| Godrej Industries Limited | ||||||
| 'CRISIL AA/Stable' assigned to NCD | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the Rs 1,500 crore proposed non-convertible debenture (NCD) of Godrej Industries Limited (GIL) and reaffirmed the outstanding ratings on the existing NCDs and commercial paper programme at ‘CRISIL AA/Stable/CRISIL A1+’.
The ratings continue to reflect the strong financial flexibility of the company as the holding company of the Godrej group. It is the second-largest shareholder in the group's flagship company, Godrej Consumer Products Ltd (GCPL; rated ‘CRISIL A1+’) and the largest shareholder in other major companies: Godrej Properties Ltd (GPL; rated ‘CRISIL A1+’) and Godrej Agrovet Ltd (GAL; rated ‘CRISIL A1+’). The ratings also factor in the healthy credit risk profile of GIL and the reputation of the Godrej group. These strengths are partially offset by exposure to market-related risks and large refinancing requirement.
CRISIL Ratings has noted the recent announcement by GIL regarding its foray into the financial service business by acquiring 95% stake in Godrej Housing Finance Limited (GHFL) from Anamudi Real Estates LLP (Anamudi, a Godrej group company). To facilitate the acquisition, GIL would acquire 51.16% stake (proposed to be further increased to 81.25%) in Pyxis Holdings Private Limited (Pyxis, investment holding company) from Anamudi for a cash consideration not exceeding Rs 0.10 crore. Accordingly, Pyxis would become a subsidiary of GIL. Pyxis would then acquire stake in GHFL for Rs 347 crore in cash. Pyxis would also acquire Ensemble Holding & Finance Limited (EHFL, currently wholly owned subsidiary of GIL) from GIL and would become the holding company for GIL’s financial service business. GHFL would focus on the housing finance business while the non-retail lending business would be undertaken by EHFL. The transaction is subject to approval from the Reserve Bank of India, shareholders and other requisite approvals from statutory and regulatory authorities, if any. To fund the initial growth in the financial service business, GIL would be raising Rs 1,500 crore in the standalone books through various debt instruments over the next 3-6 months.
The said acquisition would result in further diversification of GIL into the financial services business. Initially, the established presence of GPL in real estate would provide impetus in the form of captive housing finance as well as non-retail customers. At the same time, the acquisition would also result in increased leverage in the standalone books of GIL. However, comfort is derived from the significant market value of investment relative to the overall debt planned and healthy refinancing ability of the group. CRISIL Ratings understands that the management of GIL would not be averse to monetise its investment in case required to support its cash flows.
For the nine months through fiscal 2021, the standalone operating profit before depreciation, interest and tax (OPBDIT) of GIL declined to Rs 113 crore compared with Rs 235 crore in the corresponding period of previous fiscal due to lower dividend income from group companies (Rs 61 crore against Rs 196 crore). |
Analytical Approach For arriving at its ratings, CRISIL Ratings has followed the holding company approach and has considered the standalone credit risk profile of GIL. |
Key Rating Drivers & Detailed Description Strengths
GIL’s strong financial flexibility arises from its 23.75% stake in GCPL, 49.35% stake in GPL and 59.46% stake in GAL, which translates into a market value of over Rs 41,100 crore (as on March 05, 2021). This is substantial in relation to the company’s total debt exposure, estimated at Rs 4,200 crore as of February 2021, leading to healthy debt coverage. Cash and equivalents are estimated at Rs 1,200 crore as on February 2021. The net debt exposure (that is, total debt exposure minus cash and cash equivalents) is expected to remain below Rs 6,000 crore over the medium term (revised upwards from Rs 4,500 crore). The net debt exposure has increased to accommodate GIL’s additional fund raising plans to fund the growth in the financial service business.
GIL is held by the Godrej group, which has a well-established management track record. The promoters’ shareholding in GIL is unencumbered.
Weakness
The company will remain susceptible to prevailing market sentiments and the share prices of GCPL, GPL and GAL. Any increase in systemic risks, leading to a sharp decline in the share price of these companies, will be a key rating sensitivity factor. Furthermore, GIL largely depends on refinancing and dividend income to service its debt. While the interest coverage ratio is weak, debt obligation, including interest, is adequately phased, thereby enabling the company to manage cash flow and ensure adequate liquidity. |
Liquidity: Strong Liquidity should remain strong over the medium term, supported by cash and cash equivalent of around Rs 1,200 crore as of February 2021. After issuance of the proposed NCD, the borrowing mix of GIL would shift towards larger long-term debt vis-à-vis short-term borrowing, thereby reducing refinancing risk. GIL also has a strong reputation in the lending community, thus enhancing financial flexibility. Moreover, CRISIL Ratings understands that the management of GIL would not be averse to monetise its investment in case required to support its liquidity. |
Outlook: Stable CRISIL Ratings believes GIL will continue to benefit from its strong financial flexibility, resulting from the healthy market value of investments in group companies |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company GIL, one of India's leading manufacturers of oleochemicals, makes more than a hundred chemicals for use in over two dozen industries. It also manufactures edible oils, vanaspati and bakery fats. The company was called Godrej Soaps until March 31, 2001. Thereafter, the consumer products division got de-merged into GCPL, and the residual Godrej Soaps became GIL.
GIL, a leading producer of fatty acids, fatty alcohols and surfactants, operates four plants, one each in Valia (Gujarat), Ambernath, Wadala, and Dombivli (all in Maharashtra). The company’s products are exported to 60 countries across the world.
GIL is also a holding company of GCPL, GAL and GPL.
For the nine months through fiscal 2021, loss was Rs 66 crore on revenue of Rs 1,308 crore compared with profit after tax (PAT) of Rs 30 crore on revenue of Rs 1,503 crore in the corresponding period previous fiscal. |
Key Financial Indicators (CRISIL Ratings-adjusted numbers)
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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)
^Proposed |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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