Rating Rationale
September 27, 2017 | Mumbai
Gujarat Narmada Valley Fertilizers and Chemicals Limited
'CRISIL A1+' assigned to CP programme
Rating Action
Rs.1000 Crore Commercial Paper CRISIL A1+ (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL A1+' rating to the commercial paper programme of Gujarat Narmada Valley Fertilizers and Chemicals Ltd (GNFC). The rating reflects GNFC's market leadership and established regional presence in the industrial chemicals and fertiliser (urea and ammonium nitro phosphate [ANP]) businesses, respectively. The ratings also factor in strong financial risk profile marked by comfortable debt metrics, healthy capital structure and ample liquidity supported by unutilized bank limits. These strengths are partially offset by risks related to price volatility in the chemicals, primarily toluene di-isocyanate (TDI) business, and exposure to risks related to regulated nature of the fertilizer business. CRISIL will closely monitor sustainability of operations and profitability of GNFC's TDI plant, the company's overall performance in the fertiliser segment, and any higher than expected debt-funded capital expenditure (capex), which may adversely impact its financial risk profile.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of GNFC and its associate and subsidiary companies. This is because of strong financial linkages among the entities. 

Key Rating Drivers & Detailed Description
* Market leadership and established regional presence in the industrial chemicals and fertiliser businesses, respectively:
In the industrial chemicals segment, GNFC primarily produces TDI, aniline, ammonium nitrate, formic acid, acetic acid, and nitric acid, and has a healthy market position. It also enjoys market leadership position in TDI chemical, as the sole producer in India and South East Asia. TDI capacity has been expanded to 64,000 tonne per annum (tpa) from 14,000 tpa in March 2014. Presence in the fertiliser business is strong, with 65-70% of products sold in Gujarat, under the brand, Narmada, through cooperative societies, dealers and retailers. Most of the chemical and fertilizer plants are running at over 100% capacity utilization.
* Healthy financial risk profile:
Reduction of debt of Rs 1100 crore in fiscal 2017, backed by realization of subsidy receivables and scheduled repayments, has significantly strengthened capital structure: gearing reduced to 0.51 time as on March 31, 2017, from 1.16 times a year earlier. Debt protection metrics have improved too; interest coverage and net cash accrual to total debt ratios improved to 3.4 and 0.35 time, respectively, in fiscal 2017 from 2.5 times and 0.1 time, respectively, the previous fiscal. Despite the proposed debt-funded capex of about Rs 900 crore over the next 3 years, gearing should remain below 1 time due to healthy accretion to reserve. Liquidity should remain adequate (utilisation of bank limit of Rs 1500 crore was low, averaging 40% in the 12 months through September 2017) and financial risk profile healthy over the medium term.
* Volatility in chemical business:
TDI's revenue and profitability, which form a major portion of the chemical business' segment, have remained volatile. TDI prices, which largely remained at an average of Rs 100 per kg in fiscal 2016, rose to around Rs 150 per kg in the first half of fiscal 2017 and over Rs 250 per kg in the second half. However, teething issues in fiscal 2015 and gas leakage in fiscal 2017 have precluded stabilisation of operations at the new plant, and impacted profitability. Backed by measures undertaken to prevent recurrence of such issues, operations are expected to remain stable going forward. Nonetheless, any adverse fluctuation in TDI prices and delay in plant stabilisation will remain key rating sensitivity factors.
* Exposure to risks related to regulated nature of the fertilizer industry:
Given Government of India's (GoI) focus on self-sufficiency in food grain production, the fertiliser industry is strategic, but highly controlled. Delays in disbursement of subsidy result in higher reliance on short term working capital borrowings, leading to higher interest costs. In recent years, GoI has focused on reducing subsidy without increasing prices, by urging companies to adopt more efficient methods of urea production. In line with these measures, GoI tightens energy consumption norms periodically, impacting profits of urea players unless they improve energy efficiencies. GNFC's urea plant, being over three decades old, has not able to meet the energy efficiency norms notified by the government and has adversely impacted its profitability. From fiscal 2019, the company's ability to meet or be around further stringent energy efficiency norms, and thus affecting its profitability will remain a key monitorable.
About the Company

GNFC manufactures fertilisers such as urea, ammonium nitro phosphate, and calcium ammonium nitrate, and industrial chemicals such as TDI, aniline, methanol, and acetic, formic and nitric acid. Company also trades in few fertilizers and chemicals. With a view to add value to the excess ammonia produced in its plant (either via intermediate gases produced during ammonia production or utilizing the ammonia itself), GNFC has successfully diversified its product portfolio in fertilizers and chemicals segment over the years. It is also into IT related services, production of neem-based products, viz. neem oil, neem soap, neem cake, etc.
It was incorporated in 1976, jointly promoted by the Government of Gujarat and Gujarat State Fertilizers & Chemicals Ltd holding around 41% stake. Subsequently, the entire stake of the Government of Gujarat was transferred to Gujarat State Investments Ltd (a Government of Gujarat undertaking).

Key Financial Indicators*
Particulars Unit 2017 2016
Revenue Rs. Cr. 4,644 4,609 
Profit After Tax Rs. Cr. 468  176 
PAT Margins % 10.09 3.81
Adjusted Debt/Adjusted Net worth Times 0.51  1.16 
Interest coverage Times 3.39  2.45 
* as per CRISIL adjusted numbers

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 Commercial paper NA NA 7-365 days 1000.0 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  1000  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.
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 Bank Loan Ratings
Criteria for rating Short-Term Debt (including Commercial Paper)

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