| PPAP Automotive Limited | ||||||
| Long-term rating downgraded to 'CRISIL A / Stable'; short-term rating reaffirmed; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has downgraded its rating on the long-term bank facilities of PPAP Automotive Ltd (PPAP; a part of the PPAP group) to 'CRISIL A/Stable’ from 'CRISIL A+/Stable, while reaffirming its ‘CRISIL A1’ rating on the short-term bank facilities of the entity.
The downgrade reflects a belief that the business risk profile of the PPAP group may continue to weaken. Operating margin expected to decline to 8-10% in fiscal 2022 from more than 15-20% in the past fiscals due to rise in commodity price which the company is able to pass on partially to customers with a lag and overall dip in sales due to disruption caused by the Covid-19 pandemic and shortage of semi-conductor chips affecting the fixed cost absorption capacity of the company.
Revenue declined by around 10% to Rs 320 crore in fiscal 2021 against Rs 358 crore in fiscal 2020, and is estimated at Rs 400-420 crore for fiscal 2022 (PPAP booked revenue of Rs 298 crore for the first nine months of fiscal 2022), which is almost in line with that achieved in fiscal 2019. The decline in revenue is due to overall slowdown in the automotive (auto) industry, including the shortage of semiconductor chips and impact of the disruptions caused by the Covid-19 pandemic. Further, as the shortage of semi-conductor chips may continue in the near to medium term; the growth in operating revenue is expected to be in single digit in FY23 also. However other initiatives for business diversification may support the growth in future.
However, financial risk profile should remain strong, with total outside liabilities to tangible networth ratio at ~0.5 time and interest coverage ratio above 6 times in fiscal 2020 and with no major debt-funded capital expenditure (capex) expected. Cash accrual is projected at over Rs 30 crore per annum, sufficient to meet debt obligation of Rs 12-17 crore over the medium term.
The ratings continue to reflect PPAP's leadership position in the polyvinyl chloride (PVC)/thermo plastic olefins (TPO) auto components industry, along with strong relationships with large original equipment manufacturers (OEMs), and robust financial risk profile. These strengths are partially offset by customer concentration in revenue and the exposure to volatility in raw material prices and foreign exchange (forex) rates. |
Analytical approach CRISIL Ratings has combined the business and financial risk profiles of PPAP and its wholly owned subsidiaries: PPAP Technology Ltd and Elpis Components Distributors Pvt Ltd. This is because all these entities, collectively referred to as the PPAP group, are under a common management and have 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 Leadership in the PVC/TPO profiles segment and strong relationships with large OEMs PPAP is one of the largest players in the PVC/TPO-based profiles segment for the auto industry and is associated with industry leader, Maruti Suzuki India Ltd, besides Honda Cars India Ltd, Nissan Motor India Pvt Ltd, and Toyota Kirloskar Motor Pvt Ltd The company has been gradually diversifying their customer base and now caters to many OEMs. The strong market position has led to sustenance of the operating revenue at ~Rs 320-400 crore for the past fiscals.
Robust financial risk profile Networth is estimated at ~Rs 300 crore as on March 31, 2022, against Rs 297 crore a year ago. Debt protection metrics may remain strong, with interest coverage and net cash accrual to adjusted debt ratios of 6.00 times and 0.45 time, respectively, for fiscal 2022. Furthermore, the company has limited working capital debt with average utilisation of 21%. The company has no major, debt-funded capex planned for the medium term.
Weaknesses Customer concentration in revenue The top two customers accounted for 73% of revenue in fiscal 2022. However, customer concentration reduced gradually over the past few years as last year the cumulative contribution of top two customers was 79%. Furthermore, strong relationships with customers and preferred relationship with them has supported and protected PPAP from any customer-related issue and the company’s strategy of entering into new areas of growth such as expansion in electric vehicle (EV) business, manufacturing of plastic containers for non-auto industry is expected to bring diversification and reduce customer concentration in the revenue profile. Adequate customer diversification, leading to reduction in client concentration risk, will be a key monitorable.
Exposure to volatility in raw material prices and forex rates The prices of key raw materials, PVC and other petrochemical derivatives, are volatile. Besides, as some raw material is imported, the company is susceptible to fluctuation in forex rates, mainly the Japanese yen. Though imports have reduced gradually over the past few years, 20-25% of raw material is still imported and the company remains vulnerable to volatility in raw material prices and forex rates.
The company is partially able to pass on the price hike to customers with a lag of 3-6 months due to which the earnings before interest, taxes, depreciation, and amortization margin declined from more than 18% in fiscal 2019 to 10.6% in fiscal 2021 and about 8% in the nine months of fiscal 2022. Further, the margin decline is because of the dip in sales, directly affecting the fixed cost absorption capacity of the company.
Due to decline in margin, the return on capital employed (RoCE) also reduced to 2.18% in fiscal 2021 from 21% in fiscal 2018. With the margin further declining in fiscal 2022, RoCE may remain at ~2%. However, the company is undertaking initiatives to expand operations by entering into new areas of growth such as batteries for EV, plastic containers for paint & fast-moving consumer goods industry and after market which are expected to contribute 5-10% in the total scale of operations and in turn improve profitability. Considering the shortage of semiconductor chips, improvement in operating scale and revival in the overall margin will remain key monitorables. |
Liquidity: Strong Bank limit utilisation was 21% for the 14 months through December 2021. Cash accrual is expected at more than Rs 30 crore per annum, sufficient to meet term debt obligation of Rs 12-17 crore over the medium term. Current ratio was 1.4 times as on March 31, 2021. Low gearing and moderate networth also support financial flexibility |
Outlook: Stable PPAP will continue to benefit from its established position in the market for PVC/TPO profiles for the auto industry. |
Rating sensitivity factors: Upward factors:
Downward factors
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About the company Set up in 1978 as a partnership firm by Mr D C Jain, Ms Asha Jain, and Ms Vinay Kumari Jain, PPAP was reconstituted as a public-limited company, Precision Pipes and Profiles Company Ltd, in 1995. The company got its present name in May 2014. PPAP manufactures auto sealing systems and interior and exterior injection moulded products. The company was listed on the National Stock Exchange and Bombay Stock Exchange in January 2008.
About PPAP Automotive Technology Pvt. Ltd. PPAP Automotive has acquired PPAP Automotive Technology Pvt. Ltd. in 2019. The said company has been acquired to start a new business of manufacturing of lithium battery for electric cars.
About Elpis Components Distributors Pvt Ltd The company has commenced its operations from Nov 2019. The group is expanding its business opportunities into new market in the field of automotive component and accessories. It is mainly involved in the business of trading of auto components. It has created a new network/dealer channel under this company and would purchase components from PPAP, Its JV company and other players present in Auto component manufacturing and do trading business |
Key financials
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 08-Apr-2022 in line with the lender-wise facility details as on 08-Apr-2022 received from the rated entity.
Criteria Details
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