Rating Rationale
May 22, 2024 | Mumbai
GRP Limited
Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+'
 
Rating Action
Total Bank Loan Facilities RatedRs.135.46 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Stable')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2')
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 upgraded its ratings on the bank facilities of GRP Ltd (GRP) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Stable/CRISIL A2’.

 

The upgrade reflects an expected healthy improvement in the business risk profile of GRP while sustaining a comfortable financial risk profile through fiscal 2025.

 

Revenue increased by 2% (on-year) to ~Rs 462 crore in fiscal 2024, supported by ~7% growth in volumes and partial realisation from sale of extended producer responsibility (EPR) credits to tire companies while realisations moderated. EPR norms set by the Central Pollution Control Board, part of the Ministry of Environment Forest and Climate Change, requires tire companies to offset their producer obligation through purchase of EPR credits from recyclers who use domestic end-of-life waste tires. Revenue may rise by 16-20% in fiscal 2025, supported by volume growth of 15-20% owing to healthy demand scenario supported by enhanced capacities through debottlenecking activities in the reclaim rubber segment and higher sales of EPR credits to tire companies.

 

Operating efficiency has also improved, with earnings before interest, taxes, depreciation, and amortisation margin of ~10.8% in fiscal 2024, as compared to 6.6% in fiscal 2023, supported by various cost efficiency programs undertaken by the company and sales of EPR credits, which directly flows to profits. The company has been able to reduce their energy costs per tonne of end product through lower power cost with total wind power capacities of 3.75 megawatt and further improved margin through reducing employee expenses. The operating margin may further improve to 13-15% in fiscal 2025, driven by better fixed costs absorption, savings in energy and fuel costs as well as incremental income from sale of EPR credits. The company has invested in biofuel plants that are operational from May 2024 and expected to result in yearly cost savings of Rs 7 crore fiscal 2025 onwards. 

 

The financial risk profile is likely to remain adequate, with gearing below 0.75 time over the medium term, despite annual capital expenditure (capex) of Rs 50-60 crore to set up a facility to manufacture rubber crumbs and downstream products.

 

The ratings continue to reflect the established market position of GRP in the reclaimed rubber industry, beneficiary of the EPR norms for tire manufactures and importers and adequate financial risk profile. These strengths are partially offset by susceptibility to fluctuations in raw material prices and exposure to tire industry concentration in revenue.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GRP and its subsidiaries, Gripsurya Recycling LLP and GRP Circular Solutions Ltd. This is because all the entities, together referred to as the GRP group, are in the same business and have operational synergies.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the reclaimed rubber industry: GRP is one of the top three manufacturers of reclaimed rubber globally and the largest in India. The company has built healthy relationships with domestic and international tire manufacturers and distributors. Exports to the US, Europe and Latin America contributed 58% of total revenue in fiscal 2024. Domestic customers include several large and prominent original equipment manufacturers. Increase in composition of reclaimed rubber in tires manufactured by global players should augur well for GRP. Allied businesses such as engineering plastics (EP), polymer composites (PC) and custom die forms (CDF) have contributed to 11% of total revenue in fiscal 2024. Ramp-up in PC and EP capacities on the back of healthy demand and the recent capex should support further diversification in the revenue profile.

 

  • Beneficiary of inclusion of tire manufacturers and importers under the EPR norms: The company is set to benefit from the regulations that include tire manufacturers in the EPR framework of the government. Since the mechanism for sale of credit has been put in place in fiscal 2024, GRP has sold part of its credits generated for fiscal 2023, in fiscal 2024. The remainder of credits for fiscal 2023 along with credits generated for its recycling activities in fiscal 2024 will be realised in fiscal 2025. The mechanism for awarding and consequential selling of the same is still in the initial stages where the formulae may undergo a change as deemed necessary by the regulatory authorities. Overall, the company is expected to realize incremental benefits over that of fiscal 2024 subject to the EPR policy changes from time to time.

 

  • Adequate financial risk profile: The financial risk profile has been adequate and will continue to improve. Networth stood at Rs 167 crore in fiscal 2024, increasing from Rs 147 crore in fiscal 2023, with steady accretion to reserve. Debt for fiscal 2024 stood at Rs 113 crore, of which a majority is short-term working capital debt. Yet, debt protection metrics remain comfortable, with interest coverage ratio of over 7 times for fiscal 2024 and gearing of 0.67 time as on March 31, 2024. The company is planning a rights issue of Rs 40 crore to fund its capex in fiscal 2025; this will further strengthen the financial risk profile.

 

Weaknesses:

  • Susceptibility to fluctuations in raw material prices: Raw material cost accounts for around half of the operating income. End-of-life rubber tire, the input, is procured from an extensive chain of suppliers. Changes in raw material prices could impact operating margin, which has fluctuated between 5% and 9% over the five fiscals through March 2024.

