| 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 short term debt programme of Pidilite Industries Limited (Pidilite).
The rating continues 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 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, CRISIL Ratings expects revenue to grow by 10-11% year-on-year in fiscal 2022, also aided by improvement in consumer demand and revival of construction work post the lockdowns. Efficient cost control measures in the form of price hikes in light of current inflationary pressure from raw material prices as well as strong operating efficiencies will benefit in safeguarding their margins at 20-24 over the medium term. As a result, Pidilite is expected to generate healthy cash surplus of over Rs. 1200 crores annually. On standalone level, the company continues to be have no long term debt and negligibly used working capital limits. On a consolidated basis, gross debt decreased to Rs 21 crore as on March 31, 2021, from Rs. 32 crore as on March 31, 2020. Credit metrics continued to remain strong; gearing levels was at 0.03 times as on fiscal 2021. Liquidity remains strong with superior cash balances and supported by partially utilised bank lines.
The ratings continue to reflect their diversified distribution network, and a healthy financial risk profile. These strengths are partially offset by competition in the industrial chemicals segment, and modest performance of overseas subsidiaries. |
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.
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 Leading position in the consumer adhesive and sealant market Pidilite is the largest player in the consumer adhesive and sealant industry. It is an iconic brand in the domestic adhesives segment, where it is synonymous with the product itself. It 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 floor coating 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.
Strong brand management, backed by extensive marketing and distribution network 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, the 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, servicing 200,000 dealers, retailers and contractors. The company's presence across price points and categories acts as an effective barrier against competition.
Strong financial risk profile Financial risk profile is marked by a healthy networth of Rs 2858 crore as on 31st March, 2021 and gearing of 0.03 time. Debt protection metrics remained strong with interest coverage of about 46 times and net cash accruals to total debt of 5.96 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.
Weakness Moderate profitability and volatility in the industrial chemicals segment The industrial specialty chemicals segment, which is a bulk commodity business, includes industrial adhesives, synthetic resins, organic pigments, and surfactants, and accounted for 18% of total revenue for fiscal 2021. Competition from international and domestic players limits the scope for passage of any hike in cost to customers.
Weak, though improving, performance of overseas subsidiaries Performance of overseas subsidiaries, which account for 8% of overall revenue, has sustained and earnings before interest, depreciation, tax, and amortisation (EBIDTA) has been positive since fiscal 2018. However, these subsidiaries, operate on a smaller scale, with high input costs, and face competition and economic challenges. While the Asia and Americas subsidiaries have been able to trim its losses by improving the operating efficiency, the Middle East and Africa facilities are currently on a ramp-up mode resulting in operating losses in fiscals 2020 and 2021. Performance of international subsidiaries should improve gradually over the medium term. |
Liquidity: Superior Liquidity should remain strong, aided by no long term debt, sufficient net cash accrual, the surplus cash and cash equivalent, and the bank limit (fund + non-fund based) being partially utilised for the six months through September 2021. 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, on standalone basis, has a surplus cash and cash equivalent of over Rs. 700 crores crore as on March 31, 2021. |
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 1959, with two main divisions: pigment emulsions and adhesives. Over the years, the company diversified into branded consumer and bazaar products, and business to business, which accounted for 81.2% and 18%, respectively, of sales in fiscal 2021. Besides the mother brand, Fevicol, prominent brands include Steelgrip, Dr. Fixit, M-seal, Fevicryl, Fevikwik, Fevistik, Fevilite, Fevibond, and Acron. The company has 25 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; and Guwahati, Assam.. To diversify its revenue stream and facilitate global reach, the company has subsidiaries in the USADubai, Brazil, Thailand, Bangladesh, , Sri Lanka, and Kenya.
For the three months ended June 30, 2021, the company reported revenue of Rs. 1937 crore (Rs. 878 crore for the corresponding period last fiscal ended June 30, 2020) and net profit of Rs. 218 crore (Rs. 16 crore). |
Key Financial Indicators
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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)
#Fully interchangeable with working capital demand loan/letter of credit/bank guarantee /stand-by line of credit facilities |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Fund-Based Facilities | 35 | CRISIL AAA/Stable |
| Fund-Based Facilities | 25 | CRISIL AAA/Stable |
| Fund-Based Facilities# | 25 | CRISIL AAA/Stable |
| Fund-Based Facilities## | 105 | CRISIL AAA/Stable |
| Fund-Based Facilities | 15 | CRISIL AAA/Stable |
| Fund-Based Facilities | 25 | CRISIL AAA/Stable |
| Fund-Based Facilities* | 50 | CRISIL AAA/Stable |
| Non-Fund Based Limit@ | 25 | CRISIL A1+ |
| Non-Fund Based Limit@ | 25 | CRISIL A1+ |
| Non-Fund Based Limit@@ | 10 | CRISIL A1+ |
| Non-Fund Based Limit@@ | 15.3 | CRISIL A1+ |
| Non-Fund Based Limit@@ | 11.7 | CRISIL A1+ |
## 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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