Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the Rs.500 crore proposed non-convertible debenture (NCD) of Godrej Industries Limited (GIL) and reaffirmed the ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the existing NCDs and commercial paper programme. CRISIL Ratings has also withdrawn its rating on the Rs.750 crore NCDs on receipt of repayment confirmation from the debenture trustee. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of ratings.
The ratings continue to reflect the strong financial flexibility of GIL as the holding company of the Godrej group. GIL is the second-largest shareholder in the group's flagship company, Godrej Consumer Products Ltd (GCPL; ‘CRISIL A1+’) and the largest shareholder in Godrej Properties Ltd (GPL; ‘CRISIL A1+’) and Godrej Agrovet Ltd (GAL; ‘CRISIL A1+’). The ratings also factor in the healthy reputation of the Godrej group. These strengths are partially offset by exposure to market risk and large refinancing requirement.
GIL continues to invest in Godrej Capital Ltd (GCL), the subsidiary engaged in financial services, to fund its growth plans. It has infused equity of around Rs 2,110 crore so far till September 2023, which includes the infusion of around Rs 620 crore during the first half of fiscal 2024. The infusion has resulted in increased leverage in the standalone book of GIL. However, comfort is derived from the significant market value of quoted investments relative to overall debt planned and the healthy refinancing ability of the group. Furthermore, the management has articulated to maintain a net debt cover (ratio of total market value of investments to net debt) of well above 4 times at any point of time. CRISIL Ratings understands that the management of GIL would not be averse to monetise its investments, if required, to support its cash flow and to maintain the debt cover threshold.
For fiscal 2023, standalone operating profit before depreciation, interest and tax (OPBDIT) was Rs 741 crore, aided by better operating performance in the chemicals business. |
Analytical Approach CRISIL Ratings has followed the holding company approach and considered the standalone business and financial risk profiles of GIL. Furthermore, CRISIL Ratings has applied its capital allocation framework to factor in the capital required by financial services entities to maintain their respective credit profiles.
To arrive at the net debt for calculation of debt cover, CRISIL Ratings has netted-off the debt that can be sustained by operating profits (excluding income/expenses related to investments) of GIL to maintain a similar credit profile. |
Key Rating Drivers & Detailed Description Strengths: Strong financial flexibility The financial flexibility arises from the 23.74% stake in GCPL, 47.34% stake in GPL and 64.88% stake in GAL, which translate into a market value of around Rs 55,000 crore (as on November 17, 2023). The market value was significant against CRISIL Ratings-adjusted net debt of around Rs 6,200 crore as on September 30, 2023. The exposure may increase over the medium term, driven by the company’s plans to fund growth in the financial services business.
Healthy reputation of the promoters GIL is held by the Godrej group, which has an established track record and a strong reputation among lenders and investors in capital markets. The promoters’ shareholding in GIL is unencumbered.
Weakness: Susceptibility to market risks GIL remains susceptible to prevailing market sentiments and share prices of GCPL, GPL and GAL. Any increase in systemic risk, leading to a sharp decline in share prices of these companies, will be a key rating sensitivity factor. Furthermore, GIL largely depends on refinancing and dividend income to service its debt. Though the interest coverage ratio is weak, debt obligation, including interest, is adequately phased, enabling the company to manage cash flow and ensure adequate liquidity. |
Liquidity: Strong Liquidity was supported by cash and equivalent of around Rs 402 crore as on September 30, 2023. With raising of NCDs, the borrowing mix of GIL is shifting towards sizeable term debt obligation from short-term borrowing, reducing refinancing risk. GIL has a strong reputation in the lending community, thus enhancing financial flexibility. Moreover, CRISIL Ratings understands that the management would not be averse to monetise its investments, if required, to support liquidity.
Environment, social and governance (ESG) profile CRISIL Ratings believes the ESG profile of GIL supports its already strong credit risk profile.
Chemical manufacturers can have a significant impact on the environment because of the high greenhouse gas (GHG) emissions, water consumption and high hazardous waste generation in core operations. The sector has a social impact because of its large workforce and impact on health and wellbeing of workers and local community given its nature of operations.
GIL has undertaken various initiatives and efforts to mitigate its environmental and social impact and strengthen its ESG profile.
Key ESG highlights:
The importance of ESG is growing among investors and lenders. GIL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowings in overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable CRISIL Ratings believes GIL will maintain a heathy cover over the medium term supported by the high value of investments in key operating entities of the Godrej group. Also, the company will continue to enjoy strong financial flexibility as the key holding company of the group. |
Rating Sensitivity Factors Upward factor
Downward factors
|
About the Company GIL, one of India's leading manufacturers of oleochemicals, makes more than a hundred chemicals for use in over two dozen industries. It also manufactures edible oils, vanaspati and bakery fats. The company was called Godrej Soaps until March 31, 2001. Thereafter, the consumer products division was demerged into GCPL, and Godrej Soaps became GIL.
The company, a leading producer of fatty acids, fatty alcohols and surfactants, has plants at Valia in Gujarat, and at Ambernath in Maharashtra. Products are exported to 60 countries across the world.
GIL is the holding company of GCPL, GAL, GPL and GCL.
For the first half of fiscal 2024, net loss was Rs 34 crore on total income of Rs 1,644 crore, compared with net profit of Rs 180 crore on total income of Rs 2,475 crore in the corresponding period of the previous fiscal. |
Key Financial Indicators*
*As per analytical adjustments made by CRISIL Ratings | ||||||||||||||||||||||||
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Yet to be placed
Annexure - Details of Rating Withdrawn
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
|