Rating Rationale
January 31, 2019 | Mumbai
Grasim Industries Limited
'CRISIL AAA/Stable' assigned to NCD
Rating Action
Total Bank Loan Facilities Rated Rs.2606 Crore (Enhanced from Rs.2000 Crore)
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.2000 Crore Non Convertible Debentures CRISIL AAA/Stable (Assigned)
Rs.500 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.1750 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AAA/Stable' rating to Rs 2,000 crore non-convertible debenture issue of Grasim Industries Limited (Grasim) and has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the debt programmes and bank facilities.
The reaffirmation factors Grasim's likely participation in Vodafone Idea Ltd's (VIL, rated 'CRISIL A+/Negative') rights issue plan by March 2019, as per the entitlement based on its shareholding in VIL. Also, Grasim has capital expenditure (capex) plan of Rs 7,500 crore over the medium term to expand its capacities in viscose staple fibre (VSF) and chemical segment. While this may result in marginal increase in leverage for Grasim, however, the same is expected to remain comfortable over the medium term.
The ratings also continue to reflect Grasim's leadership position in the VSF and chemical 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 and investments in other group entities.

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, rated '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 - List of entities consolidated , which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
* Leadership position in the VSF and chemical 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. The company will maintain its leadership position and benefit from the healthy 7-8% growth in demand, which will keep utilisation rate high at ~90%.
Grasim has leadership position in caustic soda and Epoxy resins in India. Captive application of Caustic soda and presence of leading paint companies and electrical machinery manufacturers as clientele benefits epoxy resins segment. The company's focus on expanding the existing set of value-added products from chlorine (by-product of caustic), will allow it to earn better realizations. Furthermore, business risk profile is diversified with addition of agriculture, textile and insulator businesses from the merger where it has strong market position.
* Healthy financial risk profile, backed by strong capital structure
Financial risk profile is comfortable, driven by healthy cash accrual and robust capital structure. Grasim should maintain its strong financial risk profile, supported by expected healthy cash accrual of ~Rs 3,000 crore and capex of ~Rs 2,500 crore per annum over the medium term. Based on discussions with the management, Grasim will not be leveraged significantly for making additional investments. Any change in the management stance regarding this will be a key rating sensitivity factor.
VIL, has plan to raise Rs 25,000 crore through right issues. Grasim, which holds 11.55% stake in VIL, is likely to subscribe the issue as per the entitlement based on its shareholding in VIL. Also, Grasim has a capex plan of about Rs 7,500 crore over the medium term to expand its capacities in VSF and chemical segment. Internal liquidity and long-term debt should support this fund requirement.
* Financial flexibility derived from being the holding company
Grasim is a 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 and make Grasim a key entity within the group. Grasim's 60.22% stake in UltraTech is valued at Rs 56,000 crore as on January 29, 2018. Grasim receives annual dividend from UltraTech, which has a healthy dividend track record. Financial flexibility has enhanced post the merger of Aditya Birla Nuvo Ltd (ABNL) and listing of ABCL. Significant shareholdings in the other listed entities are together valued at about Rs 16,000 crore as on January 29, 2018.
* Exposure to cyclicality in the VSF business
Demand for VSF is vulnerable to economic downturns. In the past, intense competition has led to sharp fluctuation in operating margin: 15.2% in fiscal 2016 as against 20% in last two fiscals. 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. Profitability in 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 Grasim effectively manage any downturn in the industry.

Liquidity remains strong, with liquid investments of over Rs 3,000 crore as on December 31, 2018. Financial flexibility also benefits from its ability to raise short- and long-term debt at short notice and at competitive rates. The working capital limit has been sparsely utilised (averaging 10% for the 12 months through December 2018). On a standalone basis, company has no major repayment obligation towards long term debt. Repayment of Rs 387 crore in fiscal 2019 and Rs 627 crore over the following three fiscals will be supported by healthy internal accrual. Cash flow from renewable assets should support debt at their level. Nevertheless, need-based support will be forthcoming from Grasim.

