Rating Rationale
July 31, 2020 | Mumbai
Niyogi Enterprise Private Limited
Rating removed from 'Watch Developing'; Rating Reaffirmed 
 
Rating Action
Rs.450 Crore Non Convertible Debentures CRISIL AA-/Negative (Removed from 'Rating Watch with Developing Implications'; Rating Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has also removed its rating on the non-convertible debentures of Niyogi Enterprise Private Limited (NEPL) from 'Rating Watch with Developing Implications' and reaffirmed the rating at 'CRISIL AA-' and assigned a 'Negative' outlook.
 
The rating action follows announcement of the completion of acquisition of Nu Vista Ltd (NVL) (formerly known as Emami Cement Ltd) by Nuvoco Vistas Corporation Ltd (NVCL; rated 'CRISIL AA/CRISIL AA-/Negative/CRISIL A1+'). The negative outlook signifies possibility of weakening of the financial risk profile of Nirma Ltd (Nirma; rated 'CRISIL AA/CRISIL AA-/Negative/CRISIL A1+') and NVCL, key companies of the Nirma group, on account of additional debt taken to fund the NVL acquisition. The group plans to delever by end of fiscal 2021 or early fiscal 2022, which shall improve the financial flexibility of Nirma group and remains key rating sensitivity.
 
The ratings factor in high criticality of NEPL as the holding company for the cement business of the Nirma group, and the healthy credit risk profile of the operating company, NVCL. The ratings also factor in the presence of an unconditional and irrevocable corporate guarantee given by Nirma on the NCD programme and strong financial flexibility, being part of the Nirma group. These strengths are partly offset by minimal cash flows at a standalone level and unlisted nature of shareholding in NVCL.

Analytical Approach
For arriving at the rating, CRISIL has followed the holding company approach. CRISIL has not consolidated the business and financial risk profiles of NVCL and NEPL, despite the former being a subsidiary of the latter, as NEPL is likely to act as an investment vehicle holding the cement business for the Nirma group, with no major operations of its own.
 
Treatment of preference shares:
In fiscal 2020, Nirma had transferred its shareholding in NVCL to NEPL and in the process had subscribed to Rs 4,200 crore of non-cumulative, redeemable preference shares issued by NEPL. These shares, along with new preference shares issued as part of the NVL transaction, have been treated as 50% debt and 50% equity, as these are subscribed to by the promoter group company (Nirma). There is a no step-up coupon or call option and these shall remain subordinated to external debt and shall be redeemed only through primary or secondary stake sale in NVCL.
Key Rating Drivers & Detailed Description
Strengths
* Critical entity for the group as the holding company of the cement business
NEPL is 100% held by the promoters of the Nirma group. The company has been incorporated as an investment vehicle to hold the stake in the cement business of the group. In fiscal 2020, Nirma's entire shareholding in NVCL was transferred to NEPL through issuance of preference shares of around Rs 4,200 crore. Subsequently, post transfer of the Nimbol asset, NEPL currently holds 83% of NVCL and the rest is held by the promoters of Nirma.
 
The acquisition enterprise value of Rs. 5,265 crore had been funded through debt of around Rs 1,330 crore at NVCL, equity infusion of around Rs 1,161 crore from NEPL, private equity investment of Rs 500 crore at NVCL, standalone debt of Rs 2,044 crore at NVL and rest through Nuvoco's accruals. The equity infusion of Rs. 1,161 crore from NEPL has been funded through Rs. 400 crore NCDs borrowed at NEPL and rest from Nirma through issuance of preference shares.  The contribution from Nirma was funded through debt of Rs 740 crore. In addition, NVCL has also repaid ICDs from Nirma through additional equity infusion of Rs. 439 crore from NEPL, which in turn has been funded through proceeds from Nirma. The Nirma group has plans to delever by end of fiscal 2021 or early fiscal 2022 which shall be used to repay NCDs and preference shares issued to Nirma.
NEPL should remain strategically important to the group over the medium term; given its high investment value (holds 83% equity in NVCL) and common shareholding of Nirma and NEPL.
 
* Strong financial flexibility being part of the Nirma group as reflected in the corporate guarantee by Nirma
NEPL enjoys strong financial flexibility being strategically important to the group. Also, the company's external debt is backed by an unconditional and irrevocable corporate guarantee by Nirma. NEPL should continue to receive strong managerial and financial support to meet its debt obligation.
 
Weakness
* Limited standalone cash flows
Being an investment vehicle, the standalone cash flows for the company remains minimal and hence it remains dependent upon Nirma to meet its debt obligation.
 
The NCDs have a bullet redemption on June 30, 2022. Interest servicing is on annual basis and is likely to met through support of Nirma. NEPL also has option to voluntarily redeem NCDs in full along with accrued interest prior to due date. Also, NEPL will not raise any additional external debt over the tenor of the instrument, while funds from the promoters or Nirma shall remain subordinated to the NCDs.
 
The rating also factors in the deleveraging plans, which should improve the financial flexibility of the Nirma group. The promoters plan this through equity issuance or stake sale in NVCL by end of fiscal 2021 or early fiscal 2022. Any delay in the deleveraging plans will be a key rating sensitivity factor.
Liquidity Strong

Liquidity is supported by the company's strong financial flexibility being part of the Nirma group given its high criticality to the group and as reflected in unconditional and irrevocable corporate guarantee extended by Nirma to NEPL's external debt. Cash accrual is likely to be minimal over the medium term, and NEPL shall be dependent upon Nirma for operating expenses and debt servicing. NEPL does not have any major operations and, hence, no working capital lines. The promoters should continue to provide timely, need-based support to meet the debt obligation and other expenses of NEPL.

Outlook: Negative

The negative outlook signifies possibility of weakening of the financial risk profile of Nirma and NVCL, key companies of the Nirma group.

Rating Sensitivity Factors
Upward Factors
* Improvement in the credit profile of NVCL and Nirma by one notch
* Higher financial flexibility of the Nirma group post deleveraging

Downward Factors
* Weakening of the credit profile of NVCL or Nirma by one notch
* Delay in equity issuance at NVCL resulting in delay in deleveraging plans of the group
* Change in the stance of support to NEPL from Nirma.

About the Company

Incorporated in 2019, NEPL is an investment vehicle of the Nirma group, which holds a majority stake in NVCL. The company has no major operations and is 100% held by the promoters of the Nirma group.

Key Financial Indicators
Particulars Unit 2020* 2019
Revenue Rs crore 1.00 NA
Profit After Tax (PAT) Rs crore -7.00 NA
PAT Margin % -671.3 NA
Adjusted debt/adjusted networth Times 1.0 NA
Interest Coverage Times -22.39 NA
*Provisional numbers

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs.Crore)		 Complexity Levels Rating Assigned
with Outlook
NA Non-convertible debentures 20-Jul-2020 8.25% 30-Jun-2022 425.0 Simple CRISIL AA-/Negative
NA Non-convertible debentures# NA NA NA 25.0 Simple CRISIL AA-/Negative
#Yet to be issued
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  425.00
31-07-20  		CRISIL AA-/Negative  06-07-20  CRISIL AA-/Watch Developing    --    --    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Recognising Default

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