Rating Rationale
April 28, 2020 | Mumbai
Grasim Industries Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.2606 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.2000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.500 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.3000 Crore Commercial Paper (Enhanced from Rs.2500 Crore)  CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and debt programmes Grasim Industries Limited (Grasim).

The ratings continue to reflect a leadership position in the VSF (viscose staple fibre) and chemical businesses, a strong financial risk profile, and financial flexibility derived from being the holding company of UltraTech Cement Ltd (UltraTech; 'CRISIL AAA/Stable/CRISIL A1+'). These strengths are partially offset by susceptibility to cyclicality in the VSF business and investments in other group entities.

During FY2020, the company has made fresh investments of Rs. 2,886 crore in Vodafone Idea Limited (VIL: CRISIL B+/ Rating on watch with negative implications; 11.55% held by Grasim as on 31st March, 2020) and Rs 770 crore in Aditya Birla Capital Limited (AB Capital: CRISIL A1+; 54.24% held by Grasim as on 31st March, 2020), primarily funded through internal accruals. While the ratio of the overall debt levels to the market value of investments remain comfortable, any higher than envisaged investments outlay will remain a key monitorable.

The Competition Commission of India passed an order under section 4 of the Competition Act 2002 dated 16 March 2020, imposing a penalty of Rs. 301.61 Crore on Grasim Industries Limited in respect of its domestic Man-Made Fibre turnover. During FY2019, the Deputy Commissioner of Income Tax in its order dated March 14, 2019, raised a demand for Rs 5,872 crore over the company's merger with Aditya Birla Nuvo Ltd (ABNL) and demerger of Aditya Birla Financial Services Ltd [now Aditya Birla Capital Ltd (ABCL; 'CRISIL A1+')]. The company has contended before the High Court and was granted a stay against the recovery of the demand. Any crystallisation of demands in these respects and its impact on the financial risk profile remain monitorable.
 
The rating also factors in measures taken by Central and various state governments towards containment of the Novel Coronavirus (Covid-19) outbreak, including the temporary lock-down which is applicable till May 3, 2020. In-line with the impact on other industry players, the lockdown is likely to impact the cash-flows of company over near term owing to production facilities operating at lower capacity utilization. However, the liquidity position is supported by cash balance and liquid investments of around Rs 2,000 crore and fund based working capital lines of around Rs 600 crore (utilised to the tune of 2%) which shall be adequate to cover fixed cost and debt servicing obligations over near term. Revocation of these COVID-19 related measures will be contingent upon directives from the government and extent of spread of COVID-19. A sustained long period of closures can result in further deterioration in cash flows and remains monitorable. On the other hand, a faster reversal to normalcy may contain the extent of deterioration in the cash flows.

Analytical Approach

CRISIL has combined the business and financial risk profiles of Grasim, its subsidiaries, and joint ventures in the VSF and related chemical, pulp, and fibre businesses, as all the entities have similar business operations and will remain core to Grasim. CRISIL has also combined the business and financial risk profiles of renewable assets under Grasim to factor in the extent of financial, operational, and managerial support available to them from Grasim.

CRISIL has not combined the business and financial risk profiles of UltraTech, VIL, Hindalco Industries Ltd ('CRISIL AA/Positive/CRISIL A1+'), Aditya Birla Capital Ltd (ABCL; 'CRISIL A1+') and their subsidiaries, as they operate in different businesses that have no significant operational linkages, and has treated them as financial investments.

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
* Leadership position in the VSF and chemical businesses
Grasim is the largest producer of VSF and has ~9% share in the global man-made fibre market. Operations are highly integrated, with a pulp plant and caustic soda capacity in India, two global dissolving pulp joint ventures, and captive thermal power plants, providing strong control over production costs. Moreover, ramping-up of the Vilayat plant (Bharuch, Gujarat) and leveraging of the Liva brand have strengthened the market position. The company will maintain its leadership position and benefit from the growth in demand.

The company is a leader in the caustic soda and epoxy resins segments in India. Captive application of caustic soda and the presence of leading paint companies and electrical machinery manufacturers as clientele benefits the epoxy resins segment. A focus on expanding the existing set of value-added products from chlorine (by-product of caustic soda), should result in better realisations. Furthermore, the business risk profile is diversified with addition of the agriculture, textile, and insulator businesses from the merger where it has a strong market position.

* Healthy financial risk profile
The company has a robust capital structure with consolidated adjusted networth of over Rs 40,000 crore as on December 31, 2019 and consolidated net debt of around Rs 3000 crore (entities consolidated as per annexure). Investments of Rs 2,886 crore and Rs 770 crore were made in Vodafone Idea Ltd and Aditya Birla Capital Limited in fiscal 2020. Based on discussions with the management, CRISIL understands that the company will not be leveraged significantly for making additional investments. Any change in this stance will be a key rating sensitivity factor. Grasim has large capex plans of around Rs 4,566 crore over fiscals 2021 and 2022 . Debt is expected to increase once capital expenditure is incurred. However, supported by steady cash flows from the key business segments, the financial risk profile of the company is expected to remain healthy.