Outlook: Stable

CRISIL believes Grasim will continue to maintain a strong credit risk profile, driven by its leadership position in the VSF and chemical segment and healthy cash accrual. Moreover, Grasim will remain key entity within the Aditya Birla group being holding company of UltraTech and ABCL, which houses businesses that are sizeable and strategic to the group.
Downside scenario
* Significant lower-than-expected profitability

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. Company's Viscose segment also comprises of 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 01, 2018. The chemical segment comprises caustic soda, allied chemicals and epoxy. Also, the company has presence in textiles, insulators, agri-business and solar power industries.
UltraTech, Grasim's 60.22% subsidiary, is the largest cement producer in India. 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, 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 2018 2017
Revenue Rs crore 15,835 10,345
Profit after tax (PAT) Rs crore 1769 1560
PAT margin % 11.2 15.1
Adjusted debt/adjusted networth Times 0.07 0.04
Interest coverage Times 23.16 27.25
*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 crore)
Rating assigned
with outlook
NA Debentures^ NA NA NA 500 CRISIL AAA/Stable
NA Debentures^ NA NA NA 2000 CRISIL AAA/Stable
NA Commercial paper NA NA 7-365 days 1750 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 30-Dec-19 11 CRISIL AAA/Stable
NA Rupee Term Loan 1-Jul-17 NA 29-Jan-20 14.49 CRISIL AAA/Stable
NA Rupee Term Loan 1-Jul-17 NA 19-Dec-21 12.45 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
Name of the Company Type of Consolidation
Aditya Birla Solar Ltd Full consolidation
Aditya Birla Renewables Ltd Full consolidation
Aditya Birla Renewables SPV1 Ltd Full consolidation
Aditya Birla Renewables Subsidiary Ltd Full consolidation
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  1750.00  CRISIL A1+      29-01-18  CRISIL A1+  18-12-17  CRISIL A1+    --  -- 
                23-11-17  CRISIL A1+       
Non Convertible Debentures  LT  0.00
CRISIL AAA/Stable      29-01-18  CRISIL AAA/Stable  18-12-17  CRISIL AAA/Stable  02-11-16  CRISIL AAA/Stable  CRISIL AAA/Stable 
                23-11-17  CRISIL AAA/Stable  13-08-16  CRISIL AAA/Watch Developing   
                    27-05-16  CRISIL AAA/Stable   
                    04-04-16  CRISIL AAA/Stable   
Short Term Debt  ST                  02-11-16  CRISIL A1+  CRISIL A1+ 
                    13-08-16  CRISIL A1+   
                    27-05-16  CRISIL A1+   
                    04-04-16  CRISIL A1+   
Fund-based Bank Facilities  LT/ST  1059.27  CRISIL AAA/Stable/ CRISIL A1+      29-01-18  CRISIL AAA/Stable/ CRISIL A1+  18-12-17  CRISIL AAA/Stable/ CRISIL A1+  02-11-16  CRISIL AAA/Stable/ CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
                23-11-17  CRISIL AAA/Stable/ CRISIL A1+  13-08-16  CRISIL AAA/Watch Developing/ CRISIL A1+   
                    27-05-16  CRISIL AAA/Stable/ CRISIL A1+   
                    04-04-16  CRISIL AAA/Stable/ CRISIL A1+   
Non Fund-based Bank Facilities  LT/ST  1546.73  CRISIL A1+      29-01-18  CRISIL A1+  18-12-17  CRISIL A1+  02-11-16  CRISIL A1+  CRISIL A1+ 
                23-11-17  CRISIL A1+  13-08-16  CRISIL A1+   
                    27-05-16  CRISIL A1+   
                    04-04-16  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* 360 CRISIL AAA/Stable
Letter of Credit# 1546.73 CRISIL A1+ Export Packing Credit 70 CRISIL A1+
Rupee Term Loan 139.27 CRISIL AAA/Stable Letter of Credit** 400 CRISIL A1+
Short Term Bank Facility^^ 375 CRISIL A1+ Proposed Long Term Bank Loan Facility 335.23 CRISIL AAA/Stable
-- 0 -- Rupee Term Loan 834.77 CRISIL AAA/Stable
Total 2606 -- Total 2000 --
^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
*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 Consolidation
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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