| Godrej and Boyce Manufacturing Company Limited | ||||||
| Migration of ratings outstanding on Fixed Deposits (FD) programme to Long term rating scale; 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 migrated its rating on the fixed deposit (FD) programme of Godrej and Boyce Manufacturing Company Limited (G&B) to 'CRISIL AA/Stable' from ‘FAA+/Stable'. Ratings on bank loan facilities and commercial paper programme have been reaffirmed at ‘CRISIL AA/Stable/CRISIL A1+’.
The rating migration follows the revision in CRISIL Ratings’ rating scale for FD programmes, which is now aligned with the Securities and Exchange Board of India (SEBI) - standardised 20-point long term scale. Previously, CRISIL Ratings used a 14-point scale for assigning ratings to the FD programmes of issuers. This alignment is in compliance with the regulatory guidelines as per circular issued by the SEBI on July 16, 2021 and the subsequent SEBI circular dated April 1, 2022, for standardizing the rating scales used by the Credit Rating Agencies.
This migration represents only a recalibration of the rating from one scale to another and does not reflect any change in the credit risk profile of the FD programme. It is neither an upgrade nor a downgrade of the underlying credit risk profile of the FD programme. (Please refer to CRISIL’s criteria for rating fixed deposit programmes for further details).
The ratings on the bank facilities and debt instruments of G&B continue to reflect the healthy business risk profile of the company, with strong brand equity, diversified revenue streams and high financial flexibility, backed by sizeable free-hold land and investment portfolio.
While the second wave of the pandemic impacted revenue growth in the first quarter of fiscal 2022, G&B saw moderate recovery in demand across the consumer durables and industrial segments, as lockdowns were less stringent, in contrast to the first wave. Subsequent quarters saw much sharper growth in demand across most of the sub-segments, with revenue growth of 24% recorded in fiscal 2022, over fiscal 2021 and 10% over fiscal 2020.
The ratings continue to derive comfort from the free-hold land bank of G&B and its ability to monetise these land parcels. CRISIL Ratings understands that development of land is at the discretion of G&B, and it may develop the land over a long duration. These strengths are partially offset by the modest financial risk profile, as indicated by constrained operating profitability, high working capital intensity and exposure to risks posed by intense competition in the consumer durables industry and fluctuating commodity prices. |
Analytical Approach CRISIL Ratings has undertaken a standalone assessment of the business and financial risk profiles of G&B. CRISIL Ratings has also adjusted networth to the extent of fair value of the investment in listed group companies. |
Key Rating Drivers & Detailed Description Strengths Strong brand equity and diversified revenue streams Backed by longstanding presence of 125 years in the consumer durables segment, G&B enjoys a strong brand image and customer recall. During fiscal 2022, the company has successfully leveraged its brand equity to grow across various segments, comprising of the consumer products (contributes 68% of revenue), industrial products (29% of revenue) including 5% of revenue contributed by the Construction, RMC (ready-mix concrete), Real Estate & Property Development business, while other domains contribute the remaining 3% of revenue.
Within consumer products, G&B has diversified into consumer appliances, office and home furniture, storage solutions, locks, security equipment, and prima (vending and batteries). The company is a leading player in the refrigerator segment, with around 7% share in the domestic market. It also manufactures air conditioners, washing machines and microwave ovens. The industrial segment comprises of material handling equipment (MHE), process plant equipment (PPE), electricals and electronics (E&E), precision engineering, aerospace and tooling divisions and electric motors. The company has a healthy order book of around Rs 3,000 crores as on May 30, 2022 in E&E and PPE segments. Steady lease income of over Rs 200 crore from its investment properties, in addition to revenue from property development also support cashflows.
In fiscal 2022, the consumer products segment saw strong revenue growth on the back of pent-up demand for most of the sub-segments, except for the appliances sub-segment which posted revenue at similar level as in fiscal 2021. On the other hand, the industrial products bounced back well, aided by good traction of project inflows and steady execution across sub-segments.
Strong financial flexibility driven by healthy portfolio of equity investments and land bank G&B derives strong financial flexibility from its significant holding in listed group companies and sizeable land bank. Stakes in Godrej Consumer Products Ltd (rated 'CRISIL A1+') and Godrej Properties Ltd (rated 'CRISIL A1+') were valued around Rs 7,000 crore as on June 21, 2022. Gross debt stood at Rs 2,855 crore and net debt at Rs. 2,431 crore as on March 31, 2022. Financial flexibility is aided by the large free-hold land bank at Vikhroli (Mumbai) and sizeable developable land (around 1000 acres), which can be monetised. The company will continue to enjoy strong financial flexibility over the long term given its portfolio of equity investments and land bank.
