Rating Rationale
April 13, 2023 | Mumbai
GRP Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.135.46 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of GRP Limited (GRP; part of the GRP group).

 

Revenue grew 16.4% to Rs 355 crore in the first nine months of fiscal 2023 compared with the corresponding period previous fiscal, backed by recovery in demand and better price realisations in both the domestic and export markets. However, operating margin moderated to 5.4% from 6.2% in fiscal 2022 on account of higher power costs and limited scope to pass it on to customers; prices of most products were already hiked in fiscal 2022. Margin is expected to improve to 6-7% in the near term amid better cost efficiencies. Revenue is likely to increase to Rs 475 crore in fiscal 2023 with steady recovery in the reclaim rubber segment, along with rising demand for non-reclaim products, especially engineering plastic.

 

CRISIL Ratings has noted the fire incident which took place at one of the facilities in Solapur, Maharashtra, and believes the incident will not materially impact the credit risk profile of GRP as revenue loss from this is expected to be minimal at ~Rs 5 crore for fiscal 2023.

 

Financial risk profile is expected to remain adequate, with gearing below 0.75 time over the medium term. This, despite capital expenditure (capex) to set up a plant in Solapur to expand engineering plastic capacity, which is funded through a prudent mix of debt and equity. During fiscal 2023, the company sold its entire stake in Marangoni GRP and also successfully divested its stake in Grip Polymers Ltd.

 

The ratings continue to reflect the established market position of GRP in the reclaimed rubber industry and its adequate financial risk profile. These strengths are partially offset by susceptibility to fluctuations in raw material prices and exposure to the tyre industry concentration in revenue.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GRP and its subsidiary, Gripsurya Recycling LLP. This is because all these entities, collectively referred to as the GRP group, are in the same business and have operational synergies.

 

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

  • Established market position in the reclaimed rubber industry: GRP is one of the top three manufacturers of reclaimed rubber globally and the largest in India. The company has built healthy relationships with domestic and international tyre manufacturers and distributors. Exports to the US, Europe and Latin America contributed to 55% of total revenue in the nine months of fiscal 2023. Domestic customers include several large and prominent original equipment manufacturers. Increase in composition of reclaimed rubber in tyres manufactured by global players should augur well for GRP. Allied businesses such as engineering plastics (EP), polymer composites (PC) and custom die forms (CDF) have contributed to 11% of total revenue in the first nine months of fiscal 2023. Ramp-up in PC and EP capacities on the back of healthy demand and the recent capex should support further diversification in revenue profile. The company is also likely to benefit from the upcoming regulations that will include tyre manufacturers in the Enhanced Producer Responsibility framework of the government, thereby easing availability of reclaimed rubber; this will remain a key monitorable.

 

  • Adequate financial risk profile: Gearing was strong at 0.6 time as on September 30, 2022, and is likely to remain below 0.75 time over the medium term. Interest coverage ratio is also expected to improve to over 6 times in fiscal 2023 from 5.4 times in fiscal 2022. Despite moderation in profitability over the past few fiscals, financial risk profile should remain comfortable over the medium term on the back of high cash accrual of over Rs 20 crore.

 

Weaknesses

  • Susceptibility to fluctuations in raw material prices: Raw material cost accounts for around half of the operating income. End-of-life rubber tyre, the input, is procured from an extensive chain of suppliers. Changes in raw material prices could impact operating margin, which has fluctuated between 5% and 9% over the five fiscals through March 2022.

 

  • High concentration of revenue from the tyre industry: GRP is highly dependent on the performance of the tyre industry, which accounts for 65-70% of its revenue. While the company has diversified into multiple segments such as EP, PC and CDF, the extent of revenue contribution from these remains a critical aspect.

Liquidity: Adequate

Expected net cash accrual of Rs 20-25 crore in fiscal 2023 should suffice to meet debt obligation of Rs 7-8 crore per annum over the medium term. Bank limit utilisation averaged 65% for the 12 months through December 2022. The company shored up liquidity of about Rs 16 crore as on December 31, 2022.

Outlook: Stable

GRP will sustain its operating performance with steady revenue growth over the medium term, though the impact of subsequent pandemic waves remains a key monitorable. Financial risk profile will remain adequate, supported by strong gearing and debt protection metrics.