 

  • High concentration of revenue from the tire industry: GRP is highly dependent on the performance of the tire industry, which accounts for 65-70% of its revenue. While the company has diversified into multiple segments such as EP, PC and CDF, the extent of revenue contribution from these remains critical.

Liquidity: Adequate

Net cash accrual stood at Rs 35 crore in fiscal 2024, against debt obligation of Rs 5-7 crore. Net cash accrual is projected at Rs 50-70 crore per fiscal, sufficient to meet yearly debt repayment of Rs 5-10 crore and annual capex requirement of Rs 50-60 crore. Bank limit utilisation was around 74% for fiscal 2024. Liquidity stood at Rs 2 crore as on March 31, 2024 further supported by sanctioned working capital limits of Rs. 92 crores.

Outlook: Stable

GRP will sustain its operating performance with steady revenue growth, further supported by income from sale of EPR credits over the medium term. Financial risk profile will continue to improve, driven by strong gearing and debt protection metrics.

Rating Sensitivity factors

Upward factors

  • Sustained double-digit revenue growth backed by increase in volume while maintaining operating profitability, leading to net cash accrual more than Rs 75 crore
  • Improvement in the financial risk profile

 

Downward factors

  • Sustained decline in revenue and operating profitability dropping below 8%
  • Increase in working capital debt or large, debt-funded capex

About the Company

Established by Mr Rajendra V Gandhi in 1974, GRP manufactures reclaimed rubber (recycled rubber) from end-of-life tires and tubes. Having commenced operations as a tire recycling company, GRP has transformed into a sustainable materials company over the years. It also separates nylon from tires to produce raw material for sale to engineering plastic component manufacturers for automotive and electrical applications. The residue rubber from the above businesses is used by yet another business to blend with recycled plastic waste and produce composite material, which replaces wood and concrete.

 

The company is a leader in the domestic tire recycling industry, and among the top five manufacturers globally. GRP has total installed capacity of 84,200 tonne per annum across all business segments.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

462

456

Profit after tax (PAT)

Rs crore

23

14

PAT margin

%

5.3

3.1

Adjusted debt/adjusted networth

Times

0.67

0.60

Interest coverage

Times

7.2

5.27

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 assigned with outlook
NA Cash credit* NA NA NA 50 NA CRISIL A-/Stable
NA Cash credit** NA NA NA 42 NA CRISIL A-/Stable
NA Letter of credit NA NA NA 5 NA CRISIL A2+
NA Term loan NA NA 08-Nov-2024 23.48 NA CRISIL A-/Stable
NA Working Capital Term loan NA NA 01-Apr-2026 4.08 NA CRISIL A-/Stable
NA Working Capital Term loan NA NA 01-Jan-2027 5 NA CRISIL A-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 0.9 NA CRISIL A-/Stable
NA  Proposed Non-fund based limits NA NA Na 5 NA CRISIL A2+

*Sublimit of EPC, EBD, WCDL, LC

**Sublimit of EPC, EBD, WCDL, LC, BG

Annexure – List of Entities Consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

GRP Ltd

Full

Parent company

Gripsurya Recycling LLP

Full

Subsidiary. Significant operational and financial linkages

GRP Circular Solutions Ltd.

Full

Subsidiary. Significant operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 125.46 CRISIL A-/Stable   -- 13-04-23 CRISIL BBB+/Stable 03-02-22 CRISIL BBB+/Stable 03-05-21 CRISIL BBB+/Stable CRISIL BBB+/Negative
      --   --   --   --   -- CRISIL BBB+/Negative
Non-Fund Based Facilities ST 10.0 CRISIL A2+   -- 13-04-23 CRISIL A2 03-02-22 CRISIL A2 03-05-21 CRISIL A2 CRISIL A2
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit& 20 Kotak Mahindra Bank Limited CRISIL A-/Stable
Cash Credit^ 50 HDFC Bank Limited CRISIL A-/Stable
Cash Credit& 22 Citibank N. A. CRISIL A-/Stable
Letter of Credit 5 HDFC Bank Limited CRISIL A2+
Proposed Long Term Bank Loan Facility 0.9 Not Applicable CRISIL A-/Stable
Proposed Non Fund based limits 5 Not Applicable CRISIL A2+
Term Loan 1.93 HDFC Bank Limited CRISIL A-/Stable
Term Loan 10.88 Kotak Mahindra Bank Limited CRISIL A-/Stable
Term Loan 10.67 HDFC Bank Limited CRISIL A-/Stable
Working Capital Term Loan 4.08 HDFC Bank Limited CRISIL A-/Stable
Working Capital Term Loan 5 HDFC Bank Limited CRISIL A-/Stable
& - Sublimit of EPC, EBD, WCDL, LC, BG
^ - Sublimit of EPC, EBD, WCDL, LC
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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