Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to the Rs 2,000 crore non-convertible debentures (NCDs) of Grasim Industries Ltd (Grasim) and has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the existing debt instruments and bank facilities of the company. CRISIL Ratings has withdrawn its rating on NCDs worth Rs 1,250 crore and rupee term loan worth Rs 111.2 crore upon their maturity and on receipt of independent confirmation of their redemption and no dues certificate from the lenders respectively. The withdrawal is in line with CRISIL Ratings’ policy for withdrawal of ratings.

 

The ratings continue to reflect the leading position of Grasim in the cellulosic staple fibre (CSF) and chemical businesses, its strong financial risk profile and high financial flexibility by virtue of being the holding company of Aditya Birla Group’s key listed companies such as UltraTech Cement Ltd (UltraTech; 'CRISIL AAA/Stable/CRISIL A1+') and Aditya Birla Capital Ltd (ABCL; ‘'CRISIL AAA/Stable/CRISIL A1+’). These strengths are partially offset by susceptibility to cyclicality in the core businesses.

 

Furthermore, Grasim’s entry in the decorative paints business with overall capital expenditure (capex) of Rs 10,000 crore (over fiscals 2023 to 2025) and business to business (B2B) e-commerce segment with total outlay of Rs 2,000 crore (over the next five years) will add size and diversity to its existing standalone business. While this is likely to result in higher leverage in the interim period, expected healthy cash accrual and a strong balance-sheet lend comfort. However, ability of the company to execute the projects within timelines and cost, and successfully market its products to gain the envisaged market share, will be a key monitorable.

 

Including the paints and B2B businesses, Grasim had  earmarked capex of around Rs 4,700 crore in fiscal 2025, of which around Rs 1,900 crore was spent during the first six months of fiscal 2025. The capex is for expansion of VSF and caustic soda capacities and regular modernisation and maintenance capex in existing businesses, apart from the growth capex towards new businesses.

 

For the first six months of fiscal 2025, Grasim’s standalone revenue rose 14.5% year-on-year, driven by downtrend and low realisations across the VSF and chemical segments. This also resulted in moderation in operating margin to 4.5% during the first six months of fiscal 2025 from 10% in the corresponding period of the previous fiscal. As anticipated, net debt inched up to around Rs 6,750 crore as on September 30, 2024, from around Rs 6,000 crore as on March 31, 2024, since the company incurred capex towards paints as well as core businesses. Liquidity position stood at ~Rs 3,427 crore as on September 30, 2024, including cash and current investments.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Grasim, its subsidiaries and joint ventures (JVs) in the VSF and related chemical, pulp and fibre businesses, as all the entities have similar business operations and will remain core to Grasim. CRISIL Ratings has also combined the business and financial risk profiles of renewable assets under Grasim to factor in the extent of financial, operational and managerial support available to them from Grasim. Further, CRISIL Ratings has also used the capital allocation method by factoring in the capital required for maintaining credit profile of ABCL.

 

CRISIL Ratings has not combined the business and financial risk profiles of UltraTech, Vodafone Idea Ltd (VIL), Hindalco Industries Ltd (Hindalco; 'CRISIL A1+'), ABCL and their subsidiaries as they are in different businesses that have no significant operational linkages. It has treated them as financial investments.

 

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:

• Leadership position in the VSF and chemical businesses: Grasim is the largest producer of VSF and has sizeable share in the global man-made fibre market. Operations are highly integrated, with a pulp plant and caustic soda capacity in India, two global dissolving pulp JVs and captive thermal power plants, providing strong control over production cost. Moreover, ramp-up of operations at the Vilayat plant (Bharuch, Gujarat) and leveraging of the Liva brand have strengthened the market position. The company will maintain its leading position and benefit from the expected growth in demand.

 

Also, it is a leader in the caustic soda and epoxy resins segments in India. Captive application of caustic soda and presence of leading paint companies and electrical machinery manufacturers as clients benefits the epoxy resins segment. Focus on expanding the existing set of value-added products from chlorine (by-product of caustic soda) should improve realisations. Furthermore, the business risk profile is diversified with the inclusion of the textile and insulator businesses, wherein Grasim enjoys strong market position.

