| GRP Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+ / CRISIL A2 '; outlook revised to 'Stable' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of GRP Limited (GRP) to 'Stable' from 'Negative', while reaffirming the rating at 'CRISIL BBB+'; the rating on the short-term facility has been reaffirmed at 'CRISIL A2'.
The outlook revision reflects recovery in operating performance in second half of fiscal 2021, backed by healthy demand in export market, improved realisations with recent price increase across products and benefit of cost efficiency measures. GRP reported aggregate operating income of Rs. 159.79 crores for second and third quarter of this fiscal, about 90% levels as compared to the same period last year. The operating profitability improved to 7.4% during this period from 5.2% in fiscal 2020, mainly due to healthy demand, better realizations, and benefit of cost efficiency measures and process automation. GRP has increased prices across product categories in the fourth quarter of this fiscal, which is expected to result in better realizations for fiscal 2022.
CRISIL Ratings believes that for fiscal 2021, revenue is likely to decline by 18-20%, with operating profitability expected above 6%. With end-user demand expected to sustain at healthy levels and rubber prices firming up (which is substitute for reclaim rubber), CRISIL Ratings expect revenue to increase at a compound annual growth rate (CAGR) of around 4-5% over the 2020-2023 period. Operating profitability is expected to improve to 7-7.5% over the medium term, given the company’s continued focus on operating efficiency improvement and healthy realization.
GRP has modest capex plans of about Rs 15-17 crore annually for capacity expansions in nylon, debottlenecking and routine maintenance activities. The capex is expected to be entirely funded from internal accruals; hence capital structure is expected to remain healthy with gearing around 0.5 times over medium term.
The ratings continue to reflect an established market position in the reclaimed rubber industry, and adequate financial risk profile. These strengths are partially offset by the susceptibility to fluctuations in raw material prices, and high concentration of revenue from tyre industry. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of GRP and its subsidiaries, Grip Polymers Ltd and Gripsurya Recycling LLP. CRISIL has also proportionately consolidated GRP’s joint venture (JV), Marangoni GRP Pvt Ltd., to the extent of its shareholding in the JV, to reflect support required to the extent of its interest in this business. This is because all the entities, collectively referred to as GRP, are in the same business and have operational synergies.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths
Weaknesses
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Liquidity: Adequate Annual net cash accruals are expected around Rs 25-30 crore in fiscal 2021 and fiscal 2022, which will be sufficient to cover annual repayment obligation of Rs 3.5 crores over the medium term. Average bank limit utilization of 85% for the past twelve months through February’21. The company has shored up liquidity in excess of Rs. 15 crores as at March 31, 2021 and expected to maintain at these levels over the medium term. |
Outlook : Stable CRISIL Ratings believes GRP's operating performance will improve over the medium term driven by steady revenue growth and improved operating profitability. The financial risk profile is expected to be maintained, supported by adequate gearing and debt protection metrics. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company GRP, established in 1974 by Mr Rajendra V Gandhi, manufactures reclaimed rubber (recycled rubber) from end-of-life tyres and tubes. GRP started as a tyre recycling company but has over the years transformed into a sustainable materials company. The company 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 & concrete.
The company is the leader in the tyre recycling industry in India, and amongst top 5 manufacturers of above products globally. GRP has total installed capacity of 75,000 tonne per annum (tpa) across all business segments. The company is also into Commercial Vehicle retreading business in Joint Venture with a global company, Marangoni SpA to help fleet owners extend life of their tyre by providing additional life. At the tyre’s end of life, the Rubber business buys these ELT to produce reclaim rubber for use predominantly by tyre manufacturers. |
Key Financial Indicators
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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)
$Interchangeable with bank guarantee |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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