Rating Rationale
October 04, 2022 | Mumbai
Godrej Industries Limited
Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+'
 
Rating Action
Rs.2000 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
Non Convertible Debentures Aggregating Rs.3000 CroreCRISIL AA/Stable (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+’ rating on the non-convertible debentures (NCDs) and commercial paper programme of Godrej Industries Limited (GIL).

 

The ratings continue to reflect strong financial flexibility of GIL as the holding company of the Godrej group. GIL is the second-largest shareholder in the group's flagship company, Godrej Consumer Products Ltd (GCPL; ‘CRISIL A1+’) and the largest shareholder in other companies: Godrej Properties Ltd (GPL; ‘CRISIL A1+’) and Godrej Agrovet Ltd (GAL; ‘CRISIL A1+’). The ratings also factor in the healthy reputation of the Godrej group. These strengths are partially offset by exposure to market risks and large refinancing requirement.

 

Consequent to approval from the Reserve Bank of India (RBI) in July 2021, GIL acquired stake in Godrej Housing Finance Ltd (GHFL) through Pyxis Holdings Pvt Ltd (Pyxis), a subsidiary of GIL, for a consideration of Rs 405.9 crore from Anamudi Real Estates LLP (Anamudi, a Godrej group company). Also, Pyxis acquired 100% stake in Ensemble Holding & Finance Ltd (EHFL, earlier a wholly owned subsidiary of GIL) from GIL, becoming the holding company for GIL’s financial services business. Pyxis was renamed as ‘Godrej Capital Limited (GCL) w.e.f October 26, 2021 and Ensemble Holdings and Finance Limited was renamed as Godrej Finance Limited (GFL) w.e.f. November 3, 2021. GHFL will focus on the housing finance business, while the non-retail lending business will be undertaken by GFL. GIL made further investments in GCL during March 2022 and June 2022 and now holds 91.81% of GCL. GIL completed cumulative equity infusion of Rs. 1,500 crore in GCL as of June 2022 to fund the growth of the financial services business.

 

With the diversification of GIL into the financial services business, the established presence of GPL in real estate should provide impetus in the form of captive housing finance as well as non-retail customers. At the same time, the acquisition has resulted in increased leverage in the standalone book of GIL. However, comfort is derived from the significant market value of investments relative to the overall debt planned and healthy refinancing ability of the group. Furthermore, the management has articulated to maintain a net debt cover (ratio of total market value of investments to net debt) of 5 times or above at any point of time. CRISIL Ratings understands that the management of GIL would not be averse to monetise its investments, if required, to support its cash flow and to maintain the debt cover threshold.

 

For fiscal 2022, standalone operating profit before depreciation, interest and tax (OPBDIT) was Rs 378 crore, owing to better operating performance in the chemicals business.

Analytical Approach

CRISIL Ratings has followed the holding company approach and considered the standalone business and financial risk profiles of GIL. Furthermore, CRISIL Ratings’ capital allocation framework has been applied to factor in the capital required by its financial services entities for maintaining their respective credit profiles.

 

To arrive at the net debt for calculation of debt cover, CRISIL Ratings has netted-off the debt that can be sustained by the operating profits (excluding income related to investments) of GIL to maintain similar credit profile.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong financial flexibility: The financial flexibility arises from 23.75% stake in GCPL, 47.34% stake in GPL and 64.90% stake in GAL, which translates into a market value of around Rs 47,000 crore (as on September 21, 2022). The market value was significant against CRISIL Ratings-adjusted net debt  of around Rs 5,750 crore as on August 31, 2022. The exposure may increase over the medium term driven by the company’s plans to fund growth in the financial services business.

 

  • Healthy reputation of the promoters: GIL is held by the Godrej group, which has an established track record and enjoys a strong reputation among lenders and investors in capital markets. The promoters’ shareholding in GIL is unencumbered.

 

Weakness:

  • Susceptibility to market risks: The company will remain susceptible to prevailing market sentiments and share prices of GCPL, GPL and GAL. Any increase in systemic risks, leading to a sharp decline in the share prices of these companies, will be a key rating sensitivity factor. Furthermore, GIL largely depends on refinancing and dividend income to service its debt obligation. Though the interest coverage ratio is weak, debt obligation, including interest, is adequately phased, enabling the company to manage cash flow and ensure adequate liquidity.

Liquidity: Strong

Liquidity was supported by cash and equivalent of around Rs 282 crore as on August 31, 2022. With raising of NCDs, the borrowing mix of GIL is shifting towards sizeable term debt obligation from short-term borrowing, reducing refinancing risk. GIL has a strong reputation in the lending community, thus enhancing financial flexibility. Moreover, CRISIL Ratings understands that the management would not be averse to monetise its investments, if required, to support liquidity.

