Rating Rationale
April 26, 2024 | Mumbai
Gloster Limited
Ratings Reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.150 Crore
Long Term RatingCRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
Short Term RatingCRISIL A1+ (Rating Reaffirmed and Withdrawn)
 
Rs.50 Crore Commercial PaperCRISIL A1+ (Rating Reaffirmed and Withdrawn)
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Ratings has reaffirmed its ratings on the bank facilities and commercial paper of Gloster Limited (GL) and subsequently withdrawn the ratings at the company's request and on receipt of a no-objection certificate from the bankers. This is in line with the policy of CRISIL Ratings regarding withdrawal of bank loan rating and commercial paper.

 

The ratings continue to reflect a strong market position in the jute industry, supported by a diversified product portfolio and healthy financial risk profile. These strengths are partially offset by exposure to risks related to timely completion of ongoing capex and to regulatory risks, and easy access to cheaper substitutes.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GL and its five wholly owned subsidiaries, Gloster Lifestyle Limited (GLL), Gloster Specialities Limited (GSL), Gloster Nuvo Limited (GNL), Fort Gloster Industries Limited (FGIL) and Network Industries Limited (NIL), collectively referred to as the Gloster group, as they have business and financial fungibility.

 

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:

  • Strong market position in the jute industry, supported by diversified product portfolio: GL manufactures jute and jute-blended and allied products. Its diversified product profile comprises of traditional and technical jute products. It is a one-stop shop for all kinds of jute products, and exports them to countries across the globe. GL regularly introduces new products to keep pace with changing trends and demand scenarios.

 

Revenue growth for fiscals 2024 is expected to be muted as reflected in revenue estimated around Rs 461 crore for nine months of fiscals 2024 against Rs 532 crore in nine months of fiscal 2023. The degrowth is on account of muted overseas demand, which generally also brings higher profits. The same is reflected in operating margins estimated around 9.7% in nine months of fiscal 2024 against 12.7% in nine months of fiscal 2023. Recovery in demand and management’s ability to effectively manage the diversified product portfolio, addressing both domestic and overseas demand is expected to support the group’s business risk profile.

 

  • Healthy financial risk profile: Healthy adjusted networth is projected to be over Rs 830 crore as on Mach 31, 2024, supported by steady scale of operations coupled with controlled dividend payout. Gloster group is expected to contract debt of Rs 560 crore over fiscals 2023 to 2026 for its jute capacity expansion and revamp of its industrial cable unit. Term debt of around Rs 120 crore has be availed during fiscals 2023-24 and capital structure supported by healthy networth is expected to yield gearing and total outside liabilities to total networth ratios of 0.2 time and 0.3 time, respectively as on March 31, 2024. Debt protection metrices are expected to be aided by ramp up in new capacity utilization translating into healthy operating profitability and net cash accrual. Timely commission and stabilization of the ongoing capex is crucial for sustenance of financial position and flexibility.

 

Weaknesses:

  • Exposure to risks related to timely completion of capex: Group has undertaken to expand its production capacity by 130 tons per day, entailing expenditure of around Rs 325 crore. The project is being funded with a debt-to-equity ratio of 3:1. The new capacity is being implemented in phases. Phase I (90 tons per day) has become operational from end of fiscal 2024 and phase II (40 tons per day) from fiscal 2026. Furthermore, Gloster group is also revamping its industrial cable unit, and has proposed investments of Rs 550 crore, funded by proposed term debt of Rs 325 crore and remaining from internal accruals. Production is scheduled to commence in phases by December 2025. While completion and demand risks remain monitorable, it also necessitates timely stabilization of operations.

 

  • Exposure to regulatory risks, and easy access to cheaper substitutes: The domestic jute industry is highly regulated, especially in key areas such as pricing and sales. The minimum support price (MSP) for raw jute, announced by the Cabinet Committee on Economic Affairs to prop up jute prices and ensure security for farmers, varies from state to state and with jute variety, affecting the end-price of jute products. Also, under the aegis of the Jute Packaging Material (compulsory use in packaging commodities) Act (JPMA), 1987, the government has made it mandatory to use jute bags for packaging of sugar and food grains for consignments of 26-100 kg. This regulation has been a key growth driver for the industry. The act, however, exempts consumer packs of 25 kg and below and packaging of food grains and sugar for export. Also, conditions of the act are diluted as substitutes such as plastic bags are available at 30-50% lower prices. Besides, the government occasionally permits reuse of jute sacks for storage of food grains, affecting sales. Additionally, the government is the largest consumer of jute sacks in the domestic market, accounting for nearly 60% of demand.

Liquidity: Strong

Net cash accruals of over Rs 55-80 crore per fiscal are expected to be sufficient against repayments of RS 9-59 crore over the medium term. Average utilization of working capital bank limit of Rs 80 crore was around 23% during six months through December 2023. Additionally, the group had sizeable liquid investments in form of equity investments and free cash bank balances of around Rs 38 crore and non-current investments of around Rs 100 crore as on March 31, 2024, which enhances the liquidity position and provides necessary financial flexibility. The current ratio is projected to be healthy around 2.5 times as on March 31, 2024.

Outlook: Stable

CRISIL Ratings believes the Gloster group will continue to benefit from its established market position in the jute industry and financial flexibility.

