| Gujarat Fluorochemicals Limited | ||||||
| 'CRISIL AA/Positive' assigned to Non Convertible Debentures | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
CRISIL Ratings has assigned its ‘CRISIL AA/Positive’ rating to the Rs 50 crore non-convertible debentures of Gujarat Fluorochemicals Limited (GFL) and reaffirmed its ‘CRISIL AA/Positive/CRISIL A1+’ ratings on the bank loan facilities.
The ratings continue to reflect the established market position of GFL in the chemicals business, healthy operating efficiency driven by integrated operations, and sound financial risk profile. These strengths are partially offset by the financial support extended to group companies, though diminishing, and susceptibility to inherent volatility in the chemicals business.
Operating revenue rose to ~Rs 4,213 crore for the first nine months of fiscal 2023 from Rs 2,879 crore for the corresponding period of fiscal 2022, driven by better capacity utilisation and healthy realisations across product segments. Earnings before interest, taxes, depreciation and amortisation (Ebitda) rose to Rs 1,519 crore (Ebitda margin of 36%) from Rs 867 crore (30%). Substantial ramp-up in the polytetrafluoroethylene (PTFE) and new fluoropolymers segments supported the strong operating performance.
Net debt reduced to ~Rs 1,100 crore as on December 31, 2022, given that INOX Wind Ltd (IWL; ‘CRISIL BBB+/Positive/CRISIL AA (CE)/Positive/CRISIL A2’) has repaid capital advances of ~Rs 600 crore. GFL has brought forward some of its proposed capital expenditure (capex) and will now undertake capex of Rs 2,100-2,300 crore over fiscals 2023 and 2024. A large part of the capex is likely to be funded through internal accrual and net debt is not expected to increase materially.
The management has taken steps to enhance liquidity in group companies by raising funds through various measures, which should reduce support provided to group companies. The expected improvement in the performance of the wind business should lead to reduced support from GFL, thereby improving its financial risk profile, and will remain a key monitorable. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of GFL and all its subsidiaries, as all the entities (collectively referred to herein as GFL) operate in similar businesses and are under a common management.
CRISIL Ratings has included the debt of IWL, which has been guaranteed by GFL, to arrive at the adjusted debt of GFL.
Please refer Annexure - List of entities consolidated, for details of the entities considered and their analytical treatment for consolidation |
Key Rating Drivers & Detailed Description Strengths: Established market position GFL is the largest PTFE manufacturer in India and among the top four players globally. It is also a leading manufacturer of hydro-chloro-fluoro-carbon (HCFC), which is used in refrigeration and air conditioning, among other industries. The company has a diversified product portfolio, comprising PTFE, new fluoropolymers, specialty chemicals, caustic soda, chloro-methane, and refrigerant gases. The new fluoropolymer products saw compound annual growth rate of 57% in revenue over the five fiscals ended March 31, 2022. The new fluoropolymer and specialty products are expected to drive growth in future.
Integrated operations driving operating efficiency The chemicals business is integrated forward into manufacturing PTFE and backward into HCFC, anhydrous hydrogen fluoride, chloroform and chlorine. The new fluoropolymer products such as polyvinylidene fluoride (PVDF), fluorocarbons (FKM) and phosphoric acid (PPA) fit seamlessly in the production cycle as they are manufactured from the same raw materials such as fluorspar and R-142b. This reduces dependence on external sources for raw materials and ensures healthy operating margin and capacity utilisation. The new fluoropolymer products have higher margins and should help improve profitability over the medium term. The Ebitda margin was ~36% in the first nine months of fiscal 2023 and is expected at a similar level over the medium term, driven by healthy realisations and better product mix.
Healthy financial risk profile The financial risk profile is backed by strong networth, comfortable gearing and healthy debt protection metrics. The financial risk profile has improved as the management has brought down advances provided to group companies by infusing funds in group companies. Debt protection metrics should remain healthy with interest coverage expected over 20 times. The expected reduction in debt guaranteed by GFL should keep adjusted gearing below 0.35 time as on March 31, 2023.
Capex of Rs 2,100-2,300 crore over fiscals 2023 and 2024 will be funded largely through internal accrual. Hence, net debt should not increase materially keeping the financial risk profile healthy.
Weaknesses: Support to group companies, though diminishing GFL has supported group entities over the years through loans, advances, corporate guarantees and lien marking its own liquidity for loans of group entities, resulting in an increase in its own debt.
The management’s efforts to improve the capital structure of group companies and the expected improvement in their performance may result in less support required from GFL. This remains a monitorable.
Inherent volatility in the chemicals business The chemicals business is largely export-driven, and thus is vulnerable to volatility in international markets. Addition of large capacity overseas could constrain the performance of GFL. While the large scale and integrated operations drive operating efficiency, business remains susceptible to fluctuations in global supply and price trends.
Also, despite prudent foreign exchange (forex) management policy, the company is vulnerable to any large fluctuation in currency exchange rates. |
Liquidity: Strong Liquidity should remain strong, backed by expected annual cash accrual of over Rs 1,400 crore over the medium term against annual term debt obligation of Rs 140-150 crore. Liquidity is supported by unencumbered cash equivalent/liquid investment of about Rs 380 crore as on December 31, 2022. GFL plans capex of Rs 2,100-2,300 crore over fiscals 2023 and 2024 to be financed through internal accrual. It has access to fund-based limits of Rs 1,200 crore, which were utilised 80% on average in the 12 months through December 2022. |
CRISIL Ratings believes the business risk profile of GFL will improve with sustained revenue growth across products while the financial risk profile will benefit from debt reduction and strong accrual. |
Upward Factors
Downward Factors
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GFL houses the chemicals business of the INOXGFL group. The company has a diverse product portfolio which includes caustic soda, chloro-methane, PTFE, HCFC and value-added products. It is one of the largest chemicals players in India, with a combined installed capacity of 72,000 tonne per annum (TPA) of HCFC, 17,820 TPA of PTFE, 138,450 TPA of caustic soda, and 109,620 TPA of chloro-methane. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Yet to be placed |
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 Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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