Weaknesses Intense competition in the consumer appliances segment G&B drew 26% of its revenue from the consumer appliances business in fiscal 2022. This segment is intensely competitive, as reflected by presence of large multinational corporations. Hence the operating margin remains susceptible to stiff price competition and volatility in foreign exchange (forex) rates.
Apart from consumer appliances, G&B has diversified its operations across the consumer durables (interio, security solutions, locks and others-) and industrial segments. While margin in the consumer durables segment may remain modest, performance of the industrial product segment (which fetches comparatively higher margins) is expected to leverage the healthy order book and deliver growth in both revenue and margins.
Exposure to volatility in raw material prices and forex rates and high operating leverage Raw materials, primarily copper, aluminium, plastic and steel, account for about 60% of the cost structure, with a large portion being imported. Though G&B has taken initiatives to source inputs locally and hedges its forex exposure partially, profitability remains susceptible to volatility in raw material prices and forex rates.
The company has high operating leverage, which could hit profitability in case of a slowdown in the industry. Operating margin was moderately impacted in fiscals 2021 and 2022 because of overall slowdown in consumption, continued loss in the prima division and low gross margins in the appliances, interio and storage divisions. The company now plans to move their manufacturing facilities of key products outside Vikhroli in order to reduce the costs. While these measures should yield benefits in the longer run, the rising commodity cost is likely to impact the margin in fiscal 2022.
Modest financial risk profile marked by constrained profitability and high working capital intensity Earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of G&B was modest at 5.4% & 5.7% (adjusted for lease accounting as per IND AS 116) over the last two fiscals respectively. This was largely due to intense competition in the consumer segment coupled with the covid-19-induced economic slowdown; the impact was partially offset by strong bounce back of the industrial division in fiscal 2022. However, with continued loss in consumer appliances segment at the start of fiscal 2023, the margins are expected to remain range bound in the fiscal, amidst elevated input costs and strong competition.
The company also has moderately high financial leverage, driven by high working capital intensity and sizeable capital expenditure (capex). The capex spend partially relates to addition of capacity at Khalapur (Maharashtra) and Dahej (Gujarat).
Leverage was higher around Rs. 2,855 crore (Gross Debt) and Rs 2,431 crore (Net debt) as on March 31, 2022 as compared to Rs 2,458 crore and Rs 1,973 crore, respectively, as on March 31, 2021, owing to higher capex and working capital requirements. Adjusted gearing remains healthy below one time. Interest coverage ratio improved to 4.5 times in fiscal 2022 compared with 3.5 times in fiscal 2021. The same is expected to remain steady around 4 times over the medium term. Net cash accrual to adjusted debt ratio was healthy at 0.16 times in fiscal 2022 which is likely to continue over the medium term. Debt to EBITDA is also expected to remain at similar elevated levels over the medium term. |
Liquidity: Strong Liquidity is supported by cash and equivalents of Rs 293 crore as on March 31, 2022 and unutilised working capital limits of Rs 200 crore, after earmarking Rs 700 crore for commercial paper issuances out of the total working capital limit of Rs. 900 crore. Quoted investments valued at around Rs 7,000 crore as on June 21, 2022 further enhance financial flexibility. In fiscal 2023, capex of around Rs 400 crore and debt repayment obligation of Rs 212 crore is expected to be funded through healthy mix of internal accruals and debt. |
Outlook: Stable G&B will continue to benefit from its strong brand, well-established presence across diversified streams and adequate financial flexibility over the medium term |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company G&B, incorporated in 1897, is one of the largest privately held industrial companies in India. It has a diversified product profile, with operations across the country. Key production facilities are in Vikhroli, Mohali in Punjab and Shirwal in Pune; Vikhroli houses manufacturing units for consumer as well as industrial products.
Within consumer products, G&B has diversified into consumer appliances, office and home furniture, storage solutions, locks, security equipment and prima (vending and batteries). Growth in revenue continues to be driven by consumer products, such as appliances, interior (furniture) and storage solutions.
The company manufactures refrigerators, air conditioners and washing machines in Shirwal and Mohali. It has furniture plants at Bhagwanpur, Haridwar in Uttarakhand and at Shirwal, Maharashtra and a storage system plant in Chennai. |
Key Financial Indicators#
#adjusted for lease accounting as per IND AS 116 |
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)
#Fully interchangeable with working capital demand loan; includes pre-shipment export packing credit facilities of Rs 150 crore *Fully Interchangeable with non-fund based limit for letter of credit/bank guarantee of Rs.160 crore |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 27-Jun-2022 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.
#Fully interchangeable with working capital demand loan; includes pre-shipment export packing credit facilities of Rs 150 crore
*Fully Interchangeable with non-fund based limit for letter of credit/bank guarantee of Rs.160 crore
Criteria Details
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