* Financial flexibility derived from being a holding company
Grasim is the holding company for two large listed investments of the Aditya Birla group ' UltraTech and ABCL. UltraTech is the largest cement producer in India and ABCL houses financial services businesses. Both of these are growing businesses and strategic to the Aditya Birla group, thus making Grasim a key entity within the group. Grasim's 57% stake in UltraTech is valued at Rs 57,307 crore as on April 13, 2020. Grasim receives annual dividend from UltraTech, which has a healthy dividend track record. Financial flexibility has been enhanced following the merger of ABNL and the listing of ABCL. Significant shareholdings in listed entities of the group (Hindalco Industries Limited, Aditya Birla Fashion and Retail Limited, UltraTech Cement Limited, Aditya Birla Capital Limited and Vodafone Idea) are together valued at about Rs 66,996 crore as on April 13, 2020.

Weakness
* Exposure to cyclicality in the VSF business and the chemical business
Demand for VSF is vulnerable to economic downturns. In the past, intense competition has led to sharp fluctuation in the operating margin: around 15% in fiscal 2016 as against 20% in fiscals 2017 and 2018. Realisations witnessed improvement in fiscal 2019 (operating margin: around 15%) because of steady demand for viscose fibre and increase in the price of rayon grade wood pulp. However, large capacity additions, muted demand due to weak macro economic conditions and currency fluctuations impacted margins in first nine months of fiscal 2020 (operating margin:15%).  The chemicals business also witnessed decline in operating margin in first nine months of fiscal 2020 at around 21% from 28% in fiscal 2019 due to weak electrochemical unit (ECU) realisations on the back of declining domestic prices in-line with international prices led by capacity overhang. Profitability in the chemical segment remains susceptible to input cost of power and salt, and global capacities. Similarly, any reversal in realisation, on account of global overcapacity of VSF, could restrict profitability. Nevertheless, the strong market position and backward integration of operations will help to effectively manage any downturn in the industry.
Liquidity Strong

Liquidity remains strong, with liquid investments of over Rs 2,000 crore. Financial flexibility also benefits from the ability to raise short- and long-term debt at short notice and at competitive rates. Grasim has fund based working capital line of Rs 600 crore utilised to tune of 2% over nine months ending December 2019. Repayment of around Rs 771 crore over fiscals 2021 and 2022 will be adequately supported by internal cash accrual.

Outlook: Stable

CRISIL believes Grasim will continue to maintain a strong credit risk profile, driven by its leadership position in the VSF and chemical segments and healthy cash accrual. Moreover, the company will remain a key entity within the Aditya Birla group, being the holding company of UltraTech and ABCL, which house businesses that are sizeable and strategic to the group.

Rating Sensitivity Factor
Downward Factors
* Significant increase in leverage due to higher than envisaged capital expenditure or investments/loans to group entities/ subsidiaries
* Decline in overall annual operating profitability below 10% on a sustained basis, severely impacting overall liquidity or decline in value of investments leading to lower financial flexibility.

About the Company

Incorporated in 1947, Grasim is the flagship company of the Aditya Birla group. It commenced operations in 1948 as a textile manufacturer and is the sole producer of VSF in the domestic market. The viscose segment also comprises the viscose filament yarn business of merged ABNL and acquired rights to manage and operate Century Textiles and Industries Ltd's ('CRISIL AA/Watch Developing/CRISIL A1+') rayon division with effect from February 1, 2018. The chemical segment comprises caustic soda, allied chemicals, and epoxy. Also, the company has presence in fertilisers, textile and insulators.

UltraTech, Grasim's 57% subsidiary, is the largest cement producer in India. On August 11, 2016, Grasim announced a composite scheme of merger of ABNL with itself, followed by demerger of the financial services business into a separate listed entity, ABCL. Following the merger, effective July 1, 2017, ABCL was listed in September 2017. Grasim holds 54.24% of equity in ABCL as on 31st March, 2020.

