Rating Rationale
February 05, 2021 | Mumbai
PPAP Automotive Limited
Ratings reaffirmed at 'CRISIL A+/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.142 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A+/Stable/CRISIL A1' ratings on the bank facilities of PPAP Automotive Limited (PPAP; part of the PPAP group).

 

The reaffirmation reflects strong business and financial risk profile of the group despite impact on its performance in last 6 quarters ending September, 2020 because of the economic slowdown and the Covid-19 pandemic. Group reported revenue of Rs 100.8 crore in first half of fiscal 2021, a decline of 43.2% compared to same period last year and operating margin declined to -0.4% for first half of fiscal 2021 from 14.7% in first half of fiscal 2020. From Q3 FY21 onwards, group is expected to continue to show healthy revenue growth and maintain operating margin over 17%.

 

The ratings continue to reflect PPAP's leadership position in the polyvinyl chloride (PVC)/thermo plastic olefins (TPO) automotive components industry, along with strong relationships with large original equipment manufacturers (OEMs), and a 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

For arriving at its ratings, CRISIL 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 automotive industry and is associated with industry leader Maruti Suzuki India Ltd (MSIL), besides Honda Cars India Ltd (HCIL), Nissan Motor India Pvt Ltd (Nissan), Toyota Kirloskar Motor Pvt Ltd, and other automobile majors.

 

  • Robust financial risk profile: The networth was large at Rs 294.7 crore, and gearing low at 0.08 time, as on March 31, 2020. Debt protection metrics were strong: interest coverage and net cash accrual to total debt ratios were 17.55 times and 1.56 times, respectively, for fiscal 2020. Furthermore, the company has limited working capital debt because of positive cash flow from operations of Rs 43.18 crore for fiscal 2020. Long-term debt majorly comprise of vehicle loans. Also, the company has no major debt-funded capital expenditure (capex) plan over the medium term.

 

Weakness:

  • Customer concentration in revenue: The top two customers accounted for 76% of revenue in fiscal 2020. However, the customer concentration has reduced gradually over the past few years as last year cumulative contribution of top 2 customers was 79%. Furthermore, strong relationships with customers and continuous preferred relationship with them has supported and protected PPAP from any customer-related issues.

 

  • 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, around 25% of raw material is still imported and the company remains vulnerable to volatility in raw material prices and forex rates.

Liquidity: Strong

Bank limit utilisation averaged 21 percent for the past 14 months ended December 2020. Cash accrual are expected to be over Rs 30 crore which are sufficient against term debt obligation of less than Rs 1 crore in fiscal 2021.

 

Current ratio at 1.43 times as on March 31, 2020 was healthy. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL believes PPAP will continue to benefit from its established position in the market for PVC/TPO profiles for the automotive industry.

Rating Sensitivity factors

Upward factors:

*  Improvement in revenue by 35% and profitability with operating margin sustaining above 18% over the medium term.

*  Customer diversification leading to reduction in client concentration risk

* Sustained capital structure

 

Downward factors:

*  Decline in operating margin below 14% or revenue by 20%

*  Large, debt-funded capital expenditure weakens capital structure

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 automotive sealing systems and interior and exterior injection moulded products. PPAP was listed on the National Stock Exchange and Bombay Stock Exchange in January 2008.

Key Financial Indicators

As on / for the period ended March 31

Unit

2020

2019

Operating income

Rs crore

359.18

410.98

Reported profit after tax

Rs crore

18.04

33.31

PAT margins

%

5.02

8.21

Adjusted Debt/Adjusted Networth

Times

0.08

0.09

Interest coverage

Times

17.55

18.14

 

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.Crore)

Complexity levels

Rating assigned with outlook

NA

Cash credit

NA

NA

NA

61.0

NA

CRISIL A+/Stable

NA

Term loan

NA

NA

Mar-26

21.0

NA

CRISIL A+/Stable

NA

Proposed term loan

NA

NA

NA

19.05

NA

CRISIL A+/Stable

NA

Bank guarantee

NA

NA

NA

31.45

NA

CRISIL A1

NA

Letter of Credit

NA

NA

NA

9.5

NA

CRISIL A1

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

PPAP Automotive Ltd

Full consolidation

Holding company

PPAP Technology Ltd

Full consolidation

Wholly owned subsidiary company

Elpis Components Distributors Pvt Ltd

Full consolidation

Wholly owned subsidiary company

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 101.05 CRISIL A+/Stable   --   -- 20-12-19 CRISIL A+/Stable 11-09-18 CRISIL A+/Stable CRISIL A+/Stable
Non-Fund Based Facilities ST 40.95 CRISIL A1   --   -- 20-12-19 CRISIL A1 11-09-18 CRISIL A1 CRISIL A1
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 31.45 CRISIL A1 Bank Guarantee 17.45 CRISIL A1
Cash Credit 61 CRISIL A+/Stable Capex Letter Of Credit 10 CRISIL A1
Letter of Credit 9.5 CRISIL A1 Cash Credit 61 CRISIL A+/Stable
Proposed Term Loan 19.05 CRISIL A+/Stable Letter of Credit 9.5 CRISIL A1
Term Loan 21 CRISIL A+/Stable Proposed Long Term Bank Loan Facility 36.55 CRISIL A+/Stable
- - - Term Loan 7.5 CRISIL A+/Stable
Total 142 - Total 142 -
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
Understanding CRISILs Ratings and Rating Scales
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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