 

Environment, social and governance (ESG) profile

CRISIL Ratings believes GIL’s ESG profile supports its already strong credit risk profile.

 

Chemical manufacturers can have a significant impact on the environment because of the high greenhouse gas (GHG) emissions, water consumption and high hazardous waste generation by its core operations. The sector has a social impact because of its large workforce, impact on health and wellbeing of workers and local community on account of its nature of operations.

 

GIL Ltd has undertaken various initiatives and efforts towards mitigating its environmental and social impact and strengthening its ESG profile.

 

Key ESG highlights:

  • Until fiscal 2022, GIL has reduced its specific energy consumption by 22%, water consumption by 43% and overall carbon footprint by 51% from fiscal 2011 levels.
  • The company has consistently focused on use of renewable energy and around 50% of the energy consumed came from renewable sources in fiscal 2022.
  • It has initiatives and policies to promote gender diversity, employee safety, community engagement and safe procurement. Its Sustainable supply chain policy focuses on responsible conduct with all stakeholders, employee health and safety, local community development, business integrity and ethics, and human rights.
  • Under CSR initiatives, in April 2021, the company provided oxygen concentrators to tackle the devastating second wave of Covid-19. In May 2021, it continued to provide support by helping set-up isolation centres, providing medical supplies such as infrared thermometers and pulse oximeters.
  • Its governance structure is characterised by 60% of its board comprising independent directors, presence of an investor grievance redressal cell and extensive disclosures.

 

The importance of ESG is growing among investors and lenders. GIL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowings in overall debt and access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes GIL will maintain its heathy cover over the medium term supported by the high value of investments in key operating entities of the Godrej group. Also, GIL will continue to enjoy strong financial flexibility as the key holding company of the group.

Rating Sensitivity factors

Upward factors

  • Improvement in the performance of investment companies, resulting in rating upgrade by one or more notches

 

Downward factors

  • Subdued performance of investment companies, resulting in rating downgrade by one or more notches
  • Increase in debt or fall in the market value of investments, weakening the net debt cover to below 5 times on a sustained basis

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 was demerged into GCPL, and Godrej Soaps became GIL.

 

The company, a leading producer of fatty acids, fatty alcohols and surfactants, has plants in Valia, Gujarat, and Ambernath, Wadala and Dombivli, Maharashtra. Products are exported to 60 countries across the world.

Also, GIL is the holding company of GCPL, GAL and GPL.

 

For the first quarter of fiscal 2023, net profit was Rs 58 crore on total income of Rs 1049 crore, compared with loss of Rs 36 crore on total income of Rs 664 crore in the corresponding period of the previous fiscal.

Key Financial Indicators*

As on / for the period ended March 31

2022

2021

Operating income

Rs crore

3,275

1,822

Profit after tax (PAT)

Rs crore

-44

-108

PAT margin

%

-1.3

-5.9

Adjusted debt / adjusted networth

Times

4.18

2.91

Adjusted interest coverage

Times

1.23

0.74

*As per analytical adjustments made by CRISIL Ratings

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.crisil.com/complexity-levels. 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 7-365 days 2,000 Simple CRISIL A1+
INE233A08022 Non Convertible Debentures 16-Jul-20 6.24% 14-Jul-23 750 Simple CRISIL AA/Stable
INE233A08030 Non Convertible Debentures 28-Oct-20 6.43% 26-Apr-24 750 Simple CRISIL AA/Stable
INE233A08048 Non Convertible Debentures 14-May-21 6.92% 14-May-25 750 Simple CRISIL AA/Stable
INE233A08055 Non Convertible Debentures 28-Sep-21 7.58% 28-Sep-28 750 Simple CRISIL AA/Stable
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 2000.0 CRISIL A1+   -- 05-10-21 CRISIL A1+ 03-11-20 CRISIL A1+ 11-11-19 CRISIL A1+ CRISIL A1+
      --   -- 16-03-21 CRISIL A1+   -- 23-09-19 CRISIL A1+ --
Non Convertible Debentures LT 3000.0 CRISIL AA/Stable   -- 05-10-21 CRISIL AA/Stable 03-11-20 CRISIL AA/Stable 11-11-19 CRISIL AA/Stable --
      --   -- 16-03-21 CRISIL AA/Stable   --   -- --
All amounts are in Rs.Cr.

    

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Criteria for rating holding companies (including debt backed by pledge of shares)
The Rating Process
CRISILs Criteria for rating short term debt

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