Rating Rationale
February 07, 2025 | Mumbai
Finolex Industries Limited
Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.1916.25 Crore
Long Term RatingCrisil AA+/Stable (Reaffirmed)
Short Term RatingCrisil A1+ (Reaffirmed)
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank loan facilities of Finolex Industries Ltd (FIL).

 

The business risk profile remains strong with FIL housing the second largest capacity of pipes and fittings in the domestic market along with backward integrated operations. FIL’s revenue declined 4% on-year in the first half of fiscal 2025 to Rs 1,984 crore and by 2% on-year to Rs 4,305 crore in fiscal 2024 (from Rs 4,386 crore in fiscal 2023) due to softening of polyvinyl chloride (PVC) resin prices which, in turn, impacted prices in the pipes segment. Volume growth was healthy at 6% on-year in fiscal 2024, but moderated to ~2% on-year in the first half of fiscal 2025 due to low spending on infrastructure and extended monsoon, which led to destocking of products and posed a challenge to the entire PVC piping industry. The operating margin improved substantially to 13.3% in fiscal 2024, against 6.4% in fiscal 2023, due to lower fluctuations in PVC resin prices as compared to fiscal 2023. The operating margin for the first half of fiscal 2025 was 11.7%, slightly lower than the level in the corresponding period of the previous fiscal, on account of subdued performance in the second quarter of fiscal 2025 wherein the operating margin was severely impacted owing to sharp fluctuations in PVC prices. Crisil Ratings expects healthy growth in volume during the second half of fiscal 2025 with better price stability supporting improvement in profitability.

 

The financial risk profile of the company remains strong, as reflected in healthy debt coverage and capitalisation ratios. The total outside liabilities to tangible networth (TOLTNW) ratio was 0.25 time and total debt to earnings before interest, tax, depreciation and amortisation (TD/ EBITDA) ratio was 0.51 time as on March 31, 2024 (TOLTNW ratio was 0.28 time and TD/ EBITDA ratio was 1.25 times as on March 31, 2023), due to healthy networth of Rs 3,316 crore and low debt policy. The debt coverage was healthy, as reflected by interest coverage ratio of 19.06 times and net cash accrual to total debt (NCA/TD) ratio of 1.22 times in fiscal 2024 (interest coverage ratio was 10.33 times and NCA/TD ratio was 0.12 time in fiscal 2023). The debt coverage and capitalisation ratios are expected to remain healthy over the medium term as well. With no major capital expenditure (capex) planned and liquidity of over Rs 2,400 crore, the financial risk profile is expected to remain strong over the medium term.

 

The ratings continue to reflect the established market position of FIL in the PVC resin and pipe segments, its robust operating efficiency driven by an integrated production process and strong financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and intense competition in the PVC pipes industry.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of FIL. Crisil Ratings has adjusted the networth of FIL for the circular investments between FIL and Finolex Cables Ltd (Crisil AA+/Stable/Crisil A1+’).

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the domestic PVC resin and pipes segments: FIL is among the top three largest players in the domestic PVC resin and PVC pipe segments. The company has the second largest capacity in the domestic PVC pipes industry (at 4.2 lakh tonne) and third largest capacity in PVC resin industry (at 2.7 lakh tonne).

 

The company is in the process of undertaking capex in the pipes segment which will increase capacity to 4.7 lakh tonne by end of fiscal 2025-26. It will further improve the market position of FIL. The capex will be covered by maintenance capex of Rs 100-150 crore and will be funded entirely through accrual.

 

  • High operating efficiency, driven by in-house PVC resin capacity and improving product portfolio: FIL is the only large vertically integrated player in the domestic market with in-house production for most of its requirements of PVC resin, the major raw material used in pipe manufacturing. External sales of PVC resins declined to 3% of revenue in fiscal 2024 from 6% in fiscal 2023 and 17% in fiscal 2022. The company plans to keep its external sales of PVC resin low and concentrate on expanding only the pipes business.

 

The company has also been improving its product profile by increasing its non-agro share in the revenue. The non-agro to agro share which used to be 30:70 in fiscal 2018 has improved to 40:60 currently. A higher share of the non-agro segment gives more stability to the margin, as prices in the non-agro sector (plumbing and construction, among others) is more stable than the agricultural sector.  

 

  • Strong financial risk profile: The financial risk profile is supported by low gearing of 0.12 time as on March 31, 2024, in the absence of long-term debt or major debt-funded capex. Debt protection metrics were strong, with interest coverage ratio of 27.6 times in the first half of fiscal 2025 and 19.06 times in fiscal 2024. Liquidity has improved, as reflected in cash and equivalent of above Rs 2,400 crore as on September 30, 2024.

