Rating Rationale
March 01, 2022 | Mumbai
Philips India Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.362 Crore (Enhanced from Rs.360 Crore)
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities of Philips India Limited (PIL).

 

The ratings continue to reflect the company’s healthy market share in the healthcare and personal care segments, and the technical and managerial support received from the parent, Koninklijke Philips NV (KPNV; rated 'BBB+/Stable/A-2' by S&P Global Ratings [S&P]). The ratings also factor in consistent revenue growth, operating efficiency of the software division and a strong financial risk profile. These strengths are partially offset by moderate profitability in the healthcare segment and exposure to intense competition.

 

In September 2021, KPNV completed the sale of its domestic appliances business (includes kitchen appliances, garment and homecare) to Hillhouse Investment to focus on its core healthcare technology business. In line with this global restructuring, PIL had also demerged its domestic appliances business in August 2021.

 

CRISIL Ratings has factored in the likely impact of divestment of the domestic appliances business in its ratings. On a consolidated basis, the domestic appliances business contributed ~26% of revenue and ~30% of profit before tax in fiscal 2021.

Analytical Approach

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

Key Rating Drivers & Detailed Description

Strengths:

  • Healthy market share in the healthcare segment, and continued growth in the personal care and innovation services segments: PIL has a leadership position in key segments for premium medical equipment in India. Premium imaging technology and provision of end-to-end solutions for setting up medical centres enable the company to maintain its market leadership. The healthcare segment reported revenue growth of ~2% in fiscal 2021 owing to the Covid-19 pandemic. While revenue is expected to witness healthy growth in fiscal 2022, this segment is expected to register single-digit growth over the medium term. In contrast, revenue of the innovation services segment, which supports the global technological requirements of KPNV, grew around 6% in fiscal 2021. The segment will continue its healthy growth trajectory in fiscal 2022 aided by increasing investment in the innovation campus and should maintain the momentum over the medium term.

 

The personal care segment recorded ~14% revenue growth in fiscal 2021 despite the pandemic. Future growth in this segment will be supported by leadership in segments such as male grooming, despite the demerger of the domestic appliances business. The company should be able to maintain its established market position over the medium term supported by product launches and focus on the core healthcare business.

 

  • Healthy financial risk profile: The financial risk profile is supported by robust networth of over Rs 2300 crore in fiscal 2021, strong cash accrual and absence of term debt obligation or large dividend. Debt protection metrics will be robust, with interest coverage ratio expected to remain strong over 16 times in fiscal 2022, compared with ~18 times in fiscal 2021. These metrics are expected to sustain going forward in absence of any large debt-funded acquisition or capital expenditure (capex) plans.

 

  • Technological and managerial support from the parent: PIL is a 96.13% subsidiary of KPNV, which is involved in all strategic decisions and provides technical and managerial support. The company imports majority of products for the healthcare and personal care segments from its parent. Further, the recent demerger of the domestic appliances business is in line with the parent’s global restructuring plans. KPNV provides technology and product support for PIL’s launches. PIL will be strategically important to KPNV as the latter focuses on increasing market penetration in emerging markets.

 

Weaknesses:

  • Moderate profitability in the healthcare segment: The operating margin of the healthcare systems segment was ~4% in fiscals 2021 and 2020 and 4.6% in fiscals 2019 and is expected to remain stable going forward. This segment is a significant revenue contributor (around 36% in fiscal 2021). The operating margin of the company 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 segment. However, the company benefits from its strong and established brand, large product portfolio and wide distribution network.

Liquidity: Strong

Cash and bank balance stood at Rs 1,297 crore as on December 31, 2021. Net cash accrual was Rs 372 crore in fiscal 2021 and is expected at Rs 300-350 crore over the medium term. Fund-based limit of Rs 257 crore remained unutilised over the 12 months through December 2021. The company does not have any term debt obligation and capex will be funded through internal accrual.

Outlook: Stable

CRISIL Ratings believes 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 S&P’s rating of KPNV by one or more notch
  • Significant improvement in the business risk profile led by healthy growth in revenue and profitability

 

Downward factors:

  • Downgrade in S&P’s rating of KPNV by one notch
  • Sizeable dilution of stake by KPNV weakening linkages with the parent

About the Company

PIL sells personal care products and medical equipment; it meets a large part of the parent’s global technological requirement through its innovation centre. The lighting business in India was demerged in fiscal 2016 and the domestic appliances business was demerged in August 2021, in line with the parent’s global realignment strategy.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

5575

5178

Profit after tax (PAT)

Rs crore

245

144

PAT margin

%

4.4%

2.8%

Adjusted debt/adjusted networth

Times

0.01

--

Interest coverage

Times

18.83

20.34

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)

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 255 NA CRISIL AA+/Stable
NA Non-fund Based limit NA NA NA 107 NA CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 255.0 CRISIL AA+/Stable   --   -- 28-12-20 CRISIL AA+/Stable 27-09-19 CRISIL AA+/Stable CRISIL AA+/Stable
Non-Fund Based Facilities ST 107.0 CRISIL A1+   --   -- 28-12-20 CRISIL AA+/Stable / CRISIL A1+ 27-09-19 CRISIL A1+ 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 200 Citibank N. A. CRISIL AA+/Stable
Fund-Based Facilities 15 Bank of America N.A. CRISIL AA+/Stable
Fund-Based Facilities 20 HDFC Bank Limited CRISIL AA+/Stable
Fund-Based Facilities 20 BNP Paribas Bank CRISIL AA+/Stable
Non-Fund Based Limit 2 State Bank of India CRISIL A1+
Non-Fund Based Limit 35 State Bank of India CRISIL A1+
Non-Fund Based Limit 40 Bank of America N.A. CRISIL A1+
Non-Fund Based Limit 30 BNP Paribas Bank CRISIL A1+

This Annexure has been updated on 01-Mar-2022 in line with the lender-wise facility details as on 01-Mar-2022 received from the rated entity.

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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