 

• Healthy financial risk profile: The company has a robust capital structure, as reflected in standalone networth of Rs 55,003 crore and net debt of around Rs 6,752 crore, as on September 30, 2024. Based on discussions with the management, CRISIL Ratings understands that the company will not be leveraged significantly for making additional investments in group companies. Any change in this stance will be a key monitorable. Planned capex outlay for fiscal 2025 was around Rs 4,700 crore (including paints and B2B e-commerce capex), of which Rs 1,900 crore was spent during the first six months of the fiscal.

 

Out of the announced capex outlay of Rs 10,000 crore towards the decorative paints business, the company had incurred Rs 8,470 crore till September 2024 towards land acquisition and construction activities. It is setting up a cumulative capacity of 1,332 million litres per annum (mlpa) spread across six plants across the country. The company had already commissioned four plants during first eight months of fiscal 2025, while started trial run at one other locations during the second quarter. Grasim has also announced foray into the B2B e-commerce segment with total outlay of Rs 2,000 crore to be spent over the next five years. The platform will focus on building materials. While debt is expected to increase to fund the proposed capex, steady cash flow from the key business segments and strong balance sheet will keep the financial risk profile healthy.

 

• Financial flexibility derived from being a holding company: Grasim is the holding company for two large, listed entities of the Aditya Birla group: UltraTech and ABCL. UltraTech is the largest cement player in India, and ABCL houses the financial services businesses. Both are growing businesses and strategic to the Aditya Birla group, making Grasim a key entity within the group acting as a holding company. Grasim's 57.27% stake in UltraTech was valued around Rs 1,96,000 crore as on December 6, 2024. Grasim receives annual dividend from UltraTech, which has a healthy dividend track record. The company also has significant shareholding in other listed entities, namely Hindalco, Aditya Birla Fashion and Retail Ltd (‘CRISIL AA+/Stable/CRISIL A1+), ABCL and VIL, collectively valued at around Rs 40,500 crore (as on December 6, 2024). Further, the company has recently raised Rs 2,000 crores through rights issue and the record date of December 13, 2024 has been fixed for the balance Rs 2,000 crores.  While overall debt to market value of investments ratio remains comfortable, higher-than-envisaged investment outlay will be a key monitorable.

 

Weakness:

• Exposure to cyclicality in the VSF and chemical businesses: Demand for VSF remains susceptible to economic downturns. In the past, intense competition has led to sharp fluctuation in the operating margin: around 15% in fiscal 2016 as against 19-20% in fiscals 2017 and 2018. Realisations improved in fiscal 2019 (operating margin remained around 20%) because of steady demand for cellulosic staple Fibre and increase in the price of rayon-grade wood pulp. However, large capacity additions globally, weak global macroeconomic conditions, change in geopolitical conditions and fluctuations in foreign exchange rates led to drop in profitability in fiscal 2020. Being input prices helped the operating margin in fiscal 2021 (17%) despite decrease in volumes amid the Covid-19 pandemic. Operating margins remained stable at 11.4% for the first six months of fiscal 2025 considering the impact on realisations from low-priced imports by China.

 

In the chemicals business, the operating margin declined to 19.4% and 12.9% in fiscals 2020 and 2021, respectively, from 28% in fiscal 2019. This was due to weak electrochemical unit (ECU) realisations backed by declining domestic prices (in line with global prices), led by capacity overhang and slowdown because of the pandemic. Moderation in caustic soda and ECU realisations, along with subdued demand, led to a decline in operating margin to 12.8% in fiscal 2024, while it improved to 14.2% during the first six months of fiscal 2025. Profitability in the chemicals segment is susceptible to increase in capacities. Similarly, reversal in realisations, on account of global overcapacity of VSF, may restrict profitability. Nevertheless, the company’s strong market position and backward integration of operations will help manage downturns effectively.

Liquidity: Superior

Standalone cash and liquid investments stood at Rs 3,427 crore as on September 30, 2024. The company also benefits from its ability to raise short- and long-term debt at short notice and at competitive rates. Minimal utilisation of the fund-based working capital limit of around Rs 1,100 crore also supports liquidity. The funds of Rs 1,000 crore raised through rights issue during fiscal 2024 were utilised to repay debt. Further, repayment of long-term debt over fiscals 2025 and 2026 will be adequately supported by the balance rights issue and internal cash accrual. Cash accrual, unutilised bank lines and existing cash reserves will be sufficient to fund incremental capex and working capital requirement.

 

ESG profile

CRISIL Ratings believes the environment, social and governance (ESG) profile of Grasim supports its already strong credit risk profile.