Rating Sensitivity Factors

Upward Factors:

  • Sustained double-digit revenue growth backed by increase in volume while maintaining operating margin at 8-9%
  • Increased diversification of revenue across business segments
  • Improvement in financial risk profile

 

Downward Factors:

  • Sustained de-growth in revenue by 20% and operating profitability below 5%
  • Weakening of financial risk profile due to increase in working capital expenses or large, debt-funded capex

About the Company

Established by Mr Rajendra V Gandhi in 1974, GRP manufactures reclaimed rubber (recycled rubber) from end-of-life tyres and tubes. Having commenced operations as a tyre recycling company, GRP has transformed into a sustainable materials company over the years. It also separates nylon from tyres to produce raw material for sale to engineering plastic component manufacturers for automotive and electrical applications. The residue rubber from the above businesses is used by yet another business to blend with recycled plastic waste and produce composite material, which replaces wood and concrete.

 

The company is a leader in the domestic tyre recycling industry, and among the top five manufacturers globally. GRP has total installed capacity of 75,000 tonne per annum across all business segments.

Key Financial Indicators

As on/for the period ended March 31

Unit

2022

2021

Operating income

Rs crore

388

280

Profit after tax (PAT)

Rs crore

6

2

PAT margin

%

1.5

0.6

Adjusted debt/adjusted networth

Times

0.73

0.53

Interest coverage

Times

5.39

3.47

 

As on/for the nine months ended December 31,

Unit

2022

2021

Operating income

Rs crore

355

277

PAT

Rs crore

11

3

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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.Crore)

Complexity level

Rating Assigned with Outlook

NA

Cash Credit@

NA

NA

NA

42.00

NA

CRISIL BBB+/Stable

NA

Cash Credit$

NA

NA

NA

50.00

NA

CRISIL BBB+/Stable

NA

Letter of Credit

NA

NA

NA

10.00

NA

CRISIL A2

NA

Term Loan

NA

NA

08-Nov-24

20.65

NA

CRISIL BBB+/Stable

NA

Working Capital Term Loan

NA

NA

01-Apr-26

6.53

NA

CRISIL BBB+/Stable

NA

Working Capital Term Loan

NA

NA

01-Jan-27

5.00

NA

CRISIL BBB+/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

1.28

NA

CRISIL BBB+/Stable

$Sublimit of EPC, EBD, WCDL, LC

@Sublimit of EPC, EBD, WCDL, LC, BG

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

GRP Ltd

Full

Parent company

Gripsurya Recycling LLP

Full

Subsidiary. Significant operational and financial linkages

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 125.46 CRISIL BBB+/Stable   -- 03-02-22 CRISIL BBB+/Stable 03-05-21 CRISIL BBB+/Stable 02-06-20 CRISIL BBB+/Negative CRISIL BBB+/Stable
      --   --   --   -- 03-04-20 CRISIL BBB+/Negative --
Non-Fund Based Facilities ST 10.0 CRISIL A2   -- 03-02-22 CRISIL A2 03-05-21 CRISIL A2 02-06-20 CRISIL A2 CRISIL A2
      --   --   --   -- 03-04-20 CRISIL A2 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit@ 20 Kotak Mahindra Bank Limited CRISIL BBB+/Stable
Cash Credit$ 50 HDFC Bank Limited CRISIL BBB+/Stable
Cash Credit@ 22 Citibank N. A. CRISIL BBB+/Stable
Letter of Credit 10 HDFC Bank Limited CRISIL A2
Proposed Long Term Bank Loan Facility 1.28 Not Applicable CRISIL BBB+/Stable
Term Loan 5.54 HDFC Bank Limited CRISIL BBB+/Stable
Term Loan 15.11 HDFC Bank Limited CRISIL BBB+/Stable
Working Capital Term Loan 5 HDFC Bank Limited CRISIL BBB+/Stable
Working Capital Term Loan 6.53 HDFC Bank Limited CRISIL BBB+/Stable

This Annexure has been updated on 13-Apr-23 in line with the lender-wise facility details as on 03-Feb-22 received from the rated entity

$Sublimit of EPC, EBD, WCDL, LC

@Sublimit of EPC, EBD, WCDL, LC, BG

Criteria Details
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
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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