Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil BBB+/Stable/Crisil A2’ ratings on the bank loan facilities of Gokul Refoils and Solvent Ltd (GRSL; part of the Gokul group).

 

The ratings continue to reflect the extensive experience of the promoters in the edible oil industry and the healthy position of the Gokul group across refined oil segments (mustard, castor, soyabean and groundnut). These strengths are partially offset by moderation in financial risk profile, susceptibility of operating margin to volatility in raw material prices and exposure to intense competition.

 

The business risk profile of the group is supported by its diverse revenue profile in terms of products, clientele and geographic reach. During the first half of fiscal 2025, group achieved revenue of Rs 1,772 crores with operating margins of 2.3%. With realizations currently stabilizing, group is expected to record revenue of over Rs 3,500 crores in fiscal 2025 with margins of ~2.3-2.4%. Operating income de-grew by ~4% in fiscal 2024 on account of significant decline in realizations across product categories owing to oversupply in global markets following good production of crops. Blended realizations fell by ~29% during fiscal 2024; however strong volume growth of ~25% arrested the decline in revenues to ~4%.

 

Operating margin of the group declined to 2.2% in fiscal 2024 from 2.7% in fiscal 2023 owing to lower fixed cost absorption. The margins are expected to improve 2.3-2.4% in fiscal 2025 and further to over 2.6-2.7% over the medium term with improvement in realizations and introduction of higher margin products like polyoil. In refined oil category ~30-40% sales are made on advance sales basis which minimizes the risk of inventory losses. The blended inventory days of the group are in range of 30-40 days owing to higher inventory maintained in the castor derivative segment.

 

The company hedges the commodity risk by entering forward contracts and has also put in place proper foreign exchange (forex) risk management policies.

 

In fiscal 2024, group recorded an exceptional expense of Rs 18.29 crores on account of settlement of tax dispute with West Bengal commercial tax department. The State of West Bengal vide Trade Circular dated April 17, 2023, has notified the changes in The West Bengal Sales Tax (Settlement of Dispute) Act, 1999 where in the taxpayers are allowed to settle tax litigations pending with various Commercial Tax authorities. As per the Scheme, the tax litigation was allowed to be settled by making 50% payment of disputed tax liability thereby waiving off any interest and penalty thereon. During fiscal 2024, the Company has opted for the said Settlement Scheme to conclude the tax dispute of Rs 115.32 crore by making payment of 27.81 crores.

 

The financial risk profile has moderated over the past couple of years with interest coverage falling to ~2.04 times in fiscal 2024 and estimated at ~2.2 times in fiscal 2025 owing to moderation in operating margins. However, capital structure remains adequate with gearing at 1.27 times and total outstanding liabilities to tangible networth (TOL/TNW) at 1.53 times. Further, liquidity profile remains adequate with expected accruals of over Rs. 35-40 crore per annum as against repayment obligations of Rs. 5-7 crore per annum (~95% of total debt of Rs. 584 crore as on Sep 30, 2024 is in form of working capital). Liquidity is further supported by unencumbered cash balances of ~Rs 53 crores as on December 31, 2024, and sufficient cushion in bank lines of Rs. 235 crore which were utilized at an average of ~82% over past 12 months ending October 2024.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of GRSL and its subsidiaries, Gokul Agri International Ltd (Gokul Agri) and Gokul Overseas. The entities, collectively referred to as the Gokul group, are in the same business, under a common management and have significant operational and financial linkages.

 

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:

• Established market position in the edible oil industry and diversified products: The Gokul group is one of the top players in the domestic edible oil industry. The group has a diversified range of products across oils (~78% of revenue) and castor derivatives (~22% of revenue). The group sells its products under the Gokul, Vivaan, Tandurast and Rozana brands. In H1 fiscal 2025, branded edible oil accounted for more than 40% of total sales. The Gokul group is among the top three manufacturers and exporters of castor derivatives in India.  It has solvent extraction capacity of 1,000 tonnes per day (TPD) and refinery capacity of about 600 TPD.

 

The group is also a major player in western and eastern India and is improving its presence in the northern and central parts as well. Expansion of geographical reach within India remains a key monitorable.

 

• Extensive experience of the promoters in the edible oil industry: The promoters of the Gokul group, Mr Balvantsinh Rajput and his family members, have been engaged in the edible oil business for more than three decades. They are also likely to extend funding support in case of any exigency. Revenue is likely to grow at a steady pace, aided by extensive experience of the promoters and the diversified distribution network of the group.

