CRISIL assigns A+/Stable on long-term bank facilities of Asahi India Glass; Stock slumps 4.5%

24 Feb 2022 , 10:58 AM

CRISIL Ratings Limited has issued its rating on total bank facilities rated Rs250 crore of Asahi India Glass Limited on February 22, 2022. The long-term rating has been assigned at CRISIL A+/Stable and short-term rating at CRISIL A1.

At around 11.02 am, Asahi India Glass Ltd was trading at Rs458.45 per piece down by Rs21.7 or 4.52% from its previous closing of Rs480.15 per piece on the BSE.

“The ratings reflect the healthy business profile marked by AIS’s established market position in the auto and architectural glass segments and established clientele, strong operating efficiency, comfortable financial profile, and the extensive industry experience of the promoters including technical and business support from AGC Inc (AGC; rated A-/Stable/A-2 by S&P Global).”

“These strengths are partially offset by susceptibility to inherent cyclicality in the end-user industry along with project risk associated with large proposed capital expenditure (capex) plan and volatility in fuel prices,” company shared CRISIL’s rating rationale on Wednesday.

AIS has a dominant market share (74% share) in the auto glass passenger vehicle segment with healthy share of business with most passenger vehicle original equipment manufacturers (OEMs). The 18% market share and established presence in architectural glass has led.to a healthy 7.2% compound annual growth rate (CAGR) in the segment over the last 5 years.

It further added, the company has moderate revenue diversity between auto glass (56% revenue contribution) and architectural glass (44%). AIS’s presence in automotive aftermarket sales (20%) lends further diversity and pricing flexibility. Supported by strong market position and technological edge due to association with AGC Inc., operating margin remained healthy at 17- 20% over the last five years.

In fiscal 2022, AIS is expected to show strong year-on-year revenue growth of over 25%, though on a relatively low base, and increase its sales to over Rs3,000 crore driven by recovery in demand from OEMs and increase in price realisations in the architectural glass segment. Sustained improvement in demand from OEMs and increasing usage of glass in construction is likely to result in strong revenue growth in the medium term.

Profitability in the current fiscal is expected to improve to over 20% with increase in scale and higher realisation in float glass segment. As a result, AIS is expected to generate net cash accrual of Rs450-550 crore over the medium term. The operating margin of architectural glass segment has improved over the last three fiscals with increase in price realisations of float glass. Over the last two years, float glass has benefitted from the anti-dumping duty levied on glass imported from Malaysia in December 2020 (for a period of five years) along with reduced imports from China on account of the decarbonisation drive taken by the country. This has resulted in improved demand-supply dynamics in favour of domestic float glass manufacturers with no significant additional float glass capacity expected to come in till 2024.

Financial risk profile remains healthy in fiscal 2022 supported by adequate liquidity in the form of unutilised bank lines of over Rs250 crore and comfortable capital structure. Debt protection metrics to remain comfortable in the medium term with increase in profitability despite large proposed capital expenditure (capex) to be incurred over fiscals 2023-2025 which is currently undergoing feasibility study and pending for approval. Debt metrics such as interest coverage ratio is likely to improve to ~6 times in fiscal 2022 from 3.5 times the previous year.

AIS is actively pursuing on plans to incur a capex of Rs1,500 crore for greenfield and brownfield capacity expansion over the next three fiscals to be funded through debt and internal accrual. With healthy cash accrual of Rs500-550 crore per annum over the next three fiscals, gearing should remain below 1 time as on March 31, 2022, and improve gradually thereafter as debt is repaid progressively. Any higher than-expected capex or steep moderation in credit metrics on account of slowdown in the end-user industry, will remain a rating sensitivity factor. AIS gets strong financial flexibility due to continued support of promoters in AGC Inc and Maruti Suzuki India Ltd (MSIL; ‘CRISIL AAA/Stable’) with strong credit profile.