PPAP Automotive Limited - CRISIL reaffirms ratings at 'CRISIL A / CRISIL A1 '; outlook revised to 'Negative'

CRISIL Ratings has revised its outlook on the long-term bank facilities of PPAP Automotive Ltd (PPAP; a part of the PPAP group) to 'Negative' from 'Stable' while reaffirming the ratings at 'CRISIL A/CRISIL A1'.

The outlook revision reflects the belief that the operating margin of PPAP group will remain under pressure over the medium term. The margin declined continuously to ~8.5% in fiscal 2023 from more than 15-20% in the past fiscals, leading to low return on capital employed (RoCE) of around 2.5% for fiscal 2023. The decline was driven by high overhead cost and inability to pass on the increase in raw material prices to customers along with continued losses in the subsidiary company and JV company. Improvement in the operating profitability to more than 10% will remains a key monitorable over the medium term.

However, the revenue of the company improved by around 21% to Rs.511 crore in fiscal 2023 against Rs.421 crore in fiscal 2022, which is in line with expectations, the improvement in the revenue is due to overall growth in the automotive (auto) industry. Further, as the demand of auto products is expected to remain stable along with other initiatives for business diversification may support the growth in future.

Financial risk profile should remain strong, with total outside liabilities to tangible networth ratio at ~0.7 time and interest coverage ratio above 4 times in fiscal 2023 and with no major debt-funded capital expenditure (capex) expected. Cash accrual is projected at over Rs 30-35 crore per annum, sufficient to meet debt obligation of Rs.20-25 crore over the medium term.

The ratings continue to reflect PPAP's leadership position in the polyvinyl chloride (PVC)/thermo plastic olefins (TPO) auto components industry, along with strong relationships with large original equipment manufacturers (OEMs), and robust financial risk profile. These strengths are partially offset by customer concentration in revenue and the exposure to volatility in raw material prices and foreign exchange (forex) rates.

Shares of PPAP Automotive Limited was last trading in BSE at Rs. 198.15 as compared to the previous close of Rs. 196.00. The total number of shares traded during the day was 5224 in over 215 trades.

The stock hit an intraday high of Rs. 203.50 and intraday low of 194.00. The net turnover during the day was Rs. 1041764.00.

Source : Equity Bulls

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