Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the commercial paper programme and proposed non-convertible debentures of Birla Group Holdings Pvt Ltd (BGHPL).

 

The ratings continue to reflect the healthy cover for the company’s external debt of Rs 6,050 crore, given the market value of investments of more than Rs 46,606 crore as on January 24, 2024. The ratings also factor in the strong financial flexibility of BGHPL as a key holding company in the Aditya Birla group with significant investments in the operating companies of the group, such as Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+'), Hindalco Industries Ltd (Hindalco; 'CRISIL AA+/Stable/CRISIL A1+'), Aditya Birla Fashion and Retail Ltd (ABFRL; 'CRISIL AA+/Stable /CRISIL A1+') and Aditya Birla Capital Ltd (ABCL; 'CRISIL A1+'). BGHPL, being a key promoter group company, has an important position in the Aditya Birla group and is expected to receive liquidity support when required.

 

The ratings also consider the additional financial flexibility available in the form of cash flow support from the Aditya Birla group companies and the discipline demonstrated by the management in maintaining  healthy cover levels by prudently managing external debt, which support the ratings. The strong reputation of the Aditya Birla group and the healthy credit risk profiles of the operating entities, with presence in diverse sectors, such as textiles, chemicals, metals, commodities, fashion, telecommunications and financial services, also support the ratings.

 

The rating reaffirmation continues to factor in the company’s plan to amalgamate six other group entities with itself, which are Birla Family Investments Pvt Ltd, Birla TMT Holdings Pvt Ltd (BTHPL), Umang Commercial Company Pvt Ltd (Umang), Aditya Birla Online Fashion Pvt Ltd, Infocyber India Pvt Ltd, and Sunbeam Trading and Investments Pvt Ltd. The entities –being amalgamated with BGHPL – are holding/investment/private companies of the Aditya Birla group and mainly hold investments in group companies or have surplus investments. Among these entities, Umang has external debt of ~Rs  830 crore (as on January 24, 2024), while the rest have no external debt. Also, Umang and BTHPL have sizeable stakes in listed entities of the Aditya Birla group (Umang - ~Rs 11,464 crore from its stake in Grasim, Hindalco, ABFRL, ABCL, Century Textiles and Industries Ltd [Century; ’CRISIL AA/Stable/CRISIL A1+’] and Pilani Investments and Industries Corporation Ltd [Pilani; ’CRISIL AA+/Stable/CRISIL A1+’] and BTHPL - ~Rs 529 crore from its stake in Vodafone Idea Ltd as on January 24, 2024), while the rest primarily hold stakes/investments in private entities of the group. The scheme of amalgamation of the six entities with BGHPL has been heard / approved at National Company Law Tribunal (NCLT) at Mumbai and Kolkata respectively and is awaiting further approvals/orders. CRISIL Ratings understands that the amalgamation process is at an advanced stage and further developments on the said front will be closely monitored.

 

CRISIL Ratings understands debt levels at standalone BGHPL level are expected to remain at ~Rs 6,500-7,000 crore over the medium term. Post amalgamation this is expected to be in the range of Rs 7,500 – 8,000 crore . Any significant deviation from this understanding will remain a key rating sensitivity factor. Further, CRISIL Ratings also understands that no significant cash outflow is expected from BGHPL as part of the merger process.

 

These strengths are partially offset by exposure to market-related risks and BGHPL's weak debt protection metrics.

Analytical Approach

CRISIL Ratings has followed the holding company approach for arriving at the ratings, as BGHPL is one of the companies that holds stake in key Aditya Birla group entities such as Grasim, Hindalco, ABFRL, ABCL and Century Enka Ltd (CEL, 'CRISIL A+/Stable/CRISIL A1+'). CRISIL Ratings has consolidated the holdings in listed entities and debt of BGHPL and BTHPL (the latter has no external liabilities)..

 

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:

• Strong financial flexibility, driven by investments in listed Aditya Birla group companies: BGHPL is one the holding companies of the Aditya Birla group, with a simplified holding structure and greater diversity in terms of investments in group companies. BGHPL's strong financial flexibility results from its equity stakes in Grasim (18.98% of the total shareholding of the company), Hindalco (10.16%), ABFRL (18.07%), ABCL (7.63%) and CEL (16.63%). The market value of BGHPL's stake in these companies was around Rs 46,606 crore as on January 24, 2024, while external debt stood at Rs 6,050 crore, translating into a healthy cover of 7.7 times for the debt. Incremental debt has been used towards investment in group companies, which, in turn, has been used for deleveraging, resulting in no incremental leverage at the group level. External debt levels at standalone level are expected to remain at ~Rs 6,500-7,000 crore over the medium term, resulting in continued healthy debt cover.