 

The cellulose  and chemical sectors can have significant impact on the environment owing to high water consumption, waste generation and greenhouse gas (GHG) emissions. The sectors’ social impact is characterised by health hazards, leading to higher focus on employee safety and well-being and the impact on local community, given the nature of operations. Grasim has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights:

• Grasim has deployed strategies to reduce water intensity in its production process and has installed zero liquid discharge (ZLD) plants at multiple locations in its VSF, chemicals and textile businesses for reduction of water intake. The VSF Nagda plant (in Ujjain, Madhya Pradesh) has become the first VSF plant globally to achieve ZLD. Also, three initiatives have been implemented to reduce the environmental impact, including: 1. Installation of RO systems to recover and reuse up to 70% of processed water from various effluent streams 2. Influent and effluent characterisation, closed-loop backwashing, pinch for washing, utilising RO reject for once through quenching 3. Expansion and upgradation of effluent treatment plant and process improvisation
• The company is focussed on increasing its presence in the renewable energy segment. It has significantly grown its operational solar power portfolio (under Aditya Birla Renewables Ltd [‘CRISIL AA/Stable/CRISIL A1+]) to 1 GW  and has an additional 1,053.4 MWp under construction. Further, in fiscal 2024, the company used 6.7% renewable energy across the businesses that includes biomass fuel (steam and heat generation) and solar and wind (electricity generation). For the steam and heat generation, company is utilising non-fossil fuel sources such as biomass fully and partially for the textiles and cellulose business respectively. In addition, company has installed renewable power share of 11% in fiscal 2024.
• Its loss-time injury frequency rate (LTIFR) of 0.24 in fiscal 2024 (0.22 in fiscal 2023) is lower than peers, representing healthy employee safety and well-being standards. Gender diversity improved with 4% women employees in fiscal 2024 as against 3.3% in fiscal 2023.
• The governance structure is characterised by 47% of the board comprising independent directors, split in chairman and CEO positions, and presence of an investor grievance redressal mechanism and extensive disclosures.
• At the group level as well, Grasim is focussed on ESG practices, with its key subsidiaries, UltraTech and ABCL, having well-defined ESG policies.

 

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

Outlook: Stable

CRISIL Ratings believes Grasim will maintain a strong credit risk profile, driven by its leading position in the VSF and chemical segments, and healthy cash accrual. The company will also be a key entity within the Aditya Birla group as the holding company of UltraTech and ABCL, which are sizeable and strategic to the group.

Rating sensitivity factors

Downward factors

• Significant increase in leverage due to higher-than-envisaged capex or investments/loans to group entities/ subsidiaries, coupled with a significant decline in market value of investments from the current Rs 236,545 crore (as on December 6, 2024)
• Significant decline in overall annual operating profitability on a sustained basis, severely impacting overall liquidity

About the Company

Incorporated in 1947, Grasim is the flagship company of the Aditya Birla group. It commenced operations in 1948 as a textile manufacturer and is the sole producer of VSF in the domestic market. The cellulose segment also comprises the cellulosic fashion yarn business of the merged Aditya Birla Nuvo Ltd (ABNL) and acquired rights to manage and operate the rayon division of Century Textiles and Industries Ltd (now renamed as ‘Aditya Birla Real Estate Ltd’; 'CRISIL AA/Stable/CRISIL A1+') with effect from February 1, 2018. The chemicals segment comprises caustic soda, chlorine VAPs and advanced material businesses. The company is operates in the textile and insulator sectors. In January 2021, Grasim announced foray into the decorative paints business. Total capital outlay for the business stood at Rs 10,000 crore, which will be used to set up capacity of 1,332 mlpa across six plants in various locations across the country. Furthermore, in July 2022, it announced foray into the B2B e-commerce segment with total outlay of Rs 2,000 crore over the next five years.

 

UltraTech, Grasim's 57.27% subsidiary (as on September 30, 2024), is the largest cement producer in India. On August 11, 2016, Grasim announced a composite scheme of merger of ABNL with itself, followed by demerger of the financial services business into a separate listed entity, ABCL. Following the scheme, effective July 1, 2017, ABCL was listed in September 2017. Grasim held 52.58% equity in ABCL as on September 30, 2024.

 

For the six months ended September 31, 2024, on standalone level Grasim reported profit after tax of Rs 719 crore and operating income of Rs 14,517 crore, against Rs 1,150 crore and Rs 12,680 crore, respectively, for the corresponding period of the previous fiscal.

Any other information: Not Applicable