Rating Rationale
January 29, 2018 | Mumbai
Grasim Industries Limited
Rated amount enhanced
Rating Action
Total Bank Loan Facilities Rated Rs.2000 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.500 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.1750 Crore Commercial Paper (Enhanced From Rs.500 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 debt programmes and bank facilities of Grasim Industries Limited (Grasim).
The ratings continue to reflect Grasim's leadership position in the viscose staple fibre (VSF) business, 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.
The ratings also factor the company's merger with Aditya Birla Nuvo Ltd (ABNL), effective July 1, 2017, which has added the fertiliser and insulator businesses to the profile. Apart from a strong market position, most of the businesses have healthy operating efficiency, resulting in sound return on capital employed. Financial metrics of the merged entity were marginally impacted due to high leverage in ABNL, but are likely to improve due to healthy accrual, moderate capital expenditure plan and investment commitments, and the management's intent to deleverage. CRISIL believes the merged entity will maintain healthy gearing of less than 0.2 time and net cash accrual to total debt ratio of around 60% over the medium term.
On December 12, 2017, Grasim entered into an agreement with Century Textiles and Industries Ltd (Century; 'CRISIL AA-/Rating watch with Positive Implications/CRISIL A1+'), pursuant to which Grasim will receive the right to manage and operate the viscose filament yarn (VFY) business of Century for 15 years, and consequently, right to use assets related to this business. Total payout from Grasim to Century, including commuted royalty, interest-free and refundable security deposit, and consideration for transfer of net working capital at actual, was estimated at Rs 965 crore. Ownership of fixed assets will remain with Century, and post completion of 15 years, Century shall resume operations of the VFY business. Capacity will be more than doubled (46,300 tonne per annum (tpa) from 21,300 tpa) due to this. Moreover, asset-light expansion with steady cash flow from the date of commencement of agreement (about Rs 180 crore per annum) augurs well for Grasim's profitability. Financial profile will remain healthy, given strong liquidity (Rs 2753 crore as on September 30, 2017) and plan to prudently fund the initial outflow.

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 erstwhile ABNL and its subsidiaries (excluding financial services), as ABNL has been merged into Grasim. CRISIL has not combined the business and financial risk profiles of UltraTech, Idea Cellular Ltd, and Hindalco Industries Ltd ('CRISIL AA/Stable/CRISIL A1+') and their subsidiaries, as they operate in different businesses that have no significant operational linkages, and has treated them as financial investments.

Key Rating Drivers & Detailed Description
* Leadership position in the VSF business
Grasim is the largest producer of VSF and has 9% share in the global man-made fibre market. Operations are highly integrated, with 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 and leveraging of the Liva brand has strengthened Grasim's market position. CRISIL believes the company will maintain its leadership position and benefit from the healthy 7-8% growth in demand, which will keep utilisation rate high. Furthermore, addition of textile, chemical, agriculture, and insulator businesses from the merger should further diversify the business risk profile.
* Healthy financial risk profile, backed by strong capital structure
Financial risk profile is comfortable, driven by healthy cash accrual and robust capital structure. Gearing was 0.04 time as on March 31, 2017. CRISIL believes Grasim will maintain its strong financial risk profile, supported by expected healthy cash accrual of Rs 2,300-2,500 crore and moderate capex of Rs 1,100-1,300 crore per annum over the medium term. Post the merger, Grasim, in addition to being an operating entity, is also a key holding company of the group. Based on discussions with the management, CRISIL believes Grasim will not be leveraged for making additional investments. Any change in the management stance regarding this will be a key rating sensitivity factor.
* Financial flexibility derived from being the holding company of UltraTech
Grasim's 60.22% stake in UltraTech is valued at Rs 70,800 crore as on December 2017. Grasim receives annual dividend from UltraTech, which has a healthy dividend track record. Financial flexibility has enhanced post the merger of ABNL and listing of Aditya Birla Capital Ltd (ABCL; CRISIL A1+'). Large shareholdings in the telecom (through Idea Cellular Ltd) and financial services businesses are together valued at Rs 34,800 crore. These businesses are sizeable and strategic to the Aditya Birla group and make Grasim a key entity within the group.
* Exposure to cyclicality in the VSF business
Demand for VSF is vulnerable to economic downturns. Intense competition has led to sharp fluctuation in operating margin: from 25% in fiscal 2012 and 15.2% in fiscal 2016 to 24% in fiscal 2017. Realisations started improving in the past two fiscals because of steady demand for viscose fibre and increase in the price of rayon grade wood pulp. While any reversal in realisation, on account of global overcapacity of VSF could exert pressure on profitability, the strong market position and backward integration of operations will help Grasim effectively manage any downturn in the industry.
Outlook: Stable

