Rating Rationale
April 25, 2024 | Mumbai
Gulshan Polyols Limited
Ratings reaffirmed at 'CRISIL A/Stable/CRISIL A1'; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.525 Crore (Enhanced from Rs.470 Crore)
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A/Stable/CRISIL A1’ ratings on the bank loan facilities of Gulshan Polyols Ltd (GPL).

 

The ratings continue to reflect the established market position of GPL and the extensive experience of its promoters in the agricultural products industry. The ratings also factor in the company’s reputed clientele and diversified product mix, and healthy financial risk profile. These strengths are partially offset by intense competition from unorganised players and susceptibility of the operating margin to volatility in raw material prices.

 

CRISIL Ratings had downgraded its rating on the long-term bank facilities of GPL to 'CRISIL A/Stable’ from ‘CRISIL A+/Negative’. The short term rating has been reaffirmed at ‘CRISIL A1' on December 18, 2023.

Analytical Approach:

CRISIL Ratings has combined the business and financial risk profiles of GPL and its wholly owned subsidiary, Gulshan Overseas FZCO.

 

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, supported by the extensive experience of the promoters: The four-decade-long experience of the promoters in the agricultural products industry, their strong understanding of market dynamics and healthy business relationships have helped the company build a diversified customer base across geographies and establish its presence in the domestic market. The diverse product portfolio, comprising starch, sugar, sorbitol, ethanol, calcium carbide, among others, mitigates the risk of downturn in any specific segment. The company reported 26% growth in operating income to Rs 1,160 crore in fiscal 2023. Operating income was around Rs 970 crore till December 2023, and is estimated at Rs 1,300-1,400 crore for the full fiscal 2024. With the new refinery in Assam for the supply of ethanol expected to be operational from the first half of fiscal 2025, the operating income is expected to increase to Rs 1,700-1,800 crore for fiscal 2025. The established market position of the company will continue to support its business risk profile.

 

  • Healthy financial risk profile: The financial risk profile is backed by comfortable capital structure, reflected in gearing of 0.6 time as on September 30, 2023, indicating sufficient headroom to take on additional debt for business requirements. CRISIL Ratings believes that with no major debt-funded capital expenditure planned over the medium term, the capital structure will remain comfortable with gearing below 0.7 time. Debt protection metrics will remain healthy, too.

 

Weaknesses:

  • Susceptibility of operating margin to volatility in raw material prices: The operating margin was lower than expected for the first nine months of fiscal 2024, at 4% as against 13.7% in fiscal 2022 and 7.5% in fiscal 2023. The operating margin fell largely on account of rice procured at higher rates amid restricted supply and the shift to an alternative low yield grain, maize, for extraction of ethanol, for which configuration changes had to be made to the plant. Also, capacity utilisation remained low leading to lower absorption of fixed overheads. With price revision with oil companies for supply of ethanol at an additional revenue of Rs 5.8 per litre, the operating margin are expected to improve to ~5% for the full fiscal 2024. Also, stability in the prices of grains and revised price arrangements with oil companies for supply of ethanol, along with better capacity utilisation at the plant in Madhya Pradesh and start of commercial production at the Assam plant, the fixed cost absorption is expected to improve, further strengthening the operating margin over the medium term.

 

  • Intense competition from unorganised players in the agricultural products industry: The agricultural products industry is fragmented because of low entry barriers, with limited differentiation in the end products of various players. Consequently, small, unorganised players pose stiff competition to estabilished players. The competition will continue to exert pricing pressure, which makes sustained improvement in the operating margin, supported by steady operating income aided by volume growth, a key monitorable.

Liquidity: Strong

GPL is expected to generate net cash accruals around Rs 60-110 crores, which would be sufficient to meet up with annual repayment obligations of ~Rs 40-70 crore over medium term. Cash and cash equivalents have been reduced from Rs 93.0 crores as on September 2023 to Rs 12.0 crore as on March 2024, as the same have been used to reduce the outstanding balance in cash credit account, as witnessed in bank limit utilisations, where utilisation of Rs 132 crores as on Feb24 has been reduced to Rs 65 crores in Mar’24. GPL has access to fund based limits of Rs 200 crores , where average utilisation has been 51% for last 12 months through Mar’24. CRISIL Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Outlook: Stable

CRISIL Ratings believes the established market position of GPL, along with recovery in its operating margin, shall continue to support its business risk profile.

Rating Sensitivity factors

Upward factors:

  • Sustained improvement in operating income supported by volumetric growth along with sustenance of operating margin in range of 8-9%, leading to higher than expected net cash accruals of the company.
  • Sustenance of healthy financial risk profile amid efficient working capital management.

 

Downward factors:

  • Decline in operating income or operating margins falling below 6% leading to lower than expected net cash accruals.
  • Stretch in working capital cycle or delay in start of commercial production  from new distillery in Assam or any large debt funded capex adversely affecting the financial risk profile, particularly liquidity profile.

About the Company

Incorporated in 1981, GPL is a multi-location, multi-product manufacturing company, with presence in more than 35 countries across three continents. It operates in three key segments: grain processing, ethanol (bio-fuel)/distillery, and mineral processing. GPL is among the market leaders in manufacturing sorbitol, precipitated calcium carbonate and wet ground calcium carbonate. The company plans to expand its presence in the distillery segment and has undertaken significant capex to set up capacity to manufacture ethanol.

 

GPL caters to a wide range of industries and niche markets in core sectors such as pharmaceuticals, personal care products, footwear, tyres, rubber and plastics, paints, alcohol, value-added paper, agrochemicals and food and agricultural products. Its large clients include Hindustan Unilever Ltd, Dabur, Asian Paints and ITC.

Key Financial Indicators

Particulars

Unit

9M of FY24

2023

2022

Revenue

Rs crore

972

1178.2

1099.7

Profit after tax (PAT)

Rs crore

11.1

45.2

85.2

PAT margin

%

1.1

3.8

7.8

Adjusted debt/adjusted networth

Times

0.6*

0.43

0.21

Interest coverage

Times

5.97

15.5

30.6

*As of September 2023

The above numbers are CRISIL adjusted.

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit NA NA NA 200 NA CRISIL A/Stable
NA Long-term loan NA NA Jun-2028 300 NA CRISIL A/Stable
NA Non-fund-based limit NA NA NA 25 NA CRISIL A1

Annexure – List of entities consolidated

Name of the company

Extent of consolidation

Rationale for consolidation

Gulshan Polyols Ltd

Full

Gulshan Overseas FZCO is wholly owned subsidiary of Gulshan Polyols Ltd

Gulshan Overseas FZCO
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 500.0 CRISIL A/Stable   -- 18-12-23 CRISIL A/Stable 04-02-22 CRISIL A+/Stable   -- --
      --   -- 02-05-23 CRISIL A+/Negative   --   -- --
Non-Fund Based Facilities ST 25.0 CRISIL A1   -- 18-12-23 CRISIL A1 04-02-22 CRISIL A1   -- --
      --   -- 02-05-23 CRISIL A1   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 100 State Bank of India CRISIL A/Stable
Cash Credit 100 The Hongkong and Shanghai Banking Corporation Limited CRISIL A/Stable
Long Term Loan 170 State Bank of India CRISIL A/Stable
Long Term Loan 75 The Hongkong and Shanghai Banking Corporation Limited CRISIL A/Stable
Long Term Loan 55 The Hongkong and Shanghai Banking Corporation Limited CRISIL A/Stable
Non-Fund Based Limit 25 State Bank of India CRISIL A1
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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