By Siddharth Rego

India Ratings and Research (Ind-Ra) has revised Nina Percept Private Limited’s (NPPL) Outlook to Negative from Stable while affirming its Long-Term Issuer Rating at ‘IND A-’. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based limits (cash credit)

-

-

-

INR950 (increased from INR380)

IND A-/Negative

Affirmed; Outlook revised to Negative

Non-fund-based limits (bank guarantee/letter of credit)

-

-

-

INR450 (reduced from INR1,020)

IND A-/Negative/IND A1

Affirmed; Outlook revised to Negative

Fund-based limits*

-

-

-

INR50

IND A-/Negative

Assigned

Non-fund based limits*

-

-

-

INR100

IND A-/Negative/IND A1

Assigned

* The final rating has been assigned basis the executed sanction letter.

Analytical Approach:
  Ind-Ra continues to factor in the strategic and operational linkages between NPPL and its parent, Pidilite Industries Limited (PIL; holds 74.58% share in NPPL), while arriving at the ratings. 

The Outlook revision reflects an elongation in the working capital cycle on account of a stretch in the receivables and the lack of visibility on the recovery of profitability.

KEY RATING DRIVERS

Elongated Collection Period: NPPL’s receivables remain stretched in FY21, with debtor days of 210-220 (FY20: 160; FY19: 143). The net working capital cycle is thus likely to elongate further to 170-180 days in FY21 (FY20: 93, FY19: 83). The company receives a large share of its orders through primary contractors and its order book is entirely project driven. Given the slowdown in the end-use industries and the delays in project execution on account of COVID-19, the receivables remain high despite the low operational revenue. Furthermore, the total debtors exceeding 180 days increased to 36.2% of the total receivables over November-December 2020 (March 2020: 32%; March 2019: 15%), reflecting the ageing of receivables.  Furthermore, delays in realising payments on account of the exposure directly and primarily to the construction and infrastructure sectors could lead to a stretched liquidity position. 

COVID-19 Disruptions to Significantly Impact FY21 Operational Performance: 
NPPL caters to the infrastructure and construction sectors which were severely impacted over 1HFY21. Furthermore, the delays in project execution over 9MFY21 have resulted in the delays in the receivables and revenue recognition. The fall in revenue is likely to hit profitability despite management's efforts to reduce fixed costs to the extent possible. Accordingly, FY21 revenue is likely to be 35%-38% yoy lower (FY20: INR2,677 million) while EBITDA is likely to be negative with 9MFY21 EBITDA being negative INR234 million. However, management expects both revenue and EBITDA to recover in FY22. NPPL has a healthy order book of around INR4,700 million, which the management expects to execute over FY22 and FY23. Furthermore, NPPL has bid for a substantial number of contracts over 9MFY21 and is likely to secure further orders, basis its win ratio for bids which the management has articulated as improved in 9MFY21 over FY20. The management has informed the agency that it has maintained and further improved its market share in FY21, due its ability to manage larger projects in addition to the Pidilite parentage, which provides further comfort to customers on project execution. 

FY21 Credit Metrics to Deteriorate; Improve in FY22:
The credit metrics are likely to deteriorate in FY21 due to the negative EBITDA. However, both FY22 interest cover and net leverage are likely to be comfortable at around 3.5x.  In FY20, NPPL’s interest coverage (operating EBITDA/gross interest expense) fell 2.99x (FY19: 12.95x; FY18: 14.86x) and net adjusted leverage (adjusted debt net of cash/EBITDAR) deteriorated to 6.25x (1.03x; 0.56x), due to a slowdown in the construction and infrastructure industry.  

Strong Parentage and Moderate Strategic & Operational Linkages:
 Although NPPL’s contribution to PIL’s consolidated revenue was only around 3.7% in FY20 (FY19: around 4.3%), the agency believes it could play a key role in PIL’s plans to become a complete waterproofing solutions provider. While NPPL has complete autonomy in its day-to-day operations, there is a close monitoring by the parent. NPPL benefits from PIL’s strong market reach, and it procures a significant portion of its raw materials from PIL and its supplier base. Furthermore, two out of six members (two independent) on NPPL’s board are representatives of PIL to align with the group strategy. 

Liquidity Indicator - Adequate:  
NPPL’s average use of the fund-based and non-fund-based working capital limits was around 71% and 79%, respectively, over the 12 months ended December 2020. NPPL has increased both its sanctioned fund-based and non-fund-based limits to INR1,000 million and INR1,130 million, which will provide liquidity buffer, given the elongated working capital cycle. NPPL did not avail of the the Reserve Bank of India-prescribed moratorium for debt obligations. NPPL does not have any fixed term debt obligations.  This provides certain relief, given that NPPL reported negative cash flow from operations during FY20 which is likely to remain negative in FY21 due to negative EBITDA, while there are incremental working capital requirements to fund the rise in debtor days.  NPPL’s receivables were high at INR1,037.9 million at end-December 2020 despite the lower operational revenue (September 2020: INR1,179.7 million; March 2020: INR1,109.57 million) on account of the delayed payments from customers. However, the management has informed Ind-Ra that it has made adequate provision as per Expected Credit Loss method in FY20 itself. The agency draws comfort from NPPL's parent, PIL’s ability to fund the company in case of any shortfall.  The debt service coverage ratio is likely to be negative in FY21 due to the negative EBITDA generation but improve to around 2.8x in FY22. The company does not have any capital market exposure and relies on banking channels to meet funding requirements. 


RATING SENSITIVITIES

Positive: Any further increase in the strategic, legal and operational linkages with the parent or an increase in NPPL’s scale of operations, resulting in improved credit metrics and an easing of the working capital cycle will lead to the Outlook being revised back to Stable. 

Negative:
 Any weakening of support from the parent could have a negative impact on the ratings. In addition, any further elongation of the working capital cycle or a weakening of NPPL’s financial performance, leading to the interest coverage staying below 3.5x, all on a sustained basis, could lead to a downgrade. 


COMPANY PROFILE

NPPL was incorporated in November 2014 and began operations in April 2015. It provides waterproofing services across various segments of the construction industry. 


FINANCIAL SUMMARY
 

Particulars

FY20

FY19

Revenue (INR million)

2,677.6

3,047.9

EBITDA (INR million)

103.0

341.9

EBITDA margin (%)

2.71

10.26

Gross interest coverage (x)

2.99

12.95

Net adjusted leverage (x)

6.25

1.03

Source: NPPL, Ind-Ra



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (million)

Rating

5 December 2019

5 December 2018

3 October 2017

Issuer rating

Long-term

-

IND A-/ Negative

IND A-/Stable

IND A-/RWP

IND A-/Stable

Fund-based limits

Long-term

INR1,000

IND A-/Negative

IND A-/Stable

IND A-/RWP

IND A-/Stable

Non-fund-based limits

Long-term/Short-term

INR550

IND A-/ Negative/IND A1

IND A-/Stable/IND A1

IND A-/RWP/IND A1/RWP

IND A-/Stable/IND A1



COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

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Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Analyst Names

  • Primary Analyst

    Siddharth Rego

    Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40356115

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121