 

Weaknesses:

  • Susceptibility to volatility in raw material prices: Being a commoditised product, the prices of PVC pipes are easily impacted by movement in the prices of PVC resins. The company’s operating performance was adversely impacted in fiscal 2023 and during the second quarter of fiscal 2025 due to significant fluctuations in PVC resin prices. Profitability remains volatile to movements in international prices of PVC and its raw materials: ethylene dichloride (EDC), ethylene and vinyl chloride monomer (VCM). Furthermore, as most of the raw material required for manufacturing PVC resin is imported, inventory risk is also high.

 

  • Exposure to intense competition in the PVC pipes industry: The pipes and fittings industry are highly competitive, especially in the commoditised products segment, which has low differentiation.

Liquidity: Strong

Expected cash accrual of Rs 500-550 crore per annum will continue to support liquidity in the absence of term debt obligation. Cash and equivalent stood at around Rs 2,400 crore as on September 30, 2024. Moderate capex of Rs 100-150 crore per annum is likely to be funded through internal accrual. The bank limit has adequate cushion to cover incremental working capital expenses.

Outlook: Stable

Crisil Ratings believes FIL will continue to benefit from its strong market position and operating efficiency, while maintaining its healthy financial risk profile over the medium term.

Rating sensitivity factors

Upward factors:

  • Improvement in the business risk profile, driven by increased geographical reach as well as product diversification
  • Sustenance of healthy double-digit revenue growth and operating margin of over 20% along with robust financial risk profile

 

Downward factors:

  • Steep decline in revenue, with operating margin falling below 14% on sustained basis
  • Significant weakening of capital structure or debt protection metrics
  • Sizeable reduction in cash surplus due to higher-than-expected shareholder payout or large debt-funded capex

About the Company

FIL is the third-largest player in the PVC resin market and second largest manufacturer of PVC pipes in India. The company has four manufacturing facilities, one each in Pune, Talegaon and Ratnagiri in Maharashtra, and one in Masar, near Vadodara, Gujarat. The company is the only backward integrated player, with in-house PVC resin capacity and 43 megawatt (MW) captive power, aiding cost control.

Key Financial Indicators (Crisil Ratings-adjusted numbers)

As on / for the period ended March 31

Unit

2024

2023

Revenue

Rs crore

4,305

4,386

Profit after tax (PAT)

Rs crore

443

224

PAT margin

%

10.3

5.1

Adjusted debt / adjusted networth

Times

0.12

0.17

Interest coverage

Times

19.06

13.38

 

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
Crisil Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. 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. Crore) Complexity Levels Rating Outstanding with Outlook
NA Cash Credit NA NA NA 125.25 NA Crisil AA+/Stable
NA Letter of credit & Bank Guarantee* NA NA NA 1791.00 NA Crisil A1+

*Letter of credit and bank guarantee are interchangeable with buyer's credit

Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 125.25 Crisil AA+/Stable   --   -- 10-11-23 Crisil AA+/Stable 16-09-22 Crisil AA+/Stable Crisil AA/Positive / Crisil A1+
      --   --   --   -- 25-05-22 Crisil AA+/Stable --
Non-Fund Based Facilities ST 1791.0 Crisil A1+   --   -- 10-11-23 Crisil A1+ 16-09-22 Crisil A1+ Crisil A1+
      --   --   --   -- 25-05-22 Crisil A1+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 5 Kotak Mahindra Bank Limited Crisil AA+/Stable
Cash Credit 10 HDFC Bank Limited Crisil AA+/Stable
Cash Credit 50 Axis Bank Limited Crisil AA+/Stable
Cash Credit 6.25 Citibank N. A. Crisil AA+/Stable
Cash Credit 50 ICICI Bank Limited Crisil AA+/Stable
Cash Credit 4 The Hongkong and Shanghai Banking Corporation Limited Crisil AA+/Stable
Letter of credit & Bank Guarantee& 500 ICICI Bank Limited Crisil A1+
Letter of credit & Bank Guarantee& 96 The Hongkong and Shanghai Banking Corporation Limited Crisil A1+
Letter of credit & Bank Guarantee& 200 Citibank N. A. Crisil A1+
Letter of credit & Bank Guarantee& 300 HDFC Bank Limited Crisil A1+
Letter of credit & Bank Guarantee& 95 Kotak Mahindra Bank Limited Crisil A1+
Letter of credit & Bank Guarantee& 600 Axis Bank Limited Crisil A1+
& - Letter of credit and bank guarantee are interchangeable with buyer's credit.
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt

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