CRISIL believes Grasim will maintain its strong credit risk profile over the medium term, driven by its leadership position in the VSF segment and healthy cash accrual. Moreover, financial flexibility benefits from significant holding in group entity, UltraTech.
Downside scenario
* Large debt-funded acquisition
* Leveraging of balance sheet towards investments, leading to weakening of debt protection metrics

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.
UltraTech, Grasim's 60.22% subsidiary, is the largest cement producer in India, with installed production capacity of 87.8 million tonne per annum (mtpa) as on June 30, 2017. Through UltraTech Cement Middle East Investments Ltd, the company had capacity of 3 mtpa across the UAE, Bahrain, and Bangladesh.
On August 11, 2016, Grasim announced a composite scheme of merger of ABNL with Grasim, followed by demerger of the financial services business into a separate listed entity, Aditya Birla Financial Services Ltd (ABFSL), now renamed ABCL. Following the merger, effective July 1, 2017, and listing in September 2017, Grasim holds 55.99% of equity in ABCL.

Key Financial Indicators *
Particulars Unit 2017 2016
Revenue Rs cr 11,285 11,611
Profit after tax Rs cr 2,136 1,516
PAT margin % 18.9 13.1
Adjusted debt/adjusted networth Times 0.04 0.21
Interest coverage Times 33.3 11.1
* CRISIL adjusted

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
Issue size (Rs crore) Rating assigned
with outlook
NA Debentures^ NA NA NA 500 CRISIL AAA/Stable
NA Commercial paper NA NA 7-365 days 1750 CRISIL A1+
NA Rupee Term Loan# 07-Mar-08 NA 01-Jan-2018 91.88 CRISIL AAA/Stable
NA Rupee Term Loan 03-Jan-12 NA 03-Jan-2019 706.50 CRISIL AAA/Stable
NA Rupee Term Loan 28-May-14 NA 28-May-2021 36.39 CRISIL AAA/Stable
NA Cash Credit* NA NA NA 360 CRISIL AAA/Stable
NA Export Packing Credit@ NA NA NA 70 CRISIL A1+
NA Proposed Long-Term Bank Loan Facility NA NA NA 335.23 CRISIL AAA/Stable
NA Letter of Credit ** NA NA NA 400 CRISIL A1+
^ Yet to be issued
*Interchangeable with working capital demand loan
**Interchangeable with bank guarantee
@Interchangeable with packing credit in foreign currency
# CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these instruments
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  1750  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+
Non Convertible Debentures  LT  500  CRISIL AAA/Stable    No Rating Change    No Rating Change  02-11-16  CRISIL AAA/Stable    No Rating Change  CRISIL AAA/Stable 
                13-08-16  CRISIL AAA/Watch Developing       
Fund-based Bank Facilities  LT/ST  1600  CRISIL AAA/Stable/ CRISIL A1+    No Rating Change    No Rating Change  02-11-16  CRISIL AAA/Stable/ CRISIL A1+    No Rating Change  CRISIL AAA/Stable/ CRISIL A1+ 
                13-08-16  CRISIL AAA/Watch Developing/ CRISIL A1+       
Non Fund-based Bank Facilities  LT/ST  400  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 360 CRISIL AAA/Stable Cash Credit* 360 CRISIL AAA/Stable
Export Packing Credit@ 70 CRISIL A1+ Export Packing Credit@ 70 CRISIL A1+
Letter of Credit** 400 CRISIL A1+ Letter of Credit** 400 CRISIL A1+
Proposed Long Term Bank Loan Facility 335.23 CRISIL AAA/Stable Proposed Long Term Bank Loan Facility 335.23 CRISIL AAA/Stable
Rupee Term Loan 834.77 CRISIL AAA/Stable Rupee Term Loan 834.77 CRISIL AAA/Stable
Total 2000 -- Total 2000 --
*Interchangeable with working capital demand loan
**Interchangeable with bank guarantee
@Interchangeable with packing credit in foreign currency
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 rating short term debt

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