Detailed Rationale

Citing inadequate information, Crisil Ratings in line with the Securities and Exchange Board of India guidelines, had migrated its ratings on the bank facilities of Ellenbarrie Industrial Gases Ltd (EIGL) to ‘Crisil A-/Stable/Crisil A2+ Issuer Not Cooperating'. However, the company’s management has subsequently started sharing the information necessary for a comprehensive rating review. Consequently, Crisil Ratings has migrated the ratings on bank facilities of EIGL to ‘Crisil A/Stable/Crisil A1’ from ‘Crisil A-/Stable/Crisil A2+ Issuer Not Cooperating'.

 

The ratings reflect an improvement in the scale of operations and financial flexibility of the company. Operating income grew 7% year-on-year to Rs 314 crore in fiscal 2025, driven by merchant sales and timely ramp up of the newly commissioned onsite air separation units (ASUs). As a result, the operating margin rose to 35.8% in fiscal 2025, from 23.2% a year earlier.

 

In the first quarter of fiscal 2026, revenue and operating margin are estimated to be over Rs 90 crore and 41%, respectively, against Rs 75 crore and 40%, respectively, in the first quarter of fiscal 2025. On July 1, 2025, EIG made an initial public offering (IPO), including a fresh issue of 1,00,00,000 equity shares, to raise Rs 400 crore. The proceeds were used to prepay external debt of about Rs 210 crore and the balance funds are earmarked for capital expenditure (capex) and general corporate purposes. Reduction in debt to around Rs 51 crore by July 31, 2025, has led to an improvement in the capital structure, despite capex of around Rs 420 crore undertaken over fiscals 2025-27, being funded through a debt to equity ratio of 1.55 times. Timely completion of projects, resulting in healthy revenue growth and sustenance of robust profitability and financial flexibility, will be closely monitored.

 

The ratings continue to reflect the extensive experience of the promoters and the established market position of the company in the industrial gases segment. The ratings also factor in the sound operating efficiency, diverse revenue profile and comfortable financial risk profile of the company. These strengths are partially offset by the highly capital-intensive nature of operations, and exposure to risks associated with the ongoing capex and risk inherent in the commoditised industrial gases industry.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of EIGL.

Key Rating Drivers & Detailed Description

Strengths:

• Extensive experience of the promoters and established market position in the industrial gases industry: Established in 1976, EIGL has been engaged in the industrial gases industry for about five decades. The founder has been ably supported by his family members in managing the company’s operations over the years. The promoters have developed a strong understanding of market dynamics, which has helped the company establish its position in a niche segment. 

 

Revenue is diversified in terms of customers and geographic reach. The company operates in three segments: onsite installations, sales to merchant customers, and packaged sales to end-users. It derives bulk of its revenue from the steel and pharmaceutical sectors, and the balance from diversified segments, including chemicals, healthcare and railways, aviation, aerospace and space.

 

EIGL currently operates in three states in India through its ASUs and cylinder filling stations and plans to widen its geographical presence. With steady growth in production capacity and installation of onsite units, revenue has grown 7% y-o-y to Rs 314 crore in fiscal 2025 and has recorded a three-year compounded annual growth rate of 6%. Timely completion of the ongoing capex should result in a healthy double-digit revenue growth per fiscal, enabling EIGL to further gain market share in the domestic industrial gases industry over the medium term.

 

• Strong profitability and healthy operating efficiency: The operating margin has been strong historically, and improved to 36% in fiscal 2025, from 23% in fiscal 2024. Growth in profitability was supported by steady cash flow from the onsite segment, higher share of merchant revenue (nitrogen), efficient distribution, and increasing geographical presence. Return on capital employed (RoCE) was 18% in fiscal 2025, against 13% a year earlier. Operating efficiency metrics are expected to remain healthy over the medium term.

 

• Comfortable financial risk profile: Networth was healthy at Rs 470 crore on March 31, 2025, with gearing and total outside liabilities to total networth ratios of 0.5 time and 0.7 time, respectively. With fresh issue of Rs 400 crore through an initial public offer on July 1, 2025, and healthy operating performance in the first quarter of fiscal 2026, networth is estimated to have improved to over Rs 888 crore as on the date. Prepayment of external debt and funding of ongoing capex through IPO proceeds and internal accrual should keep gearing below 0.5 time over the medium term. Healthy operating performance has kept debt protection metrics comfortable; interest coverage and net cash accrual to adjusted debt ratios stood at 6.5 times and 0.4 time, respectively, for fiscal 2025. Prudent working capital management, healthy accretion to reserves and steady profitability are critical for sustenance of the financial risk profile.

 

Weaknesses:

• Exposure to intense competition in the commoditised industrial gas industry and cyclicality in end-user segments: Intense competition and the commoditised nature of products have led to consolidation in the in the domestic industrial gases industry, with some large players merging operations. EGIL competes with organised (other international players present in the Indian market) and unorganised players. Inherent cyclicality in end-user segments exposes the company to sluggish growth during an economic downturn. The company derives bulk of its revenue from the steel and metal industries, both of which are highly volatile, even as the take-or-pay nature of contracts offers some protection.

 

• Large capital requirement and exposure to risks associated with ongoing capex: The industrial gases industry is highly capital intensive, involving large capex and long gestation and payback periods. These factors could have an adverse impact if implementation of onsite projects or any large capacity addition in the merchant segment were to coincide with a downturn in the industry. EIGL has undertaken capex over fiscals 2023 to 2027, to expand its capacity at the existing ASU and onsite ASU for Tata Metaliks Ltd, and to set up a new onsite ASU for Jai Raj Ispat Ltd and other large steel players in Andhra Pradesh and West Bengal with a minimum guaranteed offtake. While onsite ASUs provide some revenue visibility in the form of fixed lease and operations and maintenance (O&M) charges, timely stabilisation of operations, maintenance of units and steady demand for merchant sales are crucial for sustenance of financial flexibility.

Liquidity: Adequate

Bank limit utilisation is moderate, averaging around 68% for the 12 months ended May 31, 2025. Expected cash accrual should suffice to cover the term debt obligation of Rs 30-40 crore over the medium term. Current ratio was low at 0.5 time as on March 31, 2025. Investments in equity, bonds, debentures and alternative investment funds were healthy at Rs 203 crore on June 30, 2025 (Rs 194 crore on March 31, 2025).

Outlook: Stable

Crisil Ratings believes EIGL will continue to benefit from the extensive experience of its promoters and its established market position in the industrial gases industry.

Rating sensitivity factors

Upward factors:

• Timely completion of ongoing capex, sizeable growth in scale of operations with steady operating margin of around 40%, leading to higher-than-expected cash accrual
• Prudent working capital cycle and sustenance of financial risk profile

 

Downward factors:

• Significant weakening of operating performance, marked by contraction in revenue and operating margin, resulting in net cash accrual below Rs 85 crore
• Large debt-funded capex/acquisitions, or a stretch in receivables or investments in non-core assets, weakening financial flexibility

About the Company

Incorporated in 1973, by the promoters, Mr Padam Kumar Agarwala and Mr Varun Agarwal, EIGL manufactures industrial gases such as oxygen, nitrogen, argon, and mixtures of gases in bulk and packaged forms. It also sets up ASUs. Manufacturing facilities are at Kalyani, Panagarh, Uluberia and Kharagpur in West Bengal; Parwada and Kurnool in Andhra Pradesh; and Jadcherla in Telangana.

Any other information: Not applicable