Rating Rationale
October 29, 2021 | Mumbai
Finolex Industries Limited
Rating outlook revised to 'Positive'; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.1378.25 Crore
Long Term RatingCRISIL AA/Positive (Outlook revised from 'Stable'; Rating reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Finolex Industries Limited (FIL) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL AA’. The short-term rating has been reaffirmed at ‘CRISIL A1+’.

 

The outlook revision reflects CRISIL Ratings’ expectation that FIL’s credit risk profile may improve on account of continued healthy operating performance along with sustenance of net cash positive status (cash and equivalent net of borrowings).

 

Revenue has grown 16% in fiscal 2021 over last year despite the disruptions related to the Covid-19 pandemic and lockdown measures. Higher realisation has more than offset the volume de-growth while operating margin almost doubled, driven by captive raw material linkages, ability to pass on price hikes to customers and inventory gain benefits from rising realisations. On account of healthy operating performance, the company’s debt protection metrics have improved significantly, as reflected in net cash positive status as on March 31, 2021, compared to net debt status in the previous fiscal.

 

While operating margin is expected to moderate from decadal highs, the same are expected to remain healthy even in fiscal 2022. The net cash positive status is expected to sustain, supported by continued healthy operating performance and no major capacity expansion plans over the medium term. Additionally, FIL has recently announced the sale of its 70 acre land in Pune (floor price set at Rs 725 crore), which is expected to further improve FIL’s financial flexibility as and when the transaction concludes.

 

During the first quarter of fiscal 2022, operating income grew around 70% year-on-year largely due to low base of the previous fiscal and FIL continues to maintain its net cash positive status (Rs 606 crore).

 

The ratings continue to reflect FIL’s strong financial risk profile, established market position in polyvinyl chloride (PVC) resins and PVC pipes segment; and high operating efficiency, driven by its integrated production process. These rating strengths are partially offset by FIL's susceptibility to volatility in raw material prices.

Analytical Approach

CRISIL Ratings has adjusted the networth of FIL for the circular investments between FIL and Finolex Cables Ltd (rated ‘CRISIL AA+/Stable/CRISIL A1+’).

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the domestic PVC resin and PVC pipes segment: FIL is amongst the largest players in the domestic PVC resin and PVC pipes segment. It has a market share of over 20% in the organised PVC pipes market.

 

  • High operating efficiency, driven by in-house PVC resin capacity and 43 megawatt (MW) power capacity: FIL is the only large vertically integrated player in the domestic market as it produces its entire requirement of PVC resin, the major raw material used in pipe manufacturing. Interdivisional transfer of raw materials has moved up to around 68% in fiscal 2021 from 11% in fiscal 2008.

 

  • Strong financial risk profile: FIL has a strong financial risk profile marked with absence of long term debt and no debt funded capex plans reflected by gearing of below 0.1 time in fiscal 2021. The debt protection metrics have improved in fiscal 2021 with interest cover of 145.5 times compared to 40.31 in the previous fiscal. Also the company has healthy liquidity reflected by its net cash positive status which is expected to be maintained.

 

Weakness

  • Susceptibility to volatility in raw material prices: Profitability of the PVC resin business is volatile due to movements in the international prices of PVC and its raw materials: EDC, ethylene, and vinyl chloride monomer (VCM). Furthermore, as most of the raw material required for manufacturing PVC resin is imported, inventory-related risks are high.

Liquidity: Strong

In the absence of repayment obligations, net cash accruals expected at more than Rs 250 crore per annum will continue to support liquidity. Cash and cash equivalents were Rs 845 crore as on March 31, 2021. The company has moderate capex requirement of Rs 100-150 crore per annum to be funded through internal accrual. Its bank lines are expected to meet incremental working capital requirements.

Outlook: Positive

CRISIL Ratings believes that FIL’s credit risk profile may improve, backed by further strengthening of the financial risk profile along with maintenance of strong market position and operating efficiency over the medium term.

