Rating Rationale
September 26, 2019 | Mumbai
Finolex Industries Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.1378.25 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Finolex Industries Limited (FIL) at 'CRISIL AA/Stable/CRISIL A1+'.
 
The rating reflects CRISIL's belief that FIL will continue to strengthen its financial risk profile marked by low gearing and healthy debt protection metrics. The gearing has improved from over 1.5 in fiscal 2012 to 0.06 in fiscal 2019, and is expected remain healthy because of steady accretion to reserves, no long term debt and lack of further debt funded capital expenditure.
 
FIL's business risk profile continues to benefit from its established market position in the polyvinyl chloride (PVC) resins segment; market leadership in the PVC pipes segment; and high operating efficiency, driven by its integrated production process.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in domestic PVC resin and PVC pipes segment: Finolex is among the largest player in the domestic PVC resin and PVC pipes segment. It has market share of over 20% in the organized PVC pipes market.

* High operating efficiency, driven by in house PVC resin capacity and 43 MW power capacity: Finolex is the only large vertically integrated player in the domestic market as it produces its entire requirement of PVC resin, the major raw material used in pipe manufacturing. Interdivisional transfer of raw materials has moved up to around 74 per cent in fiscal 2019 from 11 per cent in fiscal 2008. 

* Strong financial risk profile: FIL's has a strong financial risk profile marked with absence of long term debt and no debt funded capex plans. The company has healthy liquidity and strong debt protection metrics.

Weaknesses
* Susceptibility to volatility in raw material prices: Profitability of the PVC resin business is volatile due to movements in the international prices of PVC and its raw materials: EDC, ethylene, and VCM. Furthermore, the company imports most of its required raw material for manufacturing PVC resin, exposing it to inventory related risks.

Liquidity: Strong
FIL enjoys healthy liquidity driven by expected cash accruals of more than Rs 200 crore per annum in fiscal 2020 and fiscal 2021 and cash and cash equivalents of Rs 264 crore as on March 31, 2019 as against nil long term debt repayment obligations in fiscal 2020 and fiscal 2021. The company has moderate capex of around Rs 150 crore per annum to be funded through internal accruals. Its bank lines are expected to meet its incremental working capital requirements.

CRISIL believes that FIL will benefit from its strong market position and operating efficiency over the medium term.

Rating Sensitivity Factors
Upward Factor
* Company sustains is steady growth in revenue and cash accruals driven by healthy growth in volumes and market share in the PVC pipes segment
* Company maintains margins at around 17% on a sustainable basis, while maintaining financial risk profile.

Downward Factor
* FIL business risk profile is constrained leading to dip in operating margins to around 12-10% on a sustainable basis.
* Undertakes significant debt-funded capital expenditure, constraining its financial risk profile.
About the Company

FIL is the second-largest player in the PVC resin market, and the largest manufacturer of PVC pipes, in India. The company has three manufacturing facilities, one each in Pune and Ratnagiri (both in Maharashtra), and Masar, near Vadodara in Gujarat.

Key Financial Indicators
As on/for the period ended March 31 2019 2018
Revenue Rs crore 3087 2727
Profit After Tax (PAT) Rs crore 367 294
PAT Margin % 11.9 10.8
Adjusted debt/adjusted networth Times 0.06 0.08
Interest coverage Times 16.11 51.68

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)
ISIN Name of Instrument Date of Allotment Coupon rate (%) Maturity Date Issue size (Rs.Cr) Rating Assigned with Outlook
NA Cash Credit NA NA NA 82.50 CRISIL AA/Stable
NA Letter of credit & Bank Guarantee* NA NA NA 1192.75 CRISIL A1+
NA Proposed Short Term Bank Loan Facility NA NA NA 103.0 CRISIL A1+
*Letter of Credit & Bank Guarantee are interchangeable with buyer's credit.
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT    --    --    --    --  05-08-16  Withdrawal  CRISIL AA-/Stable 
Short Term Debt  ST    --    --    --    --  05-08-16  Withdrawal  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  185.50  CRISIL AA/Stable/ CRISIL A1+      27-06-18  CRISIL AA/Stable/ CRISIL A1+  29-03-17  CRISIL AA/Stable/ CRISIL A1+  05-08-16  CRISIL AA-/Positive/ CRISIL A1+  CRISIL AA-/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST  1192.75  CRISIL A1+      27-06-18  CRISIL A1+  29-03-17  CRISIL A1+  05-08-16  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 82.5 CRISIL AA/Stable Cash Credit 82.5 CRISIL AA/Stable
Letter of credit & Bank Guarantee* 1192.75 CRISIL A1+ Letter of credit & Bank Guarantee* 1192.75 CRISIL A1+
Proposed Short Term Bank Loan Facility 103 CRISIL A1+ Proposed Short Term Bank Loan Facility 103 CRISIL A1+
Total 1378.25 -- Total 1378.25 --
*Letter of Credit & Bank Guarantee are interchangeable with buyer's credit.
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 Criteria for rating short term debt

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