Rating Rationale
September 10, 2020 | Mumbai
GP Petroleums Limited
Ratings migrated to 'CRISIL BB+/Stable/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.220 Crore
Long Term Rating CRISIL BB+/Stable (Migrated from 'CRISIL BB+/Stable ISSUER NOT COOPERATING'*)
Short Term Rating CRISIL A4+ (Migrated from 'CRISIL A4+ ISSUER NOT COOPERATING '*)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Issuer did not cooperate; based on best-available information
Detailed Rationale

Due to inadequate information and in line with the Securities and Exchange Board of India guidelines, CRISIL had migrated its ratings on the bank facilities of GP Petroleums Ltd (GPPL) to 'CRISIL BB+/Stable/CRISIL A4+ Issuer not cooperating'. However, the management has subsequently started sharing requisite information for carrying out a comprehensive review of the company on a standalone basis. Consequently, CRISIL is migrating its ratings on the bank facilities of GPPL to 'CRISIL BB+/Stable/CRISIL A4+' from 'CRISIL BB+/Stable/CRISIL A4+ Issuer not cooperating'.
 
The promoter (Gulf Petrochem FZC [GPFZC]) has provided an undertaking stating that the proposed reorganisation and rephasement of the business operations and financial resources of GPFZC will not have any impact on the operations and activities of GPPL. The undertaking also states that GPPL's cash flow will not be fungible with any group company. Accordingly, CRISIL has changed its analytical approach such that any support from / to the parent Gulf Petrochem FZC is not factored in the ratings of GPPL.
 
In fiscal 2020, operating revenue declined by 18% to Rs 497 crore because of subdued growth in the automobile industry in fiscal 2020 along with the lockdown imposed in the last two weeks of March following the spread of the Covid-19 pandemic. Operating profitability, however, remained stable. Operating income for fiscal 2021 is expected to de-grow on account of the lockdowns imposed by the state and central governments to contain the spread of the pandemic.
 
The ratings continues to reflect GPPL's strong market position in the industrial lubricants industry and its adequate financial risk profile driven by sound capital structure and debt protection metrics. These strengths are partially offset by modest scale of operations in the intensely competitive lubricants industry, low return on capital employed (RoCE) and large working capital requirement.

Analytical Approach

Based on the undertaking received from the promoters, CRISIL has changed its analytical approach to carry out the review of GPPL on a standalone basis and, therefore, any support from / to the ultimate parent i.e. Gulf Petrochem FZC is not factored in the ratings.

Key Rating Drivers & Detailed Description
Strengths 
* Strong position in the industrial lubricants industry
As bulk of the revenue comes from the lubricant segment, the company has established itself as a reliable and competitive supplier of industrial lubricants, especially to rubber processing players. The company should sustain its market position over the medium term.
 
* Adequate financial risk profile
Networth was Rs 219 crore, and the total outside liabilities to tangible networth (TOLTNW) ratio was 0.35 time as on March 31, 2020. However, RoCE was low at 8.6% in fiscal 2020.
 
Weaknesses
* Modest scale of operations
Intense competition kept scale of operations modest, as reflected in turnover of Rs 497 crore in fiscal 2020. Most of the revenue comes from the sale of industrial and automotive lubricants, which are sold under the established IPOL brand. Despite the established brand, GPPL faces competition from large players such as Indian Oil Corporation Ltd and Hindustan Petroleum Corporation Ltd as well as from the unorganised segment, resulting in volatility in operating performance.
 
* Large working capital requirement
Gross current assets were high at 150-200 days in the past three fiscals, driven by large inventory of 60-100 days. The large working capital requirement has led to higher short-term borrowings.
 
* Low RoCE
RoCE was subdued for the past three fiscals due to high short-term debt as a result of large transactions. In fiscal 2017, RoCE was healthy at 15.8%. However, since then, it has steadily declined to 8.6% in fiscal 2020 and is expected to decline further in fiscal 2021.
Liquidity Adequate

GPPL's liquidity is adequate for the rating category as reflected from its moderate utilisation of bank limits. Fund based limits of Rs 90 crore were utilised at an average of around 52% for last 7 months through July 2020. Furthermore, net cash accrual is expected to be over Rs 11 crore in fiscal 2021 as against nil term debt obligations. CRISIL expects internal accruals, and unutilised bank lines to be sufficient to meet its incremental working capital requirement.

Outlook: Stable

CRISIL believes GPPL will be able to overcome the short-term impact of the pandemic driven by its established position in the lubricant industry.

Rating Sensitivity factors
Upward factors
* Substantial increase in profitability, leading to improvement in RoCE to over 12% on a sustainable basis
* Increase in revenue, driven by healthy demand growth, and maintenance of the capital structure
 
Downward factors
* Weakening of the financial risk profile on account of any large, debt-funded capital expenditure, leading to TOLTNW ratio increasing above 1 time on a sustainable basis
* Stretch in the working capital cycle
About the Company

Incorporated as Sah Petroleums Ltd in 1983 and renamed in 2015 post acquisition by GPFZC, GPPL manufactures industrial and automotive lubricants, process oils, transformer oils and grease under the IPOL brand for sale in India and abroad.

About the group
GPFZC, the flagship entity of the GP Global group, is promoted by Mr Ashok Goel and Mr Sudhir Goel. The company was established in 1998 as a free zone establishment (FZE), and was reconstituted as a free zone company (FZC) in 2006. It operates in the United Arab Emirates under an industrial license issued by the Hamriyah Free Zone Authority, Sharjah. The company trades in, stores, and refines oil; and manufactures grease. The promoter family has presence in petroleum and petroleum-related businesses across the world.

For the three months ended June 30, 2020, the company's profit after tax (PAT) was negative Rs 2.07 crore on operating income of Rs 78.87 crore, as against PAT of Rs 4.09 crore on operating income of Rs 134 crore during the corresponding period of the previous fiscal.

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs crore 497 608
Profit after tax (PAT) Rs crore 16 16
PAT margin % 3.1 2.7
Adjusted debt / adjusted networth Times 0.17 0.67
Interest coverage Times 4.1 5.3

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 level Rating assigned with outlook
 NA Cash credit NA NA NA 125 NA CRISIL BB+/Stable
NA Letter of credit NA NA NA 95 NA CRISIL A4+
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
Fund-based Bank Facilities  LT/ST  125.00  CRISIL BB+/Stable  14-08-20  CRISIL BB+/Stable (Issuer Not Cooperating)*  10-12-19  CRISIL BBB+/Stable  04-05-18  CRISIL A-/Stable      CRISIL A-/Stable 
        31-07-20  CRISIL BBB+/Watch Negative  25-06-19  CRISIL A-/Negative  31-03-18  CRISIL A-/Stable       
Non Fund-based Bank Facilities  LT/ST  95.00  CRISIL A4+  14-08-20  CRISIL A4+ (Issuer Not Cooperating)*  10-12-19  CRISIL A2  04-05-18  CRISIL A2+      CRISIL A2+ 
        31-07-20  CRISIL A2/Watch Negative  25-06-19  CRISIL A2+  31-03-18  CRISIL A2+       
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 125 CRISIL BB+/Stable Cash Credit 125 CRISIL BB+/Stable/Issuer Not Cooperating
Letter of Credit 95 CRISIL A4+ Letter of Credit 95 CRISIL A4+/Issuer Not Cooperating
Total 220 -- Total 220 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating instruments backed by guarantees
Rating criteria for manufaturing and service sector companies
Rating Criteria for Petrochemical Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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