| Gujarat Fluorochemicals Limited | ||||||
| Rating outlook revised to 'Stable'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Gujarat Fluorochemicals Ltd (GFL) to ‘Stable’ from ‘Negative’ and reaffirmed the ‘CRISIL AA’ rating and has reaffirmed its ‘CRISIL A1+’ rating on the company’s short-term facilities.
The revision in outlook reflects the improvement in the company’s operating performance in fiscal 2022 driven by better capacity utilisation and healthy realisations across product segments. In fiscal 2022, GFL reported operating revenue of around Rs 3954 crore against Rs 2650 crore in fiscal 2021. Earnings before interest, taxes, depreciation and amortisation (Ebitda) was Rs 1197 crore (Ebitda margin of 30%), as against Rs 638 crore (24%) for the previous fiscal. Both the polytetrafluoroethylene (PTFE) and new fluoropolymers segments reported a significant capacity ramp-up leading to improved performance.
Gross debt remained around Rs 1,500 crore as on March 31, 2022. GFL has brought forward some of its proposed capital expenditure (capex) and will now undertake a total capex of Rs 1600-1700 crore in fiscals 2023 and 2024. A large part of the capex is likely to be funded through internal accrual and debt is not expected to increase materially.
GFL has provided significant support to group companies which has led to high debt for the company. The management is taking steps to enhance liquidity in group companies by raising equity. This, as well as expectation of improved performance of the wind business, should lead to reduced support from GFL to group companies, thereby improving its financial risk profile, and will remain a key monitorable.
The ratings continue to reflect GFL’s established market position in the chemicals business, healthy operating efficiency driven by integrated operations, and sound financial risk profile. These strengths are partially offset by the financial support extended to group companies and susceptibility to inherent volatility in the chemicals business. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of GFL and all its subsidiaries, as all the entities (collectively referred to herein as GFL) operate in similar businesses and are under a common management.
CRISIL Ratings has included the debt of Inox Wind Ltd (IWL; ‘CRISIL BBB/CRISIL AA(CE)/Stable/CRISIL A3+’), which has been guaranteed by GFL to arrive at its adjusted debt.
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: Robust market position GFL is the largest PTFE manufacturer in India and among the top four players globally. It is also a leading manufacturer of hydro-chloro-fluoro-carbon (HCFC), which is used in refrigeration and air conditioning, among other industries. The company has a diversified product portfolio, comprising PTFE, new fluoropolymer products and specialty products, caustic soda, chloro-methane, and refrigerant gases. The new fluoropolymer products saw compound annual growth rate of 57% in revenue in the five fiscals ended March 31, 2022. The new fluoropolymer and specialty products are expected to drive growth.
Integrated operations driving operating efficiency The chemicals business is integrated forward into manufacturing PTFE and backward into manufacturing HCFC, anhydrous hydrogen fluoride, chloroform, and chlorine. The new fluoropolymer products such as polyvinylidene fluoride (PVDF), fluorocarbons (FKM) and phosphoric acid (PPA) fit seamlessly in the production cycle as they are manufactured from the same raw materials such as fluorspar and R-142b. This reduces dependence on external sources for raw materials and ensures healthy operating margin and capacity utilisation. The new fluoropolymer products have higher margins and should help improve profitability over the medium term. The Ebitda margin was around 30% in fiscal 2022 and is expected to improve to 32-34% over the medium term driven by healthy realisations and better product mix.
Healthy financial risk profile The financial risk profile is backed by strong networth and comfortable gearing. Gross debt was around Rs 1,500 crore as on March 31, 2022 while debt adjusted for guarantee provided to the wind business remained high. As of March 31, 2021, guarantees outstanding towards the wind business stood at Rs 1,086 crore. Debt protection metrics were healthy with interest coverage ratio over 11 times in fiscal 2022. Gearing remained comfortable at 0.6 time as on March 31, 2022. .
GFL expects to reduce its debt significantly over the medium term, on the back of healthy cash accrual and reduced support to group companies. Sustained improvement in cash accrual leading to reduction in debt will boost the debt protection metrics.
Weaknesses: Support to group companies As the chemicals business is marked by high cash generation, the company has supported group entities over the years through loans, advances, corporate guarantees, and lien marking its own liquidity for loans of group entities. This has led to an increase in debt for GFL.
Supported by steps being taken by the management to improve capital structure of the wind business and the expected improvement in the performance of group entities, the requirement of such support should reduce significantly from fiscal 2023, but will remain a monitorable.
Inherent volatility in the chemicals business The chemicals business is largely export-driven, and thus is vulnerable to volatility in international markets. Addition of large capacity in overseas markets could constrain the company’s performance. While the large scale of integrated operations drives operating efficiency, business remains susceptible to fluctuations in global supply and price trends.
Also, despite prudent foreign exchange (forex) management policy, the company is vulnerable exposed to any large fluctuation in currency exchange rates. |
Liquidity: Strong Liquidity will remain strong, backed by expected annual cash accrual of over Rs 1,200 crore over the medium term against annual term debt obligation of Rs 140-150 crore. Liquidity is supported by unencumbered cash equivalent/liquid investment of about Rs 68 crore as on March 31, 2022. GFL plans capex of Rs 800-1100 crore per annum to be financed through internal accrual. The company has access to fund-based limits of Rs 1200 crore, which were utilised 60% on average in fiscal 2022. |
Outlook Stable CRISIL Ratings believes GFL’s business and financial risk profiles will remain healthy over the medium term, owing to strong demand across products. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company GFL houses the chemicals business of the INOXGFL group. The company has a diverse product portfolio which includes caustic soda, chloro-methane, PTFE, HCFC and value-added products. It is one of the largest chemicals players in India, with a combined installed capacity of 72,000 tonne per annum (TPA) of HCFC, 17,820 TPA of PTFE, 138,450 TPA of caustic soda, and 109,620 TPA of chloro-methane. |
Key Financial Indicators (as reported by the company)
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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)
* - Interchangeable with overdraft and other working capital facility |
Annexure – List of entities consolidated
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| 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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Criteria Details
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