Rating Rationale
July 18, 2023 | Mumbai
Philips India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.362 Crore
Long Term RatingCRISIL AA+/Negative (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 reaffirmed its ‘CRISIL AA+/Negative/CRISIL A1+’ ratings on the bank facilities of Philips India Limited (PIL).

 

The outlook continues to be ‘Negative’ due to the rating outlook on the parent company Koninklijke Philips NV (KPNV; rated ‘BBB+/Negative’ by S&P Global Ratings [S&P]) on account of supply chain issues and uncertainty regarding the group’s ability to turn inventory to cash given the weakening credit metrics of the parent company. CRISIL Ratings has been applying its parent notch-up criteria for arriving at the ratings of PIL.

 

The operating income grew by 5% in fiscal 2023 (on-year) driven by high growth in the software division. The operating margins are at ~7% in fiscal 2023 and expected to remain stable at these levels in the medium term. The financial risk profile remains strong supported by nil debt and interest cover of above 15 times as on March 31, 2023. The liquidity has remained strong with cash and cash equivalents of ~Rs 217 crore as on March 31, 2023 and unutilised working capital limits of Rs 110 Crores. Liquidity is expected to moderate in fiscal 2024, due to planned capex of Rs 400 crore which will be funded by internal accruals and cash & cash equivalents. It will continue to be supported by the fund-based bank lines for working capital requirement, if needed.

 

The ratings continue to reflect the healthy market share of PIL in the healthcare, personal care segments and consistent growth in software division. The rating also factors in the strong financial risk profile, as indicated by negligible debt and strong liquidity. The rating is also supported by the strong technical and managerial support received by PIL from KPNV. The strengths are partially offset by modest profitability in the healthcare division and exposure to intense competition.

Analytical Approach

CRISIL Ratings has applied its parent notch-up criteria for factoring in the strong technical and managerial support from KPNV to PIL.

Key Rating Drivers & Detailed Description

Strengths:

  • Healthy market share in the healthcare segment, continued growth in personal care and innovation services businesses: PIL enjoys a leadership position in key segments of premium medical equipment in India. Premium imaging technology and provision of end-to-end solutions for setting up medical centres enables PIL to maintain market leadership. The innovation services segment, which supports the global technological needs of KPNV, grew revenue by ~25% in fiscal 2023, and should sustain the healthy growth trajectory in the medium term with increasing investment in innovation and maintain the momentum over the medium term.

 

The personal care segment (excluding the demerged domestic appliances segment) recorded ~12% revenue growth in fiscal 2023. Growth in this segment should be supported by leadership in sub-segments such as male grooming.

 

CRISIL Ratings believes PIL will maintain its established market position over the medium term supported by new product launches and focus on the core healthcare business post demerger of the domestic appliances business.

 

  • Healthy financial risk profile: The financial risk profile is supported by, strong cash accrual and absence of term debt obligation, strong networth of over Rs 1,200 crore as on March 31, 2023 despite dividend payout of Rs 1294 crore. Support to parent company in the form of dividend payout will remain key monitorable.

 

Debt protection metrics will remain strong (interest coverage expected over 15 times in medium term) in the absence of large debt-funded acquisition or capital expenditure (capex) plans. The company is having capex plans of Rs 400 crore in fiscal 2024 which will be majorly funded by internal accruals.

 

  • Technological and managerial support from the parent: PIL is a 96.13% subsidiary of KPNV. The parent is involved in all strategic decisions, and provides technical and managerial support to the company. PIL imports majority of the products for the healthcare and personal care divisions directly from the parent and group companies. The demerger of the domestic appliances business is in line with the global restructuring plans. KPNV provides technological and product support for PIL’s launches. PIL will remain strategically important to KPNV, given the parent’s long-term goal of increasing market penetration in emerging markets.

 

S&P has revised the outlook on KPNV to ‘Negative’ due to supply chain issues and cost related to the respiratory care device repair and replacement programme and weakening credit metrics.

 

Weaknesses:

  • Modest profitability in the healthcare segment: Operating margin in the healthcare segment are expected to remain modest at around 4-5% over the medium term. This segment is a significant revenue contributor (around 47% in fiscal 2023). The operating margin of PIL will be driven by the performance of the healthcare and software segments over the medium term.

 

  • Exposure to intense competition: PIL faces intense competition from General Electric Co (GE) and Siemens AG in the healthcare division. However, the company benefits from its strong and established brand, large product portfolio and wide distribution network.

Liquidity: Strong

PIL had strong liquidity with cash and cash equivalents of ~Rs 217 crore as on March 31, 2023, supported by unutilised working capital limits. The company is also in process to increase their bank lines and is expected to have around Rs 500-600 crore by the end of fiscal 2024. Healthy cash accrual, expected over Rs 300 crore in fiscal 2023, will also support liquidity. The liquidity will moderate in fiscal 2024 due to planned capex of Rs 400 crore, which will be largely funded by the internal accruals.

Outlook: Negative

CRISIL Ratings believes that any change in the rating on KPNV by S&P may have an impact on the rating of PIL. The outlook may be revised to Stable if a similar action is taken on KNPV’s rating by S&P. PIL will continue to benefit from its established market position, association with KPNV, and healthy financial risk profile.

Rating Sensitivity Factors

Upward Factors:

  • Upgrade in credit rating of KPNV by S&P Global by 1 or more notches
  • Significant improvement in the business risk profile, led by healthy growth in revenue and profitability

 

Downward Factors:

  • Downgrade in the credit rating of KPNV by S&P Global by 1 notch
  • Any significant dilution of stake by KPNV, leading to weakening of linkages with the parent
  • Sizeable dividend pay-out or advances to parent, materially impacting liquidity position of PIL

About the Company

PIL sells personal-care products, and medical equipment, and meets a large part of the parent’s global technological requirement through its innovation centre. The businesses previously included the domestic appliances and lighting business in India, which was demerged in fiscal 2022 and 2016 respectively, in line with the parent’s global strategy.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs crore

5713

5461

Profit After Tax (PAT)

Rs crore

260

266

PAT Margin

%

4.6

4.9%

Adjusted debt/adjusted networth

Times

0.00

0.01

Interest coverage

Times

14.5

14.4

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 instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity level

Rating assigned with outlook

NA

Fund-Based Facilities

NA

NA

NA

360

NA

CRISIL AA+/Negative

NA

Non-Fund Based Limit

NA

NA

NA

2

NA

CRISIL A1+
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 360.0 CRISIL AA+/Negative   -- 17-11-22 CRISIL AA+/Negative   -- 28-12-20 CRISIL AA+/Stable CRISIL AA+/Stable
      --   -- 01-03-22 CRISIL AA+/Stable   --   -- --
Non-Fund Based Facilities ST 2.0 CRISIL A1+   -- 17-11-22 CRISIL A1+   -- 28-12-20 CRISIL AA+/Stable / CRISIL A1+ CRISIL A1+
      --   -- 01-03-22 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 125 HDFC Bank Limited CRISIL AA+/Negative
Fund-Based Facilities 35 State Bank of India CRISIL AA+/Negative
Fund-Based Facilities 200 Citibank N. A. CRISIL AA+/Negative
Non-Fund Based Limit 2 State Bank of India CRISIL A1+
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
Rating Criteria for Consumer Durable Industry
Mapping global scale ratings onto CRISIL scale
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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