 

• Diversified investment portfolio, stable operations of key entities invested in and healthy reputation of the Aditya Birla group: BGHPL has a diversified investment portfolio and benefits from the robust credit risk profiles of key operating group entities and the strong reputation of the Aditya Birla group. BGHPL is likely to receive steady dividend and interest income from its significant investments in Grasim, Hindalco, ABFRL, ABCL, CEL and other group entities. However, this will not be sufficient to meet the debt obligation—while the principal needs to be refinanced regularly, interest obligation will likely be met through dividend inflow, interest income, promoter support and debt, and is expected to be managed prudently. Also, while the capital structure is weak because of negative networth, 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 debt cover and support from the Aditya Birla group: External debt is expected at Rs 6,500-7,000 crore at BGHPL (prior to amalgamation) over the medium term, resulting in healthy cover of 6.5-7.5 times based on the market value of investments of around Rs 46,606 crore (as on January 24, 2024). Further, post amalgamation external debt is expected to be in the range of Rs 7,500 – 8,000 crore (including Umang’s debt of ~ Rs 1,000 crore), which coupled with additional stakes in group entities (through amalgamation with Umang), should result in healthy debt cover.

 

Even if the market value of the investments drops significantly, there exists adequate financial flexibility in the form of unencumbered cash and investments in listed and unlisted companies of the Aditya Birla group, which will be used to correct the debt cover.

 

CRISIL Ratings also takes comfort from the discipline demonstrated by the management in maintaining debt cover by reducing external debt through infusion of funds from group companies. Any significant decline in the cover that is not corrected will be a key rating sensitivity factor.

 

Weakness:

• Exposure to market-related risks: The company remains susceptible to market-related risks, as financial flexibility in terms of the debt 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 Grasim, Hindalco, ABFRL, ABCL, Century and CEL will be a key rating sensitivity factor.

Liquidity: Strong

BGHPL enjoys healthy financial flexibility through its shareholding in various Aditya Birla group companies (around Rs 46,606 crore as on January 24, 2024). The management intends to maintain external debt at Rs 6,500-7,000 crore (prior to amalgamation) over the medium term, which, at the current market value of its shareholdings, will help maintain healthy debt cover over the medium term. This should provide 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 debt cover. In addition, BGHPL will receive steady inflow of dividend from operating entities and interest income from intercorporate deposits/loans given. However, these may not be sufficient to cover both the interest and principal obligations. Interest may be serviced through dividend inflow, interest income, promoter support and debt, while the principal will be refinanced regularly. BGHPL does not have any capital expenditure plan or working capital requirement.

Outlook: Stable

CRISIL Ratings believes BGHPL will sustain heathy debt cover over the medium term, supported by the management’s intent to reduce leverage in holding companies over the long term and the healthy market value of investments in key operating entities of the Aditya Birla group. Also, BGHPL will enjoy strong financial flexibility as a key holding company of the group.

Rating Sensitivity factors

Upward factors:

• Sustenance of healthy debt cover above 7 times, with continued strong financial flexibility of the group
• Improvement in the credit risk profiles of the operating entities of the Aditya Birla group

 

Downward factors:

• Steep increase in debt or fall in the market value of investments, weakening the debt cover below 5 times on a sustained basis
• Significant weakening of the credit risk profiles of the operating entities
• Change in stance of support by the Aditya Birla group

About the Company

BGHPL, incorporated in 1980, is a non-deposit-taking, non-banking financial company registered with the Reserve Bank of India. Its main activity is investment in shares, securities and debentures and providing funds to companies of the Aditya Birla group. BTHPL is a subsidiary of BGHPL, and holds stake in Vodafone Idea Ltd.

 

On February 27, 2023, BGHPL filed a scheme of amalgamation with NCLT at Mumbai and Kolkata, to merge six entities with itself. The six entities are BTHPL, Umang, Birla Family Investments Pvt Ltd, Aditya Birla Online Fashion Pvt Ltd, Infocyber India Pvt Ltd, and Sunbeam Trading and Investments Pvt Ltd.

 

The scheme of amalgamation of the six entities with BGHPL has been heard / approved at National Company Law Tribunal (NCLT) at Mumbai and Kolkata respectively and is awaiting further approvals/orders.

Key Financial Indicators – Standalone – BGHPL (CRISIL Ratings-adjusted numbers)

As on/for the period ended March 31	Unit	2023	2022
Revenue	Rs crore	357	293
Profit after tax (PAT)	Rs crore	-175	-164
PAT margin	%	NM	NM
Adjusted debt/adjusted networth	Times	NM	NM
Interest coverage	Times	0.67	0.61

NM: Not meaningful

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs. Crore)	Complexity Level	Rating assigned with outlook
NA	Commercial paper programme	NA	NA	7-365 days	6,500	Simple	CRISIL A1+
NA	Non-convertible debentures*	NA	NA	NA	1,000	Simple	CRISIL AA/Stable

*Yet to be issued