Rating Sensitivity factors

Upward factors

  • Substantial growth in revenue and volumetric sales coupled with sustenance of operating margin around 15-16% leading to significantly higher net cash accruals.
  • Timely completion and stabilization of capex, supporting the capital structure and enhancing revenue generation.

 

Downward factors

  • Adverse impact of regulatory changes, leading to decline in revenue and profitability below 10%
  • Substantial time and cost overruns in the project and/or large dividend payout exerting pressure on financial risk profile, also leading to significant dilution of liquidity position.

About the Group

GL was incorporated on January 2, 1923, and is engaged in manufacturing and exporting of all types of jute & jute allied products at its two manufacturing units based in Howrah, West Bengal. Operations are managed by a team of professionals, reporting to the chairman, Mr Hemant Bangur. It is listed on the Bombay Stock Exchange. Gloster product profile can be broadly classified into a) Traditional Products such as hessian, yarn, sacking etc., b) Technical Products such as geo-textiles, agro-textiles, fabrics treated for fire retardancy, microbial attacks, hydrocarbon-free jute bags, jute leno fabrics etc. and c) Lifestyle Products such as floor covering, processed decorative, furnishing fabrics, bags & made ups, jute mats, etc. The company has also added new technical products namely bags & made ups, laminated jute fabrics, washed jute canvas, coated fabrics for soft luggage, coated molleton fabrics, all types of light natural & dyed yarns / ropes and non-woven products. The company acts as a one-stop shop for all kinds of jute products available in the market.

 

GNL is a wholly owned subsidiary of GL. It was incorporated in January 2020 for enhancing jute production capacity of the Gloster group. Phase 1 of new capacity has commenced in fiscal 2024.

 

The group is also engaged in manufacturing of industrial cable through GLs wholly owned subsidiary, FGIL. The capital expansion in revamping of the facility is ongoing.

 

Currently, there are no significant business operations in GLL, GSL, and NIL.

Key Financial Indicators (Combined & CRISIL Ratings adjusted)

Particulars

Unit

2023

2022

Operating Income

Rs.Crore

717.05

749.95

Profit After Tax (PAT)

Rs.Crore

54.36

65.07

PAT Margin

%

7.58%

8.68%

Adjusted debt/adjusted networth

Times

0.09

0.01

Interest coverage

Times

60.77

87.94

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 Commercial Paper NA NA 7 to 365 Days 50 Simple CRISIL A1+ (Rating Reaffirmed and Withdrawn)
NA Bank Guarantee NA NA NA 1 NA CRISIL A1+ (Rating Reaffirmed and Withdrawn)
NA Cash Credit NA NA NA 10 NA CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
NA Cash Credit NA NA NA 5 NA CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
NA Cash Credit NA NA NA 44 NA CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
NA Cash Credit NA NA NA 9 NA CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
NA Letter of Credit NA NA NA 11 NA CRISIL A1+ (Rating Reaffirmed and Withdrawn)
NA Letter of Credit NA NA NA 3 NA CRISIL A1+ (Rating Reaffirmed and Withdrawn)
NA Letter of Credit NA NA NA 10 NA CRISIL A1+ (Rating Reaffirmed and Withdrawn)
NA Letter of Credit NA NA NA 4 NA CRISIL A1+ (Rating Reaffirmed and Withdrawn)
NA Proposed Cash Credit Limit NA NA NA 41 NA CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
NA Working Capital Demand Loan NA NA NA 12 NA CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Gloster Lifestyle Limited

Full

100% Subsidiary

Gloster Specialities Limited

Full

100% Subsidiary

Gloster Limited

Full

Parent

Gloster Nuvo Limited

Full

100% Subsidiary

Fort Gloster Industries Limited

Full

100% Subsidiary

Network Industries Limited

Full

100% Subsidiary
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 121.0 CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)   -- 28-04-23 CRISIL A+/Stable 30-04-22 CRISIL A+/Stable 31-12-21 CRISIL A+/Stable CRISIL A+/Stable
Non-Fund Based Facilities ST 29.0 CRISIL A1+ (Rating Reaffirmed and Withdrawn)   -- 28-04-23 CRISIL A1+ 30-04-22 CRISIL A1+ 31-12-21 CRISIL A1+ CRISIL A1+
Commercial Paper ST 50.0 CRISIL A1+ (Rating Reaffirmed and Withdrawn)   -- 28-04-23 CRISIL A1+ 30-04-22 CRISIL A1+ 31-12-21 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1 State Bank of India CRISIL A1+ (Rating Reaffirmed and Withdrawn)
Cash Credit 10 HDFC Bank Limited CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 5 ICICI Bank Limited CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 44 State Bank of India CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 9 Bank of Baroda CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
Letter of Credit 11 YES Bank Limited CRISIL A1+ (Rating Reaffirmed and Withdrawn)
Letter of Credit 3 Bank of Baroda CRISIL A1+ (Rating Reaffirmed and Withdrawn)
Letter of Credit 10 State Bank of India CRISIL A1+ (Rating Reaffirmed and Withdrawn)
Letter of Credit 4 ICICI Bank Limited CRISIL A1+ (Rating Reaffirmed and Withdrawn)
Proposed Cash Credit Limit 41 Not Applicable CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
Working Capital Demand Loan 12 YES Bank Limited CRISIL A+/Stable (Rating Reaffirmed and Withdrawn)
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 Consolidation
CRISILs Criteria for rating short term debt

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