| Pidilite Industries Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and debt programme of Pidilite Industries Limited (Pidilite).
The ratings continue to reflect the market leader leadership position of the company in the core adhesives and sealants category, well-diversified product offerings with strong brand recall, healthy growth prospects in the underpenetrated waterproofing segment & tile jointers and focus on niche products such as floor coating & wood finishes. The ratings are further supported by healthy operating efficiencies leading to improved profitability, and superior financial risk profile and liquidity.
The company’s flagship segment i.e. Consumer & Bazaar continues to contribute to the growth momentum of the company. As a result, year-on-year revenue growth in fiscal 2023 is expected to be 11-12% year-on-year, also aided by improvement in consumer demand and revival of real estate industry. Efficient cost control measures in the form of price hikes in light of inflationary pressure from raw material prices as well as strong operating efficiencies will benefit in safeguarding their margins at 18-20% over the medium term. As a result, Pidilite is expected to have healthy cash and cash equivalents of over Rs.800 crores annually.
On standalone level, the company continues to long term debt free and negligibly used working capital limits. On a consolidated basis, long term debt decreased to Rs 3 crore as on March 31, 2022, from Rs. 21 crore as on March 31, 2021. Credit metrics continued to remain strong; with gearing levels at 0.05 times as on fiscal 2022. Liquidity remains strong with healthy cash balances.
The ratings continue to reflect diversified distribution network, and a healthy financial risk profile. These strengths are partially offset by erratic monsoon dampening the demand and hike in input prices. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Pidilite and all its subsidiaries and associate to the extent of its shareholding in these entities since these have significant business and financial linkages and are under common management.
CRISIL Ratings has amortised goodwill and trademarks arising from acquisitions of Pidilite Adhesives Private Limited (formerly known as Huntsman Advanced Materials Solutions Pvt Ltd) and Tenax Pidilite India -Pvt. Ltd. (formerly known as Tenax India Stone Products Pvt. Ltd.) in fiscal 2021 over a period of 5 and 10 years respectively, given expectation of returns being spread over a longer tenure.
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:
Pidilite is the largest player in the consumer adhesive and sealant industry. Fevicol is an iconic brand in the domestic adhesives segment, where it is synonymous with the product itself. Pidilite has leveraged Fevicol's favourable market presence to acquire and develop new products and variants and build its market position. Having a well-established brand and the ability to customise the product portfolio provide the company, a competitive edge over unorganised players.
Furthermore, apart from steady growth in the adhesive and sealant categories, Pidilite is also likely to see good growth in newer categories such as waterproofing and tile jointers in the medium term. Additionally, increasing focus on some of the overseas markets (few countries in South & South East Asia, Central Africa and Middle East) will also support the growth in the medium term.
Pidilite has seen higher than industry growth due to its strong product portfolio, focus on innovation and increase in distribution reach. The strong brand equity is backed by greater focus on quality, diversified distribution network, and strong advertising support. Over the years, the company has imparted brand equity to commoditised products, through its aggressive and innovative marketing style. It has also developed an extensive pan-India network, comprising over 4700 distributors. The company's presence across price points and categories acts as an effective barrier against competition.
Financial risk profile is marked by a healthy networth of Rs 5402 crore (adjusted for goodwill and trademark amortisation) as on 31st March, 2022 and gearing of 0.05 times. Debt protection metrics remained strong with interest coverage of about 45 times and net cash accruals to total debt of 3.53 times. Networth will improve further, led by healthy accretion to reserves over the medium term. Company is expected to generate healthy cash accruals in line with past trends over the medium term which would be sufficient to fund annual capital expenditure (capex) requirement of Rs 400-500 crore and incremental working capital. As a result, capital structure will continue to remain strong.
Weaknesses:
Raw materials constituted 62% of cost of sales in FY22. Increase in raw material costs like VAM, resins, etc which are derivative products of crude have impacted the operating margins of the Company in fiscal 2022 and the first quarter of 2023. Further, given some of the key raw materials like VAM being imported, profitability is also linked to foreign exchange fluctuations. Though the raw material prices have started softening from Q2 onwards, the impact of the same on margins is expected to be visible in second half of the fiscal 2023.
