| Gloster Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL A+/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper of Gloster Limited (Gloster; part of the Gloster group). |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Gloster and its two wholly-owned subsidiaries, Gloster Lifestyle Ltd and Gloster Specialities Ltd. That's because all these companies, collectively referred to as the Gloster group, have financial fungibility amongst themselves. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established presence in the jute industry, supported by a diversified product portfolio The group manufactures jute and jute-blended products, with continued focus on value-added segments. The product profile can be classified into hessian, yarn, traditional jute products, and value-added products such as floor coverings, geotextiles, processed decorative and industrial fabrics, food-grade jute cloth and bags, agro-textiles, furnishing fabrics, lifestyle products, woven and non-woven made-ups, jute nets and mats, fabrics treated for retarding fire and microbial attacks, and hydrocarbon-free jute bags. The group has added products such as laminated jute fabrics, cotton treated for different end uses, coated fabrics for soft luggage, coated molleton fabrics, yarn, and non-woven products of certified organic jute. The group is a one-stop shop for all kinds of jute products, and also exports them to countries across the globe. The management regularly introduces new products to keep pace with changing demand trends. * Strong financial risk profile The networth rose to Rs 616 crore as on March 31, 2020, from Rs 607.12 crore as on March 31, 2019, backed by steady accretion to reserves, sizeable revenue and healthy profitability. The financial policy is conservative, as indicated by the low peak gearing of 0.67 time over the seven years ended March 31, 2019 (0.05 time as on March 31, 2020), aided by healthy cash accrual and limited debt-funded capex undertaken to upgrade technology and replace old machinery. The capex is generally funded through internal cash accrual. Weaknesses: * Exposure to risks arising from the regulated nature of the jute industry, and easy access to cheaper substitutes The domestic jute industry is highly regulated, especially in key areas such as jute pricing and sales. The minimum support price (MSP) for raw jute, announced by the Cabinet Committee on Economic Affairs, to prop up jute prices and ensure security for farmers, varies from state to state and with jute variety, thereby affecting the end-price of jute products. Also, under the aegis of the Jute Packaging Material (Compulsory use in Packaging Commodities) Act (JPMA), 1987, the government has made it mandatory to use only jute bags for packaging of sugar and food grains for consignments of 26-100 kilogram (kg). This regulation has been a key growth driver for the industry. The act, however, exempts consumer packs of 25 kg and below, and packaging of food grains and sugar for export. Conditions of the act are also diluted, as substitutes such as plastic bags are available at a 30-50% lower price in comparison with jute bags. Besides, the government occasionally permits reuse of jute sacks for storage of food grains, thus affecting sales of new jute sacks. Additionally, the government itself is the largest consumer of jute sacks in the domestic market, accounting for nearly 60% of demand. * Exposure to risk related to timely completion of capex: The group has plans to expand its manufacturing capacity by around 100 tonne per day, which would entail an investment of Rs 100-120 crore. The funding mix has not yet been finalised, but is likely to be about 70% funded through external sources. The project is expected to be completed in fiscal 2023 and commercial operation would start from fiscal 2024. Timely completion and commercialisation of the project along with the funding mix will remain key rating sensitivity factors. |
| Liquidity Strong |
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Cash accrual was Rs 44 crore in fiscal 2020 (after taking into account an exceptional loss of Rs 15 crore), against modest repayment of around Rs 87 lakh. Cash accrual is expected at Rs 45-50 crore, against maturing debt of Rs 1.17 crore, per fiscal in fiscals 2021 and 2022. The balance may also be used for any further capex plans. The bank limit of Rs 88 crore was utilised moderately, at an average of around 24% in the 12 months through September 2020. Additionally, the group had quoted investments of around Rs 23 crore as on November 30, 2020 (besides around Rs 110 crore in unquoted investments). The current ratio was healthy at 3.86 times as on March 31, 2020. Also, the group had not availed the Covid-19 pandemic-related moratorium. The group has not placed the rated commercial papers in the market. |
| Outlook: Stable |
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CRISIL believes the Gloster group will maintain its established market position in the jute industry, backed by the diversified and value-added product portfolio, and established relationship with customers. |
| Rating Sensitivity factors |
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Upward factors * Substantial growth in revenue driven by 15-20% increase in volume, and sustenance of the operating margin * Timely completion of the capex with lower-than-expected debt, leading to improvement in the capital structure and revenue visibility Downward factors * Any adverse impact of regulatory changes, leading to a decline in revenue and profitability (operating margin of below 10%) * An increase in investments in risky assets like inter-corporate deposits. |
| About the Group |
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Incorporated in 1992 and promoted by the Bangur family, Gloster manufactures jute products including value-added diversified products. Its factory is at Bauria in Howrah, West Bengal. Operations are managed by a team of professionals, reporting to the chairman, Mr Hemant Bangur. Gloster is listed on the Bombay Stock Exchange. |
| 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 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 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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