below Rs 40 crore on account of fall in revenue or operating profit. |
About the Group PGEL, set up in 2003 by Mr Promod Gupta, manufactures printed circuit board assemblies, plastic injection mouldings for major consumer durables, specialised AC components, home electricals and kitchen appliances. The company caters to industries such as automotive components, consumer electronics mobile handsets and sanitaryware. It has facilities in Roorkee, Uttarakhand; Greater Noida, Uttar Pradesh; and Pune, Maharashtra. Incorporated in August 2020, PGTL manufactures consumer appliances. The company is promoted by Anurag Gupta, Vishal Gupta and Vikas Gupta. It has facilities in Ahmednagar, Maharashtra.
PGPPL was incorporated in June 2021; the company manufactures consumer appliances. It is promoted by Anurag Gupta, Vishal Gupta and Vikas Gupta, and has facilities in Noida. |
Key Financial Indicators: (Consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 23-Jan-2023 in line with the lender-wise facility details as on 07-Dec-2021 received from the rated entity.
Criteria Details
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