Rating Rationale
February 03, 2022 | Mumbai
GRP Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.135.46 Crore (Enhanced from Rs.117.46 Crore)
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
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).

 

Revenue has grown by 45% to Rs 277 crore in the first nine months of fiscal 2022 on a lower base last fiscal, backed by recovery in demand and volumes in both domestic and export markets. However, operating margin has moderated to 5.5% in the first nine months of fiscal 2022, as compared to 6.1% in fiscal 2021, primarily on account of higher freight cost and limited scope to pass on the higher cost to customers; prices of most products were already hiked in fiscal 2021. The margin may remain moderate at 5.5-6% in the near term, amidst high freight rates. Revenue is likely to reach pre-pandemic levels in fiscal 2022, with steady recovery in reclaim rubber segment, along with a rising demand for non-reclaim products, especially engineering plastic. Operating margin may remain moderate in the near term, amidst high freight rates.

 

Financial risk profile is expected to remain adequate, with gearing below 0.65 time over the medium term, after factoring capex for engineering plastic business. The company has acquired a plant in Solapur, Maharashtra for expanding its engineering plastic business capacity, which is funded with prudent mix of debt and equity. The company is also in the process of selling its 50% stake in Marangoni GRP, a joint venture, which is expected to be completed by end of fiscal 2022.

 

The ratings continue to reflect 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 higher concentration of revenue from the tyre industry.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GRP and its subsidiaries, Grip Polymers Ltd and Gripsurya Recycling LLP as well as its joint venture Marangoni GRP. This is because all the entities, collectively referred to as the GRP group, are engaged 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 both domestic and many international tyre manufacturers and distributors. Exports mainly to US, Europe and Latin America, contributed to 66% of total revenue in fiscal 2021. Domestic customers include several large and prominent original equipment manufacturers. Increase in composition of reclaim 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 9.5% of total revenue in first eight months of fiscal 2022. Ramp up in PC and EP capacity, on the back on healthy demand, and the recent capital expenditure (capex) should support further diversification in the revenue profile.

 

  • Adequate financial risk profile: Gearing was moderate at 0.6 time as on September 30, 2021, vis-à-vis 0.51 time, a year ago, and is likely to remain below 0.65 time in the medium term. Interest coverage ratio is also expected to improve to over 4 times in fiscal 2022, from 3.1 times in fiscal 2021.  Despite moderation in profitability over the past few years, financial risk profile should be adequate over the medium term, driven by healthy cash accrual.

 

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 key raw material, is procured from an extensive chain of suppliers. Fluctuations in raw material prices could impact the operating margin, as witnessed in the past. The margin has fluctuated between 5% and 9% over the five fiscals through March 2022. GRP is also likely to benefit from the upcoming regulations that will include tyre manufacturers in the ‘Enhanced Producer Responsibility’ (EPR) framework of the government, thereby easing availability of its reclaimed rubber, which will remain the key monitorable.

 

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

Liquidity: Adequate

Expected net cash accrual of Rs 15-17 crore in fiscal 2022, should suffice to cover the debt obligation of Rs 3-4 crore per annum over the medium term. Bank limit utilisation averaged 67% for the twelve months through November 2021. The company has shored up liquidity of about Rs 13 crores as on September 30, 2021

Outlook: Stable

CRISIL Ratings believes GRP will sustain its operating performance with steady revenue growth, though impact of subsequent pandemic waves remains a key monitorable. The financial risk profile will remain adequate, supported by adequate gearing and debt protection metrics.

Rating Sensitivity factors

Upward factors:

  • Sustained revenue growth of 25%, backed by increase in volume and polymer prices, and operating margin of 8-9%
  • Increased diversification of revenue across business segments
  • Improvement in financial risk profile

 

Downward factors:

  • Sustained de-growth in revenue by 20%, with operating profitability below 5%
  • Weakening of the financial risk profile with gearing above 0.8 time, due to increase in working capital expenses and/or large debt-funded capex

About the Company

GRP, established by Mr Rajendra V Gandhi in 1974, 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 the engineering plastic component manufacturers in the 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 amongst the top five manufacturers of the above products globally. GRP has total installed capacity of 75,000 tonne per annum (tpa) across all business segments.

Key Financial Indicators

As on/for the period ended March 31

Unit

2021

2020

Operating income

Rs crore

280

349

Profit after tax (PAT)

Rs crore

2

3

PAT margin

%

0.6

0.9

Adjusted debt/adjusted networth

Times

0.53

0.65

Interest coverage

Times

3.47

2.38

 

As on/for the nine month period ended December 31,

Unit

2021

2020

Operating income

Rs crore

277

191

Profit after tax (PAT)

Rs crore

3

(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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 crore)

Complexity

level

Rating Assigned

with Outlook

NA

Cash Credit*

NA

NA

NA

50.00

NA

CRISIL BBB+/Stable

NA

Cash Credit**

NA

NA

NA

42.75

NA

CRISIL BBB+/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

5.00

NA

CRISIL A2

NA

Term Loan

NA

NA

08-Nov-24

8.67

NA

CRISIL BBB+/Stable

NA

Working Capital Term Loan

NA

NA

01-Apr-26

8.00

NA

CRISIL BBB+/Stable

NA

Working Capital Term Loan

NA

NA

01-Jan-27

5.00

NA

CRISIL BBB+/Stable

NA

Proposed Term Loan

NA

NA

NA

16.00

NA

CRISIL BBB+/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

0.04

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

Grip Polymers Ltd

Full

Wholly owned subsidiary-significant operational and financial linkages

Gripsurya Recycling LLP

Full

Subsidiary-significant operational and financial linkages

Marangoni GRP Pvt Ltd

Proportionate

Joint venture-support to the extent of interest in business

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 130.46 CRISIL BBB+/Stable   -- 03-05-21 CRISIL BBB+/Stable 02-06-20 CRISIL BBB+/Negative 07-02-19 CRISIL BBB+/Stable CRISIL BBB+/Stable
      --   --   -- 03-04-20 CRISIL BBB+/Negative   -- --
Non-Fund Based Facilities ST 5.0 CRISIL A2   -- 03-05-21 CRISIL A2 02-06-20 CRISIL A2 07-02-19 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** 20.75 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 & Bank Guarantee 5 HDFC Bank Limited CRISIL A2
Proposed Long Term Bank Loan Facility 0.04 Not Applicable CRISIL BBB+/Stable
Proposed Term Loan 12.96 HDFC Bank Limited CRISIL BBB+/Stable
Proposed Term Loan 3.04 HDFC Bank Limited CRISIL BBB+/Stable
Term Loan 8.67 HDFC Bank Limited CRISIL BBB+/Stable
Working Capital Term Loan 8 HDFC Bank Limited CRISIL BBB+/Stable
Working Capital Term Loan 5 HDFC Bank Limited CRISIL BBB+/Stable

*Sublimit of EPC, EBD, WCDL, LC

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

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

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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