| Gulshan Polyols Limited | ||||||
| Rating outlook revised to 'Negative'; Rated amount enhanced | ||||||
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| 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 revised its rating outlook on the long-term bank facilities of Gulshan Polyols Limited (GPL) to ‘Negative’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL A+’; the short-term rating has been reaffirmed at ‘CRISIL A1’.
The outlook revision reflects the lower-than-expected operating performance in fiscal 2023 on account of market related disturbances impacting the demand, which is likely to lead to fall in volumetric sales as against previous fiscal. However, overall revenue will remain aided by improved realisation witnessed during the year and volume growth in certain product segments such as sorbitol etc. Furthermore, due to headwinds in grain and coal prices, operating profitability is estimated to have come down to 7.1% during April-Dec 2022 (15.5% during April-Dec 2021) and shall remain in the range of 7-7.5% for full fiscal 2023 (12.8% during fy22). With this, operating profitability for fy23 will remain significantly lower than CRISIL earlier expectation of around 12-14%, hence impacting the cash flows and other debt protection indicators. Going forward, operating profitability is likely to improve due to expected moderation in raw material prices and shift in dependency on coal to husk, however, any further decline in the same will further weaken the business and financial risk profile of the company and hence will remain a key rating sensitivity factor.
The ratings continue to factor in the healthy financial risk profile of GPL, supported by the sizeable networth of company; diversified product profile and reputed clientele; and established market position. These strengths are partially offset by low operating profitability. |
Key Rating Drivers & Detailed Description Strengths: Established market position – Experience of four decades in the agricultural products industry has enabled the promoters to develop a strong understanding of market dynamics and establish healthy relations with customers and suppliers. Hence, revenue was Rs 878 crore during April-December 2022 and is expected to be Rs 1,170-1,200 crore for the full fiscal 2023, against Rs 1,100.72 crore in fiscal 2022. Revenue is likely to improve further over the medium term on the back of commercialization of new capacity in the ethanol (bio-fuel)/distillery and off-take arrangements with counter parties ensuring steady demand. CRISIL Rating believes, that company’s established market position will continue to support the business risk profile of the company.
Healthy financial risk profile – Though the financial risk profile and related medians are expected to get slightly impacted due to the debt funded capex for ethanol distillery of 500 kilolitre per day (KLPD) in Madhya Pradesh and 250-KLPD ethanol distillery in Assam in fiscal 2024, it will continue to remain healthy supported by sizeable networth and hence comfortable leverage. Networth and total outside liabilities to tangible networth ratio (TOL/TNW) ratios are estimated at Rs 550-600 crore and 0.45-0.50 time, respectively, as on March 31, 2023. Overall debt protection metrics were estimated to have been robust, with interest coverage and net cash accrual to adjusted debt ratios of 15-16 times to 0.25-0.30 time, respectively, in fiscal 2023. CRISIL believes that timely commencement and stabilization thereafter, of new capacities, will further strengthen the financial risk profile of the company, however, any time/cost overruns impacting the financial flexibility and debt protection metrics will remain a key monitorable.
Weakness: Low operating profitability: Due to headwinds in grain and coal prices, operating profitability is estimated to have come down to 7.0-7.5% in fiscal 2023 against CRISIL Ratings expectation of over 12-14%. Though operating profitability is likely to improve over the medium term due to expected moderation in raw material prices and shift in dependency on coal to husk, it will continue to remain lower (at 9-10%) as against CRISIL’s earlier expectation. Resultantly, net cash accruals and return on capital employed will also remain moderated. Going forward, improvement in operating profitability amidst sustained business growth leading to overall improvement in debt protection indicators will remain a key rating sensitivity factor. |
Liquidity: Strong Bank limit utilisation averaged 69% over the 12 months ended February 28, 2023. Expected annual cash accrual of Rs 85-90 crore should suffice to meet yearly term debt obligation of Rs 15-20 crore, over the medium term; the surplus accrual will aid liquidity. Current ratio was likely at 1.9-2 times as on March 31, 2023. Low gearing and moderate networth enhance financial flexibility to contract additional debt in case of any adverse condition or downturn in the business. |
Outlook: Negative CRISIL Ratings believes any further decline in operating profitability or revenue will impact debt protection metrics and hence remain a key monitorable. |
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About the Company Incorporated in 1981, GPL is a multi-location, multi-product manufacturing company with global presence in 35+ countries across 3 continents. It has three main business 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 is planning 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. Some of its big clients include Colgate-Palmolive, Hindustan Unilever Ltd, Dabur, Asian Paints and ITC. |
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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Criteria Details
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