| IGH Holdings Private Limited | ||||
| Ratings Reaffirmed | ||||
| Rating Action | ||||
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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 reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the proposed non-convertible debentures and commercial paper programme of IGH Holdings Pvt Ltd (IGH, a part of the Aditya Birla group).
The ratings reflect the healthy cover available for the external debt of Rs 2,070 crore, supported by the market value of investments of more than Rs 26,411 crore as on July 7, 2023. The ratings also factor in the strong financial flexibility of IGH as one of the holding companies of the Aditya Birla group, with significant investments in operating companies, such as Hindalco Industries Ltd (Hindalco; 'CRISIL AA+/Stable/CRISIL A1+'), Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+'), Century Textiles and Industries Ltd (Century, ‘CRISIL AA/Stable/CRISIL A1+’) and Aditya Birla Fashion and Retail Ltd (ABFRL; 'CRISIL AA+/Stable/CRISIL A1+'). IGH, being a promoter company, enjoys an important position within the group and is expected to receive liquidity support when required.
The ratings also consider cash flow support from the Aditya Birla group companies and the discipline demonstrated by the management in maintaining sufficient cover of holding companies in the group by reducing external debt in case of cover breach, which support the ratings.
These strengths are partially offset by exposure to market-related risks and the significant capital expenditure (capex) of the parent of IGH, Essel Mining and Industries Ltd (EMIL; ‘CRISIL AA-/Stable/CRISIL A1+’) and expected reduction in business cash flow in the near term (fiscal 2023 onwards).
CRISIL Ratings notes that the company has provided a corporate guarantee of Rs 350 crore to the external lenders of an Aditya Birla group unlisted entity Further, in April 2023, the company divested its stake in Aditya Birla Capital Ltd (ABCL; ‘CRISIL A1+’) to its parent EMIL, to align with the Reserve Bank of India (RBI) regulations and compliances. |
Analytical Approach CRISIL Ratings has followed the holding company approach for arriving at the ratings, as IGH is one of the companies that holds shares for the Aditya Birla group in Hindalco, Grasim, ABFRL, Century, UltraTech Cement Ltd and Vodafone Idea Ltd. CRISIL Ratings has also factored in the support that may be required towards the parent, EMIL. |
Key Rating Drivers & Detailed Description Strengths: Strong financial flexibility, driven by investments in listed Aditya Birla group companies IGH is one of the holding companies of the Aditya Birla group and has diversified investments in group companies. The company’s strong financial flexibility stems from the market value of Rs 26,411 crore of its stakes in Hindalco, Grasim, ABFRL, Century and others as on July 7, against external debt, excluding loans and preference shares from group companies, of Rs 2,070 crore and corporate guarantee provided for Rs 350 crore. This provides a healthy cover of ~10.9 times against outstanding external debt (including the corporate guarantee). Leverage is expected to remain largely similar going forward, which should result in sustenance of a healthy cover over the medium term.
Stable operations of key subsidiaries, diversified investment portfolio and healthy reputation of the Aditya Birla group IGH has a diversified investment portfolio and benefits from the robust credit risk profiles of the key operating entities and the strong reputation of the Aditya Birla group. The company is likely to receive steady dividend from its significant investments in Hindalco, Grasim, Century, ABFRL and others. These investments were earlier only in the form of equity stakes in listed companies, whereas it has now also extended loans and advances to group companies in fiscals 2022 and 2023 (~Rs 844 crore outstanding as on March 31, 2023). Equity infusion by the parent has been used for deleveraging as well as for incremental investments in/lending to group companies and indicates the criticality of the company to the Aditya Birla group.
The income earned by IGH is not sufficient to meet its debt obligation. While the principal has to be refinanced regularly, interest obligation will likely be met through dividend inflow, interest income and promoter support, and debt and is expected to be managed prudently. The capital structure is healthy, as reflected in gearing of 0.2 time as on March 31, 2023. The financial risk profile is supported by the market value of equity investments in operating companies, which can be pledged to refinance debt.
Expected sustenance of healthy cover and support from the Aditya Birla group Debt is expected to remain around Rs. 3000 crore (Rs 2,070 crore as on March 31, 2023) over the medium term, resulting in sustenance of healthy cover of ~8-9 times based on the market value of investments of Rs 26,411 crore as on July 7, 2023. In case of a significant drop in the market value of investments, unencumbered cash and investments in listed companies of the Aditya Birla group provide adequate financial flexibility to correct the cover. The management has demonstrated discipline in maintaining the cover by reducing external debt in the holding companies through fund infusion from group companies. Any significant decline in the cover that is not corrected shall be a key rating sensitivity factor.
Weaknesses: Exposure to market-related risks IGH remains susceptible to market-related risks, as financial flexibility in terms of the cover available will depend, to some extent, on the prevailing market sentiments and share prices. Any increase in market-related risks leading to a sharp fall in the share prices of investments in Hindalco, Grasim, Century, ABFRL and others will be a key rating sensitivity factor.
Expected decline in cash accrual and significant capex of the parent Cash flow of EMIL has declined on account of expiry of its iron-ore mining licenses; however, it will continue to be supported by the renewable and coal mining businesses. Also, over the next few fiscals, EMIL will incur substantial capex towards the coal mine developer and operator (MDO) operations, commercial coal business, which is expected to be funded through fund infusion from the Aditya Birla group and external borrowings. The ability of the company to get timely approvals and achieve desired progress in the new coal mining (MDO as well as commercial mining) business will remain key monitorable for EMIL.
Liquidity: Strong IGH enjoys healthy financial flexibility as part of the Aditya Birla group and through its shareholdings in group companies. The management intends to maintain debt at around Rs. 3,000 crore over the medium term, which, at the current market value of its shareholdings, will help maintain healthy cover over the medium term. This cover provides sufficient financial flexibility to refinance maturing debt.
In case of adverse market movements, adequate financial flexibility will be available through the Aditya Birla group companies to correct the cover. In addition, IGH is likely to receive steady dividends of Rs 100-150 crore from operating entities and interest income from intercorporate deposits/loans. However, these may not be sufficient to cover both the interest and principal obligations. Interest is expected to be serviced through dividend inflow, interest income, promoter support and debt, while the principal will be refinanced regularly. IGH does not have any capex plans or working capital requirement.
Outlook: Stable CRISIL Ratings believes IGH will sustain its heathy cover over the medium term, supported by the management’s intent to reduce leverage in holding companies over the long term and market value of investments in key operating entities of the Aditya Birla group. IGH also has strong financial flexibility as the key holding company of the Aditya Birla group. |
Rating Sensitivity Factors Upward factors * Sustenance of healthy cover and continued strong financial flexibility of the group * Improvement in the credit quality of EMIL by 1 notch
Downward factors * Significant reduction in the market value of investments of IGH resulting in lower cover * Downgrade in the ratings of EMIL of EMIL by 1 notch. * Change in stance of support from the Aditya Birla group |
About the Company IGH, incorporated in 2000, is a non-deposit-taking non-banking financial company registered with the RBI. Its main activity is investment in shares, securities and debentures and providing funds to companies of the Aditya Birla group. It is a 100% subsidiary of EMIL. |
Key Financial Indicators – IGH – CRISIL Ratings adjusted numbers
Nm: not meaningful |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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