Rating Rationale
December 13, 2024 | Mumbai
Nirma Limited
Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.4250 Crore
Long Term RatingCRISIL AA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.3500 Crore Non Convertible DebenturesCRISIL AA/Stable (Reaffirmed)
Rs.50 Crore (Reduced from Rs.150 Crore) Non Convertible DebenturesCRISIL AA/Stable (Reaffirmed)
Rs.1500 Crore Commercial PaperCRISIL 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 AA/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments and bank facilities of Nirma Ltd (Nirma). Further, CRISIL Ratings has withdrawn ratings on Rs 100 crore of NCDs upon receiving independent confirmation on redemption. This is in line with CRISIL Ratings’ policy on rating withdrawal.

 

The rating reaffirmation factors the healthy business profile and strong financial profile of Nirma. The company has an established market position in the domestic soda ash, soaps and detergent businesses. The acquisition of Glenmark Life Sciences Ltd (GLSL) in March 2024 further enhances company’s already diversified business profile. Moreover, forward and backward integration, coupled with various cost initiatives, helps the company in commanding healthy profit margin. The financial risk profile is supported by company’s past track record in successfully deleveraging its balance sheet post acquisitions. These strengths are partially offset by vulnerability of the business to price fluctuations owing to the commoditized nature of the chemicals business and shall be monitorable.

 

During fiscal 2024, operating performance moderated with operating margins declining to 11.6% in fiscal 2024 against 19.3% in fiscal 2023 at a consolidated level, owing to industry wide dip in realisations for the company’s key products such as soda ash and caustic soda in the domestic market. A similar trend was witnessed in the overseas business (majorly housed under Searles Valley Minerals Inc, USA – SVM) which continued to impact profitability. While the performance of overseas business is expected to remain subdued, CRISIL Ratings expects consolidated margins to improve to mid-teens going forward supported by recovery in domestic business performance and high margin product mix of GLSL.

 

As anticipated, the financial leverage (as measured by net debt to EBITDA) moderated to 2.7 times (after factoring in full-year impact of GLSL) during fiscal 2024 owing to debt-funded acquisition of 75% equity stake in GLSL. However, with expected accruals of more than Rs 1,400-1,500 crores annually over the medium term and no sizeable capex plans, CRISIL Ratings expects the leverage to improve over the medium-term.

 

CRISIL Ratings also notes that the company recognized a non-cash impairment loss of Rs 2,688.5 crore for its investments in one of the group companies – Niyogi Enterprise Pvt Ltd in the quarter ended September 30, 2024. While this impairment impacts the networth and capital structure of the company, it continues to remain adequate for the rating category. Any further sizeable impairment losses materially impacting company’s capital structure will remain a monitorable.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Nirma and its subsidiaries including Karnavati Holding Inc, USA and GLSL, and considers the consolidated financials of Nirma.

 

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:

  • Healthy market position in the domestic soda ash, soaps and detergents businesses, supported by significant backward integration: Nirma is among the largest players in the domestic soda ash, soaps and detergents segment. Backward integration is a major strategic strength. The company manufactures key raw materials, including soda ash and linear alkyl benzene (LAB), which are used to make detergents. Captive production of raw materials ensures timely and adequate supply and facilitates greater control over quality and raw material cost.

 

  • Diversity in business risk profile and geographical presence: Nirma has diversified its revenue profile through a wider geographical reach with capacities in India and the USA. For India operations too, revenue and profitability are well diversified, across soda ash, soaps and detergents, caustic soda, LAB and other industrial chemicals. Also, in March 2024, the company acquired a 75% stake in GLSL, which manufactures and markets active pharmaceutical ingredients (APIs) globally, resulting in further diversification of the business.

 

  • Strong financial risk profile: As anticipated, the debt protection metrics moderated during fiscal 2024, as reflected in the net debt to EBITDA increasing to 2.7 times (after factoring in full-year impact of GLSL) and interest coverage moderating to 5 times from 0.5 times and 10.6 times respectively in fiscal 2023. This was mainly owing to the debt-funded acquisition of the majority-stake in GLSL.

 

However, with accruals of more than Rs 1,400-1,500 crores annually over the medium term and no sizeable capex plans, CRISIL Ratings expects the leverage to falling back within desired thresholds over the next couple of years. The company’s past track record of deleveraging within 2-3 years of any large debt-funded expansion or acquisition provides comfort.

 

Weaknesses:

  • Vulnerability of the chemicals segment to price fluctuations and cyclicality: In the past few years, revenue mix has changed significantly towards soda ash, caustic soda and LAB, thereby increasing the susceptibility to fluctuation in prices of these inputs, which are linked to global markets.

