Rating Rationale
December 13, 2019 | Mumbai
Pidilite Industries Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.367 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.250 Crore Short Term Debt Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and debt programme of Pidilite Industries Limited (Pidilite).
 
Revenue growth in fiscal 2020 is expected to moderate year-on-year due to weak consumer demand, also reflected in 6% growth in revenues during first half of fiscal 2020 compared to 12% growth in fiscal 2019. Market leadership in core adhesive categories, healthy growth prospects of underpenetrated water proofing segment, foray into niche segment areas such as floor coating, wood finishes and focus on increasing distribution reach to result in modest growth in line with general economic and market conditions during current fiscal. Operating profitability to remain strong during the current fiscal due to benign raw material prices. As a result, Pidilite is expected to generate healthy cash surplus riding on the corporate tax cuts announced by the Government.
 
On standalone level, the company continues to be debt free. On a consolidated basis, gross debt decreased to Rs 113 crore as on March 31, 2019, from Rs.125 crore as on March 31, 2018. Credit metrics continued to remain strong; gearing levels was at 0.03 times as on fiscal 2019. Liquidity remains strong with cash surpluses of over Rs. 1500 crore with unutilised bank lines.
 
CRISIL's ratings continue to reflect Pidilite's leadership in the Adhesives and Sealants segment, strong brands backed by extensive marketing, the 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 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. Company witnessed overall volume growth of 10.4% in fiscal 2019 with volumes of consumer and bazaar segment growing by 12.2% and industrial products segment by 1.9%.
 
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 5,000 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 4355 crore as on 31st March, 2019 and gearing of 0.03 time. Debt protection metrics remained strong with interest coverage of about 54 times and net cash accruals to total debt of 6.13 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 200-300 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 15% of total revenue for fiscal 2019. 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. In the first half of fiscal 2020, the EBITDA for these entities remained at 5.5% compared to 2.4% during corresponding period last year. However, these subsidiaries, specifically in Brazil and the Middle East, operate on a smaller scale, with high input costs, and face competition and economic challenges. While the Brazilian subsidiary has been able to trim its losses by improving the operating efficiency, the Middle East facility was commercialised in fiscal 2016, and is currently on a ramp-up mode. Performance of international subsidiaries should improve gradually over the medium term.
Liquidity Superior

Liquidity should remain strong, aided by sufficient net cash accrual, the surplus cash and cash equivalent, and the bank limit being unutilised for the six months through October 2019. The company has debt free balance sheet and expected net cash accrual of over Rs 800 crore per annum should 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 around Rs 1800 crore as on September 30, 2019.

Outlook: Stable

CRISIL 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
*Substantial capital expenditure, acquisition or unrelated diversification, leading to gearing of over 0.3 time and substantial erosion of liquidity
*Significant weakening of operating performance or profitability
*Substantial reduction in the market share in adhesives and sealants segment.

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 industrial specialty chemicals, which accounted for 84% and 16%, respectively, of sales in fiscal 2018. Besides the mother brand, Fevicol, prominent brands include Steelgrip, Dr. Fixit, M-seal, Fevicryl, Fevikwik, Fevistik, Fevilite, Fevibond, and Acron. The company has 23 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 US and UAE, Brazil, Thailand, Bangladesh, Indonesia, Egypt, Singapore, Sri Lanka, and Ethiopia, China.
 
 For the half year ended September 30, 2019, the company reported revenue of Rs. 3823 crore (Rs. 3592 crore for the half year ended September 30, 2018) and net profit of Rs. 619 crore (Rs. 472 crore).

Key Financial Indicators
Particulars Unit 2019 2018
Revenue     Rs crore 7081 6083
Adjusted profit after tax (APAT) Rs crore 928 966
APAT margins % 13.1 15.9
Adjusted gearing Times 0.03 0.04
Interest coverage Times 54.2 89.3

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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.Cr)		 Rating assigned
with outlook
NA Short Term Debt NA NA 7-365 days 250 CRISIL A1+
NA Fund-Based Facilities# NA NA NA 25 CRISIL AAA/Stable
NA Fund-Based Facilities## NA NA NA 105 CRISIL AAA/Stable
NA Fund-Based Facilities^ NA NA NA 50 CRISIL AAA/Stable
NA Fund-Based Facilities NA NA NA 100 CRISIL AAA/Stable
NA Non-Fund Based Limit@@ NA NA NA 37 CRISIL A1+
NA Non-Fund Based Limit@ NA NA NA 50 CRISIL A1+
#Fully interchangeable with working capital demand loan/letter of credit/bank guarantee /stand-by line of credit facilities
##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
 
