Rating Rationale
January 27, 2021 | Mumbai
Ambadi Investments Limited
Rating reaffirmed at 'CRISIL A1+'
 
Rating Action
Rs.50 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the Rs 50 crore commercial paper of Ambadi Investments Limited (AIL). 

 

CRISIL Ratings’ rating on the commercial paper of AIL continues to reflect healthy financial flexibility, derived from equity stakes in key operating companies of the Murugappa group: E.I.D. Parry India Limited (EID; ‘CRISIL AA-/Stable/CRISIL A1+’), Carborundum Universal Limited (CUMI; ‘CRISIL AA+/Stable/CRISIL A1+’), Tube Investments Of India Limited (TI; ‘CRISIL AA+/Stable/CRISIL A1+’), Cholamandalam Investment and Finance Company Limited (CIFCO; ‘CRISIL AA+/Stable/CRISIL A1+’) and Cholamandalam Financial Holdings Ltd (CFHL). The rating is also underpinned by steady dividend inflows from the group to AIL, and the group’s strong reputation. These strengths are partially offset by exposure to market-related risks.

Analytical Approach

CRSIL Ratings has followed the holding company approach for analysing the credit risk profile of AIL, based on its equity stakes in the key operating companies of the Murugappa group

Key Rating Drivers & Detailed Description

Strengths

  • Healthy financial flexibility (refinancing ability): AIL’s financial flexibility is healthy, supported by the market value of its investments in EID (38.47% shareholding), TI (36.70%), CUMI (29.59%), CIFCO (4.11%) and CFHL (37.70%). The market value of AIL’s direct shareholding in these companies was Rs 15,587 crore, as on January 15 2021. This provides healthy cover of over 45 times for a maximum debt expected to be capped at Rs 340 crore.

 

  • Stable operations of key subsidiaries, diversification in investment portfolio, and healthy reputation of the Murugappa group: AIL is likely to receive steady dividend inflows from its direct shareholding in the Murugappa group’s operating companies. The dividend inflow is expected to be sufficient to meet internal fund requirements. Presently there is low outstanding debt of Rs 40 crore. Furthermore, the company has a diversified investment portfolio, and benefits from the strong credit risk profiles of CUMI, EID, CIFCO, TI and CFHL, as well as the strong reputation of the Murugappa group.

 

Weaknesses

  • Exposure to market-related risks and reliance on dividend inflows for debt-servicing: Exposure to market-related risks may persist, as financial flexibility, in terms of cover available, will, to some extent, depend on prevailing market sentiments and share prices. Any increase in systemic risks, leading to a sharp fall in the share prices of CUMI, EID, CIFCO, TI and CFHL is a key rating sensitivity factor. Furthermore, the financial risk profile remains moderated by dependence on dividend inflows to service debt.

Liquidity: Strong

AIL has strong liquidity supported by low debt  balance sheet. AIL has raised long term debt of Rs 40 crore in fiscal 2019-20 and also uses commercial paper instrument from time to time, having maturity of less than one year. AIL also maintains cash surplus, which provides additional comfort to the rating. Besides, while AIL may take on additional debt to fund its stake further in key operating entities, the maximum debt will be capped at Rs 340 crore. Although interest payments on any future debt programme can be met through dividend flows, AIL will have to resort to refinancing the debt to meet principal repayments. It should be able to refinance any debt obligation, given the strength of the market value of the shares it holds, as well as the healthy reputation enjoyed by the Murugappa group.

Rating Sensitivity factors

Downward factors

  • Significant impact on financial flexibility due to higher-than-expected debt or fall in the market value of investments by more than 30% on a sustained basis
  • Significant deterioration in the credit risk profiles of operating entities

About the Group

AIL (formerly, Ambadi Investments Private Limited) is the ultimate holding company for the Rs 38,000 crore Murugappa group. The company is entirely owned by the promoter family.

 

The group has a presence in diverse businesses, such as engineering, abrasives, finance, general insurance, cycles, sugar, farm inputs, fertilisers, plantations, bio-products, and nutraceuticals. Murugappa Holdings Limited (MHL) was the holding company for the group's key listed operating companies: EID, TI, and CUMI. Until fiscal 2011, the company was also engaged in the tea plantation business. In fiscal 2012, the Murugappa group's holding companies were restructured, following which MHL operated primarily as a core investment company.

 

MHL (formerly, Parry Agro Industries Ltd) and Presmet Pvt Ltd have been merged with AIL, effective April 1, 2016. The merger scheme was approved by National Company Law Tribunal wide its order dated August 7, 2017, and AIL board has subsequently adopted the same on August 22, 2017.  Subsequently MHL has been merged with AIL effective April 1, 2016.

Key Financial Indicators

As on/ For the year ended March 31

Unit

2020

2019

Revenue

Rs.Crore

83

145

PAT

Rs.Crore

62

128

PAT Margin

%

74.2

87.9

Adjusted Gearing

Times

0.05

0.00

Interest coverage

Times

28.9

30.7

 

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

Type of instrument

Date of allotment

Coupon Rate (%)

Maturity date

Issue size
(Rs.Crore)

Complexity Level

Rating assigned with outlook

NA

Commercial Paper

NA

NA

7-365 days

50

Simple

CRISIL A1+

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 50.0 CRISIL A1+   -- 27-01-20 CRISIL A1+ 13-11-19 CRISIL A1+ 21-11-18 CRISIL A1+ 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
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating holding companies (including debt backed by pledge of shares)
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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