 

  • Subdued performance of overseas business continue to impact overall operating efficiency: The overseas business of the company has witnessed moderation in operating performance over past few years owing to weak pricing environment. The ability of the company to minimise the extent of losses in the overseas business will remain monitorable.

Liquidity: Strong

Liquidity is primarily driven by Nirma's financial flexibility to raise short- and long-term debt at short notice, and at competitive rates. The liquidity position is supported by moderately utilised working capital limits and healthy liquidity of around Rs 1,100 crore at consolidated level as on September 30, 2024. The company is expected to generate annual cash accruals of more than Rs 1,400-1,500 crore at a consolidated level. The liquid funds and surplus accrual shall comfortably cover debt obligation.

Outlook: Stable

The credit risk profile of Nirma is likely to remain strong owing to its diversified products and healthy margin, and expectation of improvement in debt protection metrics with stable accruals.

Rating sensitivity factors

Upward factors:

  • Significant improvement in business performance, driven by increase in market share and sustenance of healthy consolidated operating profitability of 20% or more.
  • Track record of leverage (consolidated net-debt to EBITDA) sustaining below 1x

 

Downward factors:

  • Deterioration in business performance, with consolidated operating profitability below 15%
  • Sustenance of leverage (consolidated net-debt to EBITDA) above 2.5-3x due to capex / acquisition or lower profitability

About the Company

Nirma, set up by Dr Karsanbhai K Patel in 1980 to manufacture detergents, expanded its operations to soaps, chemicals and processing of minerals. It has plants in Searles Valley, USA, and Mehsana, Ahmedabad, Vadodara and Bhavnagar in Gujarat.

 

The largest soda ash manufacturer in India, Nirma acquired the California-based natural soda ash producer, Searles Valley Minerals Inc, in fiscal 2008, which has manufacturing facilities in Argus, Trona and Westend in USA. The company acquired 75% stake in GLSL in March 2024, post which it became a subsidiary of the company.

Key Financial Indicators*

Particulars

Unit

2024

2023

Revenue

Rs.Crore

10,419

11,403

Profit after tax (PAT)

Rs.Crore

297

909

PAT margin

%

2.8

8.0

Adjusted interest coverage

Times

5.0

10.62

Adjusted debt/adjusted networth

Times

1.1

0.32

*CRISIL Ratings-adjusted consolidated financials.

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 Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Complexity Levels Rating Outstanding with Outlook
NA Commercial Paper NA NA 7-365 days 1500.00 Simple CRISIL A1+
INE091A07216 Non Convertible Debentures 22-Feb-24 8.40 07-Apr-26 1200.00 Complex CRISIL AA/Stable
INE091A07208 Non Convertible Debentures 22-Feb-24 8.50 07-Apr-27 1200.00 Complex CRISIL AA/Stable
INE091A07190 Non Convertible Debentures 22-Feb-24 8.30 24-Feb-25 1100.00 Simple CRISIL AA/Stable
NA Non Convertible Debentures# NA NA NA 50.00 Simple CRISIL AA/Stable
NA Cash Credit& NA NA NA 225.00 NA CRISIL AA/Stable
NA Cash Credit* NA NA NA 1155.00 NA CRISIL AA/Stable
NA Letter of credit & Bank Guarantee* NA NA NA 520.00 NA CRISIL A1+
NA Proposed Term Loan NA NA NA 540.00 NA CRISIL AA/Stable
NA Term Loan 30-May-23 NA 01-Jun-28 310.00 NA CRISIL AA/Stable
NA Term Loan 18-Jul-23 NA 20-Aug-28 500.00 NA CRISIL AA/Stable
NA Term Loan 31-Jul-23 NA 06-Sep-28 500.00 NA CRISIL AA/Stable
NA Term Loan 14-Sep-23 NA 14-Sep-28 500.00 NA CRISIL AA/Stable

#Yet to be issued
*Fund based limits may be fully interchangeable into non fund based and vice a versa subject to Maximum Permissible Bank Finance Limit (Drawing Power) and as per Bank’s Sanction Letters (as amended from time to time) and as advised Banks time to time
&Non Fund based limits are interchangeable with fund based limits as per Bank’s Sanction Letters (as amended from time to time) and as advised Banks time to time
 

Annexure - Details of Rating Withdrawn

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Complexity Levels Rating Outstanding with Outlook
INE091A08172 Non Convertible Debentures 05-Jul-22 7.59 05-Jan-24 100.00 Simple Withdrawn

Annexure – List of entities consolidated

Name of entity consolidated

 Extent of consolidation

Rationale for consolidation

Karnavati Holding Inc.