 

Weaknesses:

• Susceptibility of operating margin to volatility in raw material prices: The group faces risks inherent in the agro commodity business, such as availability of raw material or fluctuations in prices. For instance, the solvent extraction business is susceptible to availability of oilseeds in the domestic market as well as international prices of degummed oil and crude oil, which are imported. However, players in the branded segment enjoy pricing flexibility to an extent, as edible oil is an essential commodity. Cost of oilseed i.e., key input, forms nearly 90% of the total cost. Oil prices also depend on global demand-supply dynamics and movement in prices of other edible oils. Besides, in case of erratic monsoon, shortage of quality seeds leads to higher input cost. The company hedges the commodity risk via forward contracts. As bulk of the procurement is from the domestic market, exposure to fluctuation in foreign exchange rates is limited. Volatility in input cost impacts profitability and cash accruals.
   
• Moderation in financial risk profile: Owing to moderation in margins the financial risk profile of the group has moderated over the past couple of years. Interest coverage has fallen to ~2.04 times in fiscal 2024 and estimated to be ~2.2 times in fiscal 2025. The capital structure remains adequate with gearing at 1.27 times with adequate liquidity with expected accruals of over Rs. 35-40 crore per annum as against repayment obligations of Rs. 5-7 crore per annum (~95% of total debt of Rs. 584 crores as on Sep 30, 2024 is in form of working capital). Liquidity is further supported by unencumbered cash balances of ~Rs 53 crores as on December 31, 2024, and sufficient cushion in bank lines of Rs. 235 crore which were utilized at an average of ~82% over past 12 months ending October 202
   
• Exposure to intense competition: Presence of several small, unorganised players across the value chain (from crushing to solvent extraction) has led to huge fragmentation in the edible oil industry. Shortage of oilseeds and drop in utilisation of the refinery capacity have further intensified competition among players. Given the price-sensitive nature of customers, players mainly cater to regional demand to avoid high marketing and distribution cost. The industry also remains vulnerable to any change in government policies, in the form of duties imposed on imported refined and crude edible oil.

Liquidity: Adequate

Liquidity is supported by comfortable level of unencumbered cash and cash equivalents of Rs 53 crore as on December 31,2024 and moderate bank limit utilisation. Expected cash accrual of Rs 35-40 crore per fiscal should comfortably cover the low debt obligation. Fund-based bank limit was utilised at an average of 82% for the 12 months ended October 31,2024. No major capex is planned over the medium term.

Outlook: Stable

CRISIL Ratings believes the Gokul group will continue to benefit from its established position and extensive experience of its promoters in the edible oil business. The prudent risk management policies should support performance and strengthen the financial risk profile over the medium term.

Rating sensitivity factors

Upward factors:

• Better-than-expected operating performance leading to material improvement in cash accrual on a sustained basis
• Operating profitability remaining above 4-5% at the group level on sustained basis
• Sustained improvement in debt protection metrics.
   

Downward factors:

• Weaker operating performance, leading to significant decline in net cash accrual and interest coverage ratio going below 2 times
• Any large, debt-funded capex exerting pressure on the capital structure
• Stretched working capital cycle, straining the financial risk profile and liquidity
• Substantial capital outflow impacting the networth

About the Company

GRSL was set up in 1992 by Mr Balvantsinh Rajput and Mr Kanubhai Thakkar (who have been engaged in this business since 1982 and started with trading of sugar and edible oil). The company set up an oil refinery at Sidhpur in Gujarat. Over the years, it has expanded its refining capacity and set up crushing and extraction facilities at different locations. The promoters set up a castor oil refinery and derivatives manufacturing facility under Gokul Overseas in the Kandla special economic zone in 1995.
 

In July 2015, GRSL de-merged its Gandhidham unit into Gokul Agro Resources Ltd (owned by Mr Kanubhai Thakkar) and transferred its Sidhpur unit to Gokul Agri. In fiscal 2018, GRSL sold its Haldia unit in an all-cash deal to Adani Wilmar Ltd. GRSL is listed on the National Stock Exchange and Bombay Stock Exchange.
 

Operations of the Gokul group are managed by Mr Balvantsinh Rajput. Gokul Agri is mainly involved in crushing and refining of edible oils and non-edible oil, that is, castor oil. The company has an extensive marketing and distribution network, catering to customers across 13 states in India, through 23 carrying and forwarding agents, 160 distributors, one depot and around 55,000 retailers.

Key Financial Indicators

As on/for the period ended March 31	Unit		2024*	2023*
Revenue		Rs crore	3,226	3,380
Profit after tax (PAT)		Rs crore	10	41
PAT margin		%	0.3	1.2
Adjusted debt/adjusted networth		Times	1.3	1.5
Interest coverage		Times	2.04	2.8

*Consolidated group financials

Any other information: Not Applicable

Annexure – List of entities consolidated

Name of entity	Extent of consolidation	Rationale for consolidation
Gokul Agri International Ltd	100%	Business and financial linkages
Gokul Overseas	100%	Business and financial linkages