Annexure - List of Entities Consolidated 
Sr.No Name of Associate/Subsidiary Relationship Extend of consolidation
1 Fevicol Company Ltd Subsidiary Fully
2 Bhimad Commercial Company Pvt Ltd Subsidiary Fully
3 Madhumala Traders Pvt Ltd Subsidiary Fully
4 Nitin Enterprises Subsidiary Fully
5 Pidilite International Pte Ltd Subsidiary Fully
6 Pidilite Middle East Ltd Subsidiary Fully
7 Pulvitec do Brasil Industria e Commercio de Colas e Adesivos Ltda Subsidiary Fully
8 Pidilite USA Inc Subsidiary Fully
9 PT Pidilite Indonesia Subsidiary Fully
10 Pidilite Specialty Chemicals Bangladesh Pvt Ltd Subsidiary Fully
11 Pidilite Innovation Centre Pte Ltd Subsidiary Fully
12 Pidilite Industries Egypt SAE Subsidiary Fully
13 Pidilite Bamco Ltd Subsidiary Fully
14 Pidilite Chemical PLC Subsidiary Fully
15 PIL Trading (Egypt) Company Subsidiary Fully
16 Pidilite Industries Trading (Shanghai) Co Ltd Subsidiary Fully
17 Nebula East Africa Pvt Ltd Subsidiary Fully
18 Pidilite Ventures LLC Subsidiary Fully
19 Pagel Concrete Technologies Pvt Ltd Subsidiary Fully
20 Building Envelope Systems India Ltd Subsidiary Fully
21 Hybrid Coatings Subsidiary Fully
22 Nina Percept Pvt Ltd Subsidiary Fully
23 ICA Pidilite Pvt Ltd Subsidiary Fully
24 CIPY Poly urethanes Pvt Ltd Subsidiary Fully
25 Pidilite Lanka (Pvt) Ltd Subsidiary Fully
26 Nina Lanka Construction Technologies (Pvt) Ltd Subsidiary Fully
27 Pidilite MEA Chemicals LLC Subsidiary Partial
28 Bamco Supply and Services Ltd Subsidiary Partial
29 Vinyl Chemicals (India) Ltd (Associate) Associate Partial
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Short Term Debt  ST  250.00  CRISIL A1+      31-12-18  CRISIL A1+  29-12-17  CRISIL A1+  23-11-16  CRISIL A1+  CRISIL A1+ 
                04-07-17  CRISIL A1+  13-10-16  CRISIL A1+   
                    12-04-16  CRISIL A1+   
Fund-based Bank Facilities  LT/ST  280.00  CRISIL AAA/Stable      31-12-18  CRISIL AAA/Stable  29-12-17  CRISIL AAA/Stable  23-11-16  CRISIL AAA/Stable  CRISIL AA+/Positive 
                04-07-17  CRISIL AAA/Stable  13-10-16  CRISIL AAA/Stable   
                    12-04-16  CRISIL AA+/Positive   
Non Fund-based Bank Facilities  LT/ST  87.00  CRISIL A1+      31-12-18  CRISIL A1+  29-12-17  CRISIL A1+  23-11-16  CRISIL A1+  CRISIL A1+ 
                04-07-17  CRISIL A1+  13-10-16  CRISIL A1+   
                    12-04-16  CRISIL A1+   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities# 25 CRISIL AAA/Stable Fund-Based Facilities# 25 CRISIL AAA/Stable
Fund-Based Facilities## 105 CRISIL AAA/Stable Fund-Based Facilities## 105 CRISIL AAA/Stable
Fund-Based Facilities^ 50 CRISIL AAA/Stable Fund-Based Facilities^ 50 CRISIL AAA/Stable
Fund-Based Facilities 100 CRISIL AAA/Stable Fund-Based Facilities 100 CRISIL AAA/Stable
Non-Fund Based Limit@@ 37 CRISIL A1+ Non-Fund Based Limit@@ 37 CRISIL A1+
Non-Fund Based Limit@ 50 CRISIL A1+ Non-Fund Based Limit@ 50 CRISIL A1+
Total 367 -- Total 367 --
#Fully interchangeable with working capital demand loan/letter of credit/bank guarantee /stand-by line of credit facilities
## 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
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Petrochemical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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