Full

 

Subsidiaries

 

Searles Valley Minerals Inc.

Searles Valley Minerals Europe

Searles Domestic Water Company LLC

Trona Railway Company INC

Glenmark Life Sciences Ltd

 

 
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 3730.0 CRISIL AA/Stable 30-01-24 CRISIL AA/Stable 14-12-23 CRISIL AA/Stable 14-07-22 CRISIL AA/Stable 01-08-21 CRISIL AA/Negative CRISIL AA/Negative
      --   -- 17-10-23 CRISIL AA/Stable 03-06-22 CRISIL AA/Stable   -- --
      --   -- 03-10-23 CRISIL AA/Stable   --   -- --
      --   -- 11-08-23 CRISIL AA/Stable   --   -- --
      --   -- 07-07-23 CRISIL AA/Stable   --   -- --
Non-Fund Based Facilities ST 520.0 CRISIL A1+ 30-01-24 CRISIL A1+ 14-12-23 CRISIL A1+ 14-07-22 CRISIL A1+ 01-08-21 CRISIL A1+ CRISIL A1+
      --   -- 17-10-23 CRISIL A1+ 03-06-22 CRISIL A1+   -- --
      --   -- 03-10-23 CRISIL A1+   --   -- --
      --   -- 11-08-23 CRISIL A1+   --   -- --
      --   -- 07-07-23 CRISIL A1+   --   -- --
Commercial Paper ST 1500.0 CRISIL A1+ 30-01-24 CRISIL A1+ 14-12-23 CRISIL A1+ 14-07-22 CRISIL A1+ 01-08-21 CRISIL A1+ CRISIL A1+
      --   -- 17-10-23 CRISIL A1+ 03-06-22 CRISIL A1+   -- --
      --   -- 03-10-23 CRISIL A1+   --   -- --
      --   -- 11-08-23 CRISIL A1+   --   -- --
      --   -- 07-07-23 CRISIL A1+   --   -- --
Non Convertible Debentures LT 3550.0 CRISIL AA/Stable 30-01-24 CRISIL AA/Stable 14-12-23 CRISIL AA/Stable 14-07-22 CRISIL AA/Stable 01-08-21 CRISIL AA/Negative CRISIL AA/Negative
      --   -- 17-10-23 CRISIL AA/Stable 03-06-22 CRISIL AA/Stable   -- --
      --   -- 03-10-23 CRISIL AA/Stable   --   -- --
      --   -- 11-08-23 CRISIL AA/Stable   --   -- --
      --   -- 07-07-23 CRISIL AA/Stable   --   -- --
Perpetual Non Convertible Debentures LT   --   --   -- 14-07-22 Withdrawn 01-08-21 CRISIL AA-/Negative CRISIL AA-/Negative
      --   --   -- 03-06-22 CRISIL AA-/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit& 125 HDFC Bank Limited CRISIL AA/Stable
Cash Credit^ 160 Axis Bank Limited CRISIL AA/Stable
Cash Credit^ 200 Mizuho Bank Limited CRISIL AA/Stable
Cash Credit^ 330 Bank of Baroda CRISIL AA/Stable
Cash Credit& 100 YES Bank Limited CRISIL AA/Stable
Cash Credit^ 265 State Bank of India CRISIL AA/Stable
Cash Credit^ 200 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA/Stable
Letter of credit & Bank Guarantee^ 145 Axis Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee^ 120 Kotak Mahindra Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee^ 100 State Bank of India CRISIL A1+
Letter of credit & Bank Guarantee^ 70 Bank of Baroda CRISIL A1+
Letter of credit & Bank Guarantee^ 65 The Hongkong and Shanghai Banking Corporation Limited CRISIL A1+
Letter of credit & Bank Guarantee^ 20 Mizuho Bank Limited CRISIL A1+
Proposed Term Loan 540 Not Applicable CRISIL AA/Stable
Term Loan 500 ICICI Bank Limited CRISIL AA/Stable
Term Loan 500 Kotak Mahindra Bank Limited CRISIL AA/Stable
Term Loan 310 Axis Bank Limited CRISIL AA/Stable
Term Loan 500 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA/Stable
&Non Fund based limits are interchangeable with fund based limits as per Bank’s Sanction Letters (as amended from time to time) and as advised banks time to time
^Fund based limits may be fully interchangeable into non fund based and vice a versa subject to Maximum Permissible Bank Finance Limit (Drawing Power) and as per Bank’s Sanction Letters (as amended from time to time) and as advised banks time to time
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
Rating Criteria for the Pharmaceutical Industry
Rating Criteria for Fast Moving Consumer Goods Industry
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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