| Godrej Industries Limited | ||||||
| Rated amount Enhanced | ||||||
| Rating Action | ||||||
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| 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+’ ratings on the non-convertible debentures (NCDs) and commercial paper.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 major 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.
GIL has entered the financial services business by acquiring majority stake in Godrej Housing Finance Ltd (GHFL) from Anamudi Real Estates LLP (Anamudi, a Godrej group company). Consequent to approval from the Reserve Bank of India (RBI) in August 2021, GIL acquired stake in GHFL through Pyxis Holdings Pvt Ltd (Pyxis; investment holding company) for a consideration of Rs 405.9 crore. Pyxis holds 95% stake of GHFL, while GIL holds around 85% of Pyxis. Also, Pyxis has 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. GHFL will focus on the housing finance business, while the non-retail lending business will be undertaken by EHFL. To fund growth in the financial services business, GIL has raised Rs 1,500 crore through debt instruments.
The acquisition has resulted in 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. CRISIL Ratings understands that the management of GIL would not be averse to monetise its investments, if required, to support its cash flow. Further, the management has articulated to maintain a debt cover (ratio of total market value of investments to net debt) of 5 times or above at any given point of time.
In fiscal 2021, standalone operating profit before depreciation, interest and tax (OPBDIT) declined to Rs 146 crore from Rs 348 crore in the previous fiscal, owing to lower dividend income from group companies (Rs 63 crore, against Rs 245 crore). |
Analytical Approach CRISIL Ratings has followed the holding company approach; also, it has considered the standalone business and financial risk profiles of GIL. |
Key Rating Drivers & Detailed Description Strengths Strong financial flexibility The financial flexibility arises from 23.75% stake in GCPL, 47.29% stake in GPL and 62.48% stake in GAL, which translates into a market value of around Rs 63,000 crore (as on September 29, 2021). The market value was significant against net debt (total debt exposure minus cash and equivalent) exposure of around Rs 5,000 crore as of September 2021, leading to healthy debt coverage. 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. 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 strong supported by cash and equivalent of around Rs 1,120 crore as on September 30, 2021. With further 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. |
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 factor
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 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. The products are exported to 60 countries across the world.
GIL is also the holding company of GCPL, GAL and GPL.
For the first quarter of fiscal 2022, loss was Rs 36 crore on total income of Rs 671 crore, compared with loss of Rs 71 crore on total income of Rs 267 crore in the corresponding period of the previous fiscal. |
Key Financial Indicators*
*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. 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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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