| Riddhi Siddhi Gluco Biols Limited | ||||
| Rating Removed from 'Watch Developing'; Rating Reaffirmed | ||||
| Rating Action | ||||
| ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its rating on the long-term bank facilities of Riddhi Siddhi Gluco Biols Ltd (RSGBL) from 'Rating Watch with Developing Implications' and has reaffirmed the rating at 'CRISIL BBB-' while assigning a 'Stable' outlook.
RSGBL was placed on rating watch with developing implications following an application by its subsidiary -- Shree Rama Newsprint Ltd (SRNL) -- for one-time restructuring on September 24, 2020, under guidelines issued by Reserve Bank of India on August 06, 2020 under Resolution framework for Covid-19-related stress. CRISIL Ratings has resolved the watch as SRNL has now withdrawn its application for restructuring. Following the application made on September 24, 2020, SRNL had not paid its monthly debt repayments due on September 30, 2020 and November 15, 2020. However, these dues were cleared on November 27, 2020, before the withdrawal. The rating continues to reflect extensive experience of promoters in the starch business and RSGBL’s strong financial flexibility and moderate financial risk profile. These strengths are partially offset by exposure to counterparty risk associated with inter corporate deposits (ICDs), susceptibility to competition and volatility in the paper industry and vulnerability to counterparty risk in the windmill division. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the financial and business risk profiles of RSGBL and its subsidiaries, SRNL, Riddhi Siddhi Estate Creators LLP and Riddhi Siddhi Infraspace LLP. RSGBL has extended financial support to SRNL in the form of loans and has also provided corporate guarantee to a portion of the latter’s debt. RSGBL owns 64.84% stake in SRNL.
In the case of limited liability partnerships (LLPs), while RSGBL does not hold more than half the voting rights, it directs relevant business activities by virtue of LLP agreements. Also, RSGBL contributes to over 99% of capital in the LLPs and shares profit and loss in the proportion of capital. A list of all the subsidiaries being consolidated is provided in the annexure.
As per IndAs accounting, Rs 86.13 crore of zero coupon bonds (in SRNL) as on March 31, 2020, were reported after discounting as their repayment starts only in fiscal 2026. CRISIL Ratings made adjustments such that the debt reflects the full quantum of these zero coupon bonds with a corresponding reduction in equity.
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
Backed by more than four decades of experience in the starch business, the promoters have an established track record in successfully reviving sick units (including the Gokak starch manufacturing plant acquired from Glaxo in Karnataka and a biopolymer unit acquired from Hindustan Unilever in Puducherry). Since RSGBL has been manufacturing and supplying special starches to the paper industry, the promoters have gathered sufficient insight into the paper business and subsequently acquired the stressed company, SRNL.
While liquid assets have reduced significantly since March 2019, the company has also lowered its debt obligation. The company had Rs 130 crore of unencumbered liquid assets as on September 30, 2020, compared with Rs 158 crore as on March 31, 2020. However, gross debt also reduced to Rs 255 crore as of March 2020 from Rs 323 crore in the previous fiscal. The company partly sold its land parcels and real estate projects, of which Rs 50 crore has been received as of March 2020, with the remaining expected to be liquidated in fiscals 2021 and 2022. Proceeds from the sale will be provided as loans to group companies and will remain closely monitored.
Gearing and total outside liabilities to tangible networth ratio were healthy at 0.21 time and 0.29 time, respectively, as on March 31, 2020. Interest coverage ratio was strong at 4.32 times in fiscal 2020. Furthermore, consolidated debt reduced to Rs 255 crore as on September 30, 2020, from Rs 323 crore as on March 31, 2020.
Weaknesses
ICDs extended to non-related and undisclosed parties increased to Rs 395 crore as on March 31, 2020, from Rs 326 crore as on March 31, 2019, against expectation of a significant reduction in ICDs by March 2020. Given the increased quantum, counterparty risk associated with the ICDs continues to be high.
The paper industry is highly fragmented, largely commoditised, and cyclical. Newsprint prices are significantly volatile, constraining operating performance. Furthermore, because of low tariff barriers, newsprint prices of domestic players are exposed to pressure from cheap imports. Besides, SRNL depends on waste paper import, which accounts for nearly 40% of the total raw material cost. This exposes the operating margin to any increase in waste paper prices and fluctuations in foreign exchange rates.
Operating margin decreased to less than 3% in fiscal 2020 from 19.4% in fiscal 2019, with raw material and newsprint prices correcting to previous levels after China lifted the ban on import of waste paper, which led to a fall in raw material prices globally and higher realisations for players in India in fiscal 2019. With the pandemic affecting circulation of newspapers and demand for paper from schools, colleges and offices, which remain closed, performance in fiscal 2021 was subdued. Revenue from the paper manufacturing business saw a 50% reduction in operating income with negative earnings before interest, taxes, depreciation, and amortization (EBITDA) margins in the first six months of fiscal 2021.
As a significant portion of wind power generation capacities are located in Tamil Nadu, risks related to stretched receivables persist, given the weak financial risk profile of the key customer, Tamil Nadu Electricity Board. |
Liquidity Adequate Cash and equivalent were Rs 32 crore as on March 31, 2020, and bank limit of Rs 50 crore (for RSGBL) and Rs 56 crore (for SRNL) were utilised at 61% and 96%, respectively, on an average over the 10 months through May 2020. Liquidity is supported by unencumbered liquid investment of Rs 130 crore as on September 30, 2020. Internal accrual, cash and equivalent and undrawn bank lines should be sufficient to meet debt obligation. |
Outlook Stable RSGBL should continue to maintain a sizeable investment portfolio going forward. |
Rating Sensitivity Factors Upward Factors
Downward Factors
|
About the Company RSGBL was set up in 1994 by Mr Ganpatraj L Chowdhary and his family to manufacture starch and starch derivatives. It sold its starch segment to Roquette India Pvt Ltd (‘CRISIL AA-/Stable/CRISIL A1+’) for Rs 950 crore in 2012. RSGBL currently generates wind energy and trades in agricultural and metal commodities; it is also engaged in investment activities. The company has 33.15 megawatt installed windmill capacity across multiple locations and has entered into power purchase agreements with state electricity boards at fixed tariffs. |
About the Group SRNL manufactures newsprint and writing and printing paper at its plant in Surat, Gujarat. RSGBL acquired majority stake in SRNL from West Coast Paper Mills Ltd in June 2015. SRNL has installed capacity, based on virgin pulp and recycled fibre, to manufacture either 0.14 MTPA of newsprint or 0.18 MTPA of printing and writing paper, or a mix of both using the swing facility. |
Key Financial Indicators
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
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 various bank facilities | ||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|