The industrial specialty chemicals segment, which is a bulk commodity business, includes industrial adhesives, synthetic resins, organic pigments, and surfactants, and accounted for 20% of total revenue for fiscal 2022. Competition from international and domestic players limits the scope for passage of any hike in cost to customers, thereby limiting the overall profitability of the segment.
Performance of overseas subsidiaries, which account for 7% of overall revenue on constant currency currency basis, has reported sales growth of 16.4% in fiscal 2022. However, earnings before interest, depreciation, tax, and amortisation (EBIDTA) declined by 28.2% in fiscal 2022 mainly due to increase in input costs. These subsidiaries, specifically in Brazil and the Middle East, operate on a smaller scale and remain vulnerable to high input costs, face competition alongwith economic challenges. Performance of international subsidiaries may be dampened by the geo-political tensions. |
Liquidity: Superior Liquidity should remain strong, aided by sufficient net cash accrual, the surplus cash and cash equivalent, and the bank limit being minimally utilised for the six months through September 2022. The company has negligible long term debt. The cash accruals stemming from continued increase in profitability will suffice to cover the working capital and capex requirement in the medium term. Moreover, the company has a surplus cash and cash equivalent of over Rs. 540 crores as on March 31, 2022. |
Outlook: Stable CRISIL Ratings believes operating performance of Pidilite will remain strong, and the management will remain focused on growing the business in existing product lines where it has an established market position. |
Rating Sensitivity factors Downward factors
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About the Company Pidilite commenced operations in 1969, with two main divisions: pigment emulsions and adhesives. Over the years, the company diversified into branded consumer and bazaar products, and business to business segment , which accounted for 80% and 20%, respectively, of sales in fiscal 2022. Besides the mother brand, Fevicol, prominent brands include Steelgrip, Dr. Fixit, M-seal, Fevicryl, Fevikwik, Fevistik, Fevilite, Fevibond, and Acron. The company has 30 manufacturing plants, in Mumbai, Mahad, Panvel, Taloja, all in Maharashtra; Vapi, Gujarat; Daman, Union Territory of Daman and Diu; Baddi and Kala Amb, Himachal Pradesh; Guwahati, Assam and Vishakhapatnam, Andhra Pradesh. To diversify its revenue stream and facilitate global reach, the company has subsidiaries in the US, Thailand, Dubai, Brazil, Egypt, Bangladesh, Sri Lanka , Kenya, Indonesia, Singapore, Ethiopia and China.
For the three months ended June 30, 2022, the company reported revenue of Rs. 3101 crore (Rs. 1937 crore for the corresponding period last fiscal ended June 30, 2021) and net profit of Rs. 358crore (Rs. 218 crore). |
Key Financial Indicators
*Adjusted for goodwill and trademark amortisation in line with the analytical approach of CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: 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.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
#Fully interchangeable with working capital demand loan/letter of credit/bank guarantee /stand-by line of credit facilities |
Annexure – List of entities consolidated
#During the year, on completion of winding up procedures, Pidilite Grupo Puma Private Limited (w.e.f. 27th October 2021) and Pidilite C-Techos Private Limited (w.e.f. 1st February 2022) were struck off by Registrar of Companies. |
| 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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## Rs 105 crore interchangeable with working capital demand loan/letter of credit/bank guarantee /stand-by line of credit facilities
*Interchangeable with working capital demand loan/letter of credit/bank guarantee /stand-by line of credit facilities
@@ interchangeable with pre-shipment credit (PC), post-shipment credit (PSC), standby letter of credit (SBLC),bill discounting, overdraft (OD), letter of credit, bank Guarantees (BG's) , buyers credit and Foreign exchange hedge limits
@Fully interchangeable with letter of credit/bank guarantee
Criteria Details
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