| Gulshan Polyols Limited | ||||||
| Long-term rating downgraded to 'CRISIL A/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 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 downgraded its rating on the long-term bank facilities of Gulshan Polyols Ltd (GPL) to 'CRISIL A/Stable’ from ‘CRISIL A+/Negative’. The short term rating has been reaffirmed at ‘CRISIL A1'.
The ratings downgrade reflects moderation in the business risk profile, marked by lower-than-expected operating margin in first half of fiscal 2024 and expected to remain lower for fiscal 2024 leading to lower cash accruals. The key reason for decline in margin was purchase of rice from the market at higher rates and configuration changes made in plant to shift to alternate low yield graine, maize, for extraction of ethanol, as supply of rice was restricted, for which necessary configuration changes had to be made in plant and the capacity utilisation remained low leading to lower absorption of fixed overheads. On account of same, operating margins declined to 5% in first half of fiscal 2024, from 13.7% in fiscal 2022 and 7.5% in fiscal 2023. Going forward, with stability in grain prices and revised price contracts with oil companies for supply of ethanol, the margins although are expected to improve in fiscal 2025, the same shall continue to remain lower than CRISIL Ratings expectations. Sustained improvement in operating margin, supported by steady operating income and volumetric growth, is a key monitorable. Financial risk profile remains healthy with gearing of ~0.6 time as on September 30, 2023 followed by comfortable debt protection metrices and is expected to remain comfortable going forward.
The ratings continue to reflect the established market position of GPL and the extensive experience of its promoters in the agro-commodity industry. The ratings also factor in benefits from the reputed clientele and diversified product mix, along with a healthy financial risk profile. These strengths are partially offset by intense competition from unorganised players along with susceptibility of operating margin to volatility in raw material prices. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profile of Gulshan Polyols Limited and Gulshan Overseas FZCO as Gulshan Overseas FZCO is wholly owned subsidiary of Gulshan Polyols Limited. Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key rating drivers and detailed description: Strengths:
Weaknesses:
|
Liquidity: Strong GPL is expected to generate net cash accruals around Rs 60-65 crore in current fiscal, and likely Rs. 95 crores, lower than CRISIL Ratings expectation against annual term debt repayments of Rs.42 crore in fiscal 2024 and ~Rs.50 crore in fiscal 2025. Cash and cash equivalents have been ~Rs 10.0 crores as on Oct’23, which is expected to be in range of Rs 15-20 crores over medium term, as the accruals generated by business shall be retained in the business. GPL also has access to fund based limits of Rs 120 crores , where average utilisation has been ~75% for last 12 months through Oct’23. Additional liquidity comfort has been taken from liquid mutual funds of ~Rs 93.0 crores as on September 30, 2023, which is expected to be in range of Rs 90-110 crores over medium term. 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:
Downward factors:
|
About the company Incorporated in 1981, GPL is a multi-location, multi-product manufacturing company, with presence across 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 incurred significant capex 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. Few large clients include Colgate-Palmolive, Hindustan Unilever Ltd, Dabur, Asian Paints and ITC. |
Key financials
|
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure – Details of instrument(s)
|
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
|
Criteria Details
|