Rating Rationale
June 12, 2023 | Mumbai
PPAP Automotive Limited
Rating outlook revised to 'Negative'; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.200 Crore
Long Term RatingCRISIL A/Negative (Outlook revised from 'Stable'; Rating Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
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 revised its outlook on the long-term bank facilities of PPAP Automotive Ltd (PPAP; a part of the PPAP group) to ‘Negative’ from ‘Stable’ while reaffirming the ratings at 'CRISIL A/CRISIL A1’.

 

The outlook revision reflects the belief that the operating margin of PPAP group will remain under pressure over the medium term. The margin declined continuously to ~8.5% in fiscal 2023 from more than 15-20% in the past fiscals, leading to low return on capital employed (RoCE) of around 2.5% for fiscal 2023. The decline was driven by high overhead cost and inability to pass on the increase in raw material prices to customers along with continued losses in the subsidiary company and JV company. Improvement in the operating profitability to more than 10% will remains a key monitorable over the medium term.

 

However, the revenue of the company improved by around 21% to Rs.511 crore in fiscal 2023 against Rs.421 crore in fiscal 2022, which is in line with expectations, the improvement in the revenue is due to overall growth in the automotive (auto) industry. Further, as the demand of auto products is expected to remain stable along with other initiatives for business diversification may support the growth in future.

 

Financial risk profile should remain strong, with total outside liabilities to tangible networth ratio at ~0.7 time and interest coverage ratio above 4 times in fiscal 2023 and with no major debt-funded capital expenditure (capex) expected. Cash accrual is projected at over Rs 30-35 crore per annum, sufficient to meet debt obligation of Rs.20-25 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 and JV company: PPAP Technology Limited, Elpis Components Distributors Pvt Ltd. and PPAP Tokai India Rubber Pvt. Ltd. (Joint venture).  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.511 crore in FY23.

 

  • Robust financial risk profile: Strong networth of Rs. 295 crores as on March 31, 2023 due to continuous accretion of reserves. Debt protection metrics may remain strong, with interest coverage and net cash accrual to adjusted debt ratios of 4 times and 0.26 time, respectively, for fiscal 2023.  Furthermore, the company has limited working capital debt with average utilisation of ~40%. With no major, debt-funded capex planned for the medium term the financial risk profile is expected to remain comfortable over the medium term.

 

Weaknesses:

  • Customer concentration in revenue: The top two customers accounted for more than 70% of revenue in fiscal 2023. 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 industrial products 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. 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 due to which the earnings before interest, taxes, depreciation, and amortization margin declined from more than 18% in fiscal 2019 to ~8.5% in fiscal 2023. Further, the margin decline is because of the dip in sales, directly affecting the fixed cost absorption capacity of the company and also the continued losses in subsidiary and JV company.  However, the company is undertaking initiatives to expand operations by entering into new areas of growth such as batteries for EV, industrial products and aftermarket which are expected to grow in the coming fiscal and in turn improve profitability. Improvement in operating scale and revival in the overall margin will remain key monitorable over the medium term.

Liquidity: Strong

Bank limit utilisation was 40% for the 12 months through March 2023. Cash accrual is expected at more than Rs 30-35 crore per annum, sufficient to meet term debt obligation of Rs.20-25 crore over the medium term. Current ratio was 1.1 times as on March 31, 2023. Low gearing and moderate networth also support financial flexibility.

Outlook: Negative

CRISIL Ratings believes the operating margin of PPAP group will remain under pressure over the medium term.

Rating Sensitivity factors

Upward factors:

  • Operating margin sustaining above 10.5% over the medium term leading to increase in cash accruals.
  • Stable financial risk profile of the company with gearing levels remains below 0.50 times.

 

Downward factors:

  •    Operating margin declining below 9% at group level, leading to cash accrual less than Rs 25 crore
  •    Large, debt-funded capex weaken capital structure of the company with gearing of more than 1 times.

About the Company:

PPAP

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. The company's core business is in developing plastic and rubber-based extrusion systems as well as plastic injection molding systems for various industries. The company also in the business of developing high-precision plastic injection tooling

 

About PPAP Automotive Technology Pvt. Ltd.

PPAP Automotive has acquired PPAP Automotive Technology Pvt. Ltd. in 2019. The said company has been acquired established to start a new business of manufacturing of lithium battery pack for electric vehicles and for storage applications 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 development and sale of spare parts and accessories in after markettrading of auto components. It has created a pan india new network/dealer channel.

under this company and would purchase components from PPAP.

 

About PPAP Tokai India Rubber Pvt. Ltd

Based automotive sealing systems by establishing a 50:50 Joint Venture (JV)-PPAP Tokai India Rubber Private Limited (PTI) with its Technology Partner Tokai Kogyo Co. Limited, Japan. It was set up to manufacture EPDM Automotive Body Sealing & Rubber and TPV Glass Run Channels auto ceiling parts which are rubber based.

Key Financial Indicators*

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

511

421

Reported profit after tax (PAT)

Rs crore

-5.94

-0.78

PAT margin

%

-1.16

-0.18

Adjusted debt/adjusted networth

Times

0.35

0.37

Interest coverage

Times

4.3

5.2

*Crisil adjusted figures

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit NA NA NA 61 NA CRISIL A/Negative
NA Term loan NA NA Mar-26 90.18 NA CRISIL A/Negative
NA Proposed term loan  NA NA NA 18.76 NA CRISIL A/Negative
NA Bank guarantee NA NA NA 20.56 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 Limited

100%

Holding company

PPAP Automotive Technology Private Limited

100%

Wholly owned subsidiary company

Elpis Components Distributors Pvt Ltd

100%

Wholly owned subsidiary company

PPAP Tokai India Rubber Pvt. Ltd

50%

Joint venture
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 169.94 CRISIL A/Negative   -- 08-04-22 CRISIL A/Stable 30-03-21 CRISIL A+/Stable   -- CRISIL A+/Stable
      --   --   -- 08-02-21 CRISIL A+/Stable   -- --
      --   --   -- 05-02-21 CRISIL A+/Stable   -- --
Non-Fund Based Facilities ST 30.06 CRISIL A1   -- 08-04-22 CRISIL A1 30-03-21 CRISIL A1   -- CRISIL A1
      --   --   -- 08-02-21 CRISIL A1   -- --
      --   --   -- 05-02-21 CRISIL A1   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 14.35 HDFC Bank Limited CRISIL A1
Bank Guarantee 1.21 Axis Bank Limited CRISIL A1
Bank Guarantee 5 ICICI Bank Limited CRISIL A1
Cash Credit 18 HDFC Bank Limited CRISIL A/Negative
Cash Credit 22 ICICI Bank Limited CRISIL A/Negative
Cash Credit 20 HSBC Bank Plc CRISIL A/Negative
Cash Credit 1 Axis Bank Limited CRISIL A/Negative
Letter of Credit 9.5 ICICI Bank Limited CRISIL A1
Proposed Term Loan 18.76 HDFC Bank Limited CRISIL A/Negative
Term Loan 1.73 HDFC Bank Limited CRISIL A/Negative
Term Loan 21.93 Axis Bank Limited CRISIL A/Negative
Term Loan 10 ICICI Bank Limited CRISIL A/Negative
Term Loan 20.14 HSBC Bank Plc CRISIL A/Negative
Term Loan 9.9 HDFC Bank Limited CRISIL A/Negative
Term Loan 6.48 Axis Bank Limited CRISIL A/Negative
Term Loan 20 HDFC Bank Limited CRISIL A/Negative
Criteria Details
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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