Rating Sensitivity Factors

Upward Factors

  • Improvement in business risk profile, driven by geographical as well as product diversification thus aiding revenue growth and increasing market share in the PVC pipes segment
  • Sustainable improvement in the operating performance, driven by sustenance of the operating margin at or above 18-20%, while maintaining the financial risk profile

Downward factors

  • Steep decline in revenue, with operating margin falling below 15%
  • Weakening of the capital structure because of large, debt-funded capex or acquisition
  • Weakening of liquidity on account of substantial cash outflow by way of dividend or buyback

About the Company

FIL is the third-largest player in the PVC resin market and one of the largest manufacturers of PVC pipes in India. The company has three manufacturing facilities, one each in Pune and Ratnagiri (both in Maharashtra) and Masar, near Vadodara in Gujarat.

 

For the quarter through June 2021, FIL had profit after tax (PAT) of Rs 147 crore on total revenue of Rs 966 crore, against PAT of Rs 55 crore on total revenue of Rs 562 crore in the corresponding period of the previous fiscal.

Key Financial Indicators

As on/for the period ended March 31

2021

2020

Revenue

Rs crore

3454

2981

Profit After Tax (PAT)

Rs crore

728

324

PAT Margin

%

21.1

10.9

Adjusted debt/adjusted networth

Times

0.09

0.19

Interest coverage

Times

145.5

40.31

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity

levels

Rating assigned with outlook

NA

Cash credit

NA

NA

NA

82.50

NA

CRISIL AA/Positive

NA

Letter of credit and bank guarantee*

NA

NA

NA

1192.75

NA

CRISIL A1+

NA

Proposed short-term bank loan facility

NA

NA

NA

103.00

NA

CRISIL A1+

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

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
Fund Based Facilities LT/ST 185.5 CRISIL AA/Positive / CRISIL A1+   -- 18-12-20 CRISIL A1+ / CRISIL AA/Stable 26-09-19 CRISIL A1+ / CRISIL AA/Stable 27-06-18 CRISIL A1+ / CRISIL AA/Stable CRISIL A1+ / CRISIL AA/Stable
Non-Fund Based Facilities ST 1192.75 CRISIL A1+   -- 18-12-20 CRISIL A1+ 26-09-19 CRISIL A1+ 27-06-18 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 31.25 CRISIL AA/Positive
Cash Credit 12.5 CRISIL AA/Positive
Cash Credit 10 CRISIL AA/Positive
Cash Credit 6.25 CRISIL AA/Positive
Cash Credit 6.25 CRISIL AA/Positive
Cash Credit 16.25 CRISIL AA/Positive
Letter of credit & Bank Guarantee* 225 CRISIL A1+
Letter of credit & Bank Guarantee* 100 CRISIL A1+
Letter of credit & Bank Guarantee* 203.75 CRISIL A1+
Letter of credit & Bank Guarantee* 25 CRISIL A1+
Letter of credit & Bank Guarantee* 362 CRISIL A1+
Letter of credit & Bank Guarantee* 277 CRISIL A1+
Proposed Short Term Bank Loan Facility 103 CRISIL A1+
*Letter of Credit & 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

Media Relations
Analytical Contacts
Customer Service Helpdesk

Pankaj Rawat
Media Relations
CRISIL Limited
B: +91 22 3342 3000
pankaj.rawat@crisil.com

 


Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com


Manish Kumar Gupta
Senior Director
CRISIL Ratings Limited
B:+91 124 672 2000
manish.gupta@crisil.com

Nitesh Jain
Director
CRISIL Ratings Limited
D:+91 22 3342 3329
nitesh.jain@crisil.com

Arpit Arora
Rating Analyst
CRISIL Ratings Limited
D:+91 22 4097 8182
Arpit.Arora@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ("CRISIL Ratings") is a wholly-owned subsidiary of CRISIL Limited ("CRISIL"). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale (each a "Report") that is provided by CRISIL Ratings Limited  (hereinafter referred to as "CRISIL Ratings") . For the avoidance of doubt, the term "Report" includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. Rating by CRISIL Ratings contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way. CRISIL Ratings or its associates may have other commercial transactions with the company/entity.

Neither CRISIL Ratings nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, "CRISIL Ratings Parties") guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Ratings Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL RATINGS' PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL Rating's public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL Ratings you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings Limited is a wholly owned subsidiary of CRISIL Limited.

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011 to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratiings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: www.crisil.com/ratings/credit-rating-scale.html