Key Financial Indicators*
Particulars Unit 2019 2018
Revenue Rs.Crore 20,624 15,835
Profit After Tax (PAT) Rs.Crore 515 1769
PAT Margin % 2.5 11.2
Adjusted debt/adjusted networth Times 0.08 0.07
Interest coverage Times 21.39 23.16
*CRISIL adjusted standalone financials; ABNL merged with company w.e.f July 1, 2017 and hence performance of the fiscal 2018 is strictly not comparable with that of the previous year 

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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Cr) Rating assigned with outlook
INE047A08133 Debentures 26-Mar-2019 7.65% 15-Apr-2022 500 CRISIL AAA/Stable
INE047A08141 Debentures 02-Apr-2019 7.85% 15-Apr-2024 500 CRISIL AAA/Stable
INE047A08158 Debentures 4-Jun-19 7.60% 4-Jun-24 750 CRISIL AAA/Stable
INE047A08166 Debentures 17-Feb-20 6.65% 17-Feb-23 500 CRISIL AAA/Stable
NA Debentures* NA NA NA 250 CRISIL AAA/Stable
NA Commercial paper NA NA 7-365 days 3000 CRISIL A1+
NA Rupee Term Loan 28-May-14 NA 28-May-21 25.37 CRISIL AAA/Stable
NA Rupee Term Loan 28-Mar-18 NA 1-Apr-24 62.5 CRISIL AAA/Stable
NA Rupee Term Loan 1-Jul-17 NA 3-Jun-21 13.46 CRISIL AAA/Stable
NA Rupee Term Loan 1-Jul-17 NA 19-Dec-21 12.45 CRISIL AAA/Stable
NA Proposed Long Term Bank Loan NA NA NA 25.49 CRISIL AAA/Stable
NA Cash Credit^ NA NA NA 545 CRISIL AAA/Stable
NA Short Term Bank Facility^^ NA NA NA 375 CRISIL A1+
NA Letter of Credit# NA NA NA 1546.73 CRISIL A1+
*Yet to be issued
^Interchangeable with Working Capital demand Loan (WCDL), Packing Credit in Foreign Currency (PCFC), Short Term Loan, Buyers Credit
^^Facility of Rs 175 crore fully interchangeable with PCFC
#Interchangeable with Bank guarantee
 
Annexure - List of Entities Consolidated 
Entity Type of consolidation Rationale for consolidation

Grasim Premium Fabric Private Limited

 Full consolidation Subsidiary
Aditya Birla Solar Ltd Full consolidation Subsidiary
Aditya Birla Renewables Ltd Full consolidation Subsidiary
Aditya Birla Renewables Subsidiary Ltd Full consolidation Subsidiary
Aditya Birla Renewables SPV1 Ltd Full consolidation Subsidiary
Aditya Birla Renewables Utkal Ltd Full consolidation Subsidiary
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  3000.00  CRISIL A1+      18-04-19  CRISIL A1+  29-01-18  CRISIL A1+  18-12-17  CRISIL A1+  -- 
            31-01-19  CRISIL A1+      23-11-17  CRISIL A1+   
Non Convertible Debentures  LT  2250.00
28-04-20  		CRISIL AAA/Stable      18-04-19  CRISIL AAA/Stable  29-01-18  CRISIL AAA/Stable  18-12-17  CRISIL AAA/Stable  CRISIL AAA/Stable 
            31-01-19  CRISIL AAA/Stable      23-11-17  CRISIL AAA/Stable   
Short Term Debt  ST                      CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  1059.27  CRISIL AAA/Stable/ CRISIL A1+      18-04-19  CRISIL AAA/Stable/ CRISIL A1+  29-01-18  CRISIL AAA/Stable/ CRISIL A1+  18-12-17  CRISIL AAA/Stable/ CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
            31-01-19  CRISIL AAA/Stable/ CRISIL A1+      23-11-17  CRISIL AAA/Stable/ CRISIL A1+   
Non Fund-based Bank Facilities  LT/ST  1546.73  CRISIL A1+      18-04-19  CRISIL A1+  29-01-18  CRISIL A1+  18-12-17  CRISIL A1+  CRISIL A1+ 
            31-01-19  CRISIL A1+      23-11-17  CRISIL A1+   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit^ 545 CRISIL AAA/Stable Cash Credit^ 545 CRISIL AAA/Stable
Letter of Credit# 1546.73 CRISIL A1+ Letter of Credit# 1546.73 CRISIL A1+
Proposed Long Term Bank Loan Facility 25.49 CRISIL AAA/Stable Rupee Term Loan 139.27 CRISIL AAA/Stable
Rupee Term Loan 113.78 CRISIL AAA/Stable Short Term Bank Facility^^ 375 CRISIL A1+
Short Term Bank Facility^^ 375 CRISIL A1+ -- 0 --
Total 2606 -- Total 2606 --
^Interchangeable with Working Capital demand Loan (WCDL), Packing Credit in Foreign Currency (PCFC), Short Term Loan, Buyers Credit
^^Facility of Rs 175 crore fully interchangeable with PCFC
#Interchangeable with Bank guarantee
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
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

 Manish Kumar Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
manish.gupta@crisil.com

Ankit Hakhu
Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
ankit.hakhu@crisil.com

Mrudula Kale
Rating Analyst - CRISIL Ratings
CRISIL Limited
B:+91 22 3342 3000
Mrudula.Kale@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL