Detailed Rationale

CRISIL Ratings has upgraded its long-term rating on the non-convertible debentures (NCDs) of IGH Holdings Pvt Ltd (IGH) to ‘CRISIL AA/Stable’ from ‘CRISIL AA-/Stable’. The short-term rating on commercial paper programme of the company is reaffirmed at ‘CRISIL A1+’.

Further, CRISIL Ratings has withdrawn rating on Rs 1,000 crore of NCDs at the request of the company (see ‘Annexure – Details of Rating Withdrawn’), which is in line with CRISIL’s withdrawal policy. These NCDs were not issued.

The upgrade in the rating factors a more conservative stance by the management in terms of its leverage philosophy. The management has now articulated to maintain a net debt cover (ratio of total market value of investments in listed companies to net external debt) of at least 7 times at any point of time versus their earlier articulation to maintain an external debt cap. Management has further stated to ensure 7x cover either through promoter infusions, support from group entities or monetisation of investments, if needed. Track record of the same in past provides comfort to the rating. Any change in management stance and their prudence in maintaining the desired net debt cover will be a key monitorable for the ratings going forward.

The ratings continue to reflect the healthy cover available for external debt of Rs 4,470 crore (including co-borrower debt of Rs 400 crore and corporate guarantee of Rs 350 crore provided to another entities of AB group), supported by the market value of investments of Rs 44,219 crore as on July 15, 2024. The ratings also factors in the strong financial flexibility of IGH as a key holding company of the Aditya Birla (AB) group, with significant investments in operating companies of the group such as Hindalco Industries Ltd (Hindalco; 'CRISIL A1+'), Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+'), Century Textiles and Industries Ltd (Century, ‘CRISIL AA/Stable/CRISIL A1+’), Aditya Birla Fashion and Retail Ltd (ABFRL; 'CRISIL AA+/Watch Negative/CRISIL A1+') and Vodafone Idea Ltd (VIL). IGH, being a key promoter group company, enjoys an important position within the group and is expected to receive need-based liquidity support.

The ratings also consider the additional financial flexibility available in the form of cash flow support from the AB group companies and the discipline demonstrated by the management in maintaining healthy cover levels by prudently managing external debt, which support the ratings. Further, the strong reputation of AB group and the healthy credit risk profiles of the operating entities, with presence in diverse sectors, such as textiles, chemicals, metals, commodities, fashion, telecommunications and financial services, also support the ratings.

 

These strengths are partially offset by exposure to market-related risks and IGH’s weak debt protection metrics. Additionally, significant capital expenditure (capex) plans of IGH’s parent viz. Essel Mining and Industries Ltd (EMIL; ‘CRISIL AA-/Stable/CRISIL A1+’) could further restrict the cash inflows of IGH in the near to medium term.

CRISIL Ratings also note the change in debt guidance to around Rs 5,250 – 5,750 crore (including co-borrower debt of Rs 400 crore and corporate guarantee of Rs 350 crore provided to another entities of AB group) for IGH in short to medium term. Nonetheless, the stipulated debt cover would serve as the guiding principle for the credit rating.

Analytical Approach

CRISIL Ratings has followed the holding company approach and considered the standalone business and financial risk profiles of IGH to arrive at its rating as IGH is amongst the key group companies that hold shares of various listed companies of the Aditya Birla group. Also, to arrive at the debt cover calculation, CRISIL Ratings has only considered the external debt raised by IGH (including co-borrower debt and corporate guarantee issued).

 

Further, CRISIL Ratings has also factored in the support that may require to be extended by IGH towards its parent - EMIL.

Key Rating Drivers & Detailed Description

Strengths:

• Strong financial flexibility driven by investments in listed AB group companies: IGH is amongst the key holding companies of the AB group and has diversified investments in group companies. The company’s strong financial flexibility emanates from its equity stakes in Hindalco (15.58% of the total shareholding of the company), Grasim (6.64%), ABFRL (13.4%), Century (9.98%) and VIL (0.60%). The market value of IGH's stake in these companies was around Rs 44,219 crore as on July 15, 2024, while external debt stood at Rs 4,470 crore (including co-borrower debt of Rs 400 crore and corporate guarantee of Rs 350 crore), translating into a healthy cover of 9.89 times for the debt.
• Diversified investment portfolio, strong credit profile of key underlying entities and healthy reputation of the AB group: IGH has a diversified investment portfolio with underlying entities operating in diverse sectors such as textiles, chemicals, metals, commodities, fashion, telecommunications and financial services. IGH benefits from the robust credit risk profiles of these key operating entities of the group as well as from the strong reputation of the AB group. IGH is likely to receive steady dividend and interest income from its significant investments in the AB group companies. Equity infusion by the parent has been used for deleveraging as well as for incremental investments in/lending to group companies and indicates the criticality of the company to the group.
• Expected sustenance of healthy cover and support from the AB group: External debt is expected around Rs 5,250 – 5,750 crore in IGH over the medium term, This translates into a healthy cover of 7.69 times based on the current market value of investments of around Rs 44,219 crore (as on July 15, 2024). Further, the management has communicated to maintain external debt cover at or above 7x over the medium term irrespective of the debt levels or the market value of investments.

Even if the market value of the investments drops significantly, there exists adequate financial flexibility in the form of unpledged shares in listed and unlisted companies of the AB group, which could be used to correct the debt cover.
 

CRISIL Ratings also takes comfort from the discipline demonstrated by the management in maintaining debt cover by reducing external debt through infusion of funds from group companies. Any significant decline in the cover that is not corrected will be a key rating sensitivity factor.

 

Weaknesses:

• Weak debt protection metrics: The dividend and interest income earned by IGH is usually not sufficient to meet its debt obligation resulting in weak interest coverage ratio (0.76x as on March 31, 2024). While the principal needs to be refinanced regularly, the interest obligations are likely to be met from dividend inflow, interest income, promoter support as well as through additional debt. Nevertheless, strong financial flexibility and demonstrated track record of successful refinancing of debt in a timely manner mitigates the risk. The financial risk profile is also supported by the market value of equity investments in operating companies (that is significantly higher than the book value), which are available to be  be pledged to refinance debt, if required.
• Exposure to market-related risks: The company remains susceptible to market-related risks, as financial flexibility in terms of the debt cover available will depend, to a great extent, on the prevailing market sentiments and share prices of the underlying investments. Any increase in market-related risks, leading to a sharp fall in the share prices of Grasim, Hindalco, ABFRL and others will be a key rating sensitivity factor in case of erosion of debt cover below desired thresholds.
• Expected decline in cash accrual and significant capex of the parent: Cash flow of EMIL has declined from fiscal 2023 onwards on account of expiry of its iron-ore mining licences; however, it will continue to be supported by the renewable and mining businesses. Also, over the next few fiscals, the parent will incur substantial capex towards coal MDO (mine developer and operator) operations and commercial coal mining business, which are expected to be funded through infusion from the AB group and external borrowings. Ability to get timely approvals and achieve desired progress in the coal mining business (MDO as well as commercial mining) will remain monitorable.

Outlook: Stable

CRISIL Ratings believe IGH will sustain its heathy debt cover over the medium term, supported by the management’s intent to maintain a cover of at least 7x and the healthy market value of investments in key operating entities of the AB group. Also, IGH will continue to enjoy strong financial flexibility as a key holding company of the group.

Rating Sensitivity factors

Upward factors:

• Articulation and track record of debt cover sustaining above 8-9 times, with continued strong financial flexibility of the group
• Improvement in the credit quality of EMIL by at least 2 notches.

 

Downward factors:

• Steep increase in debt or fall in the market value of investments, weakening the debt cover below 6 times on a sustained basis.
• Downgrade in the ratings of EMIL by 1 notch or more.
• Change in stance of support by the Aditya Birla Group or weakening of the company’s strategic importance for the group

About the Company
IGH, incorporated in 2000, is a non-deposit-taking non-banking financial company registered with the RBI. It’s main activity is investment in shares, securities and debentures and providing funds to companies of the AB group. It is a 100% subsidiary of EMIL.

Key Financial Indicators– IGH (Standalone)– CRISIL Ratings-adjusted numbers

As on/for the period ended March 31	Unit	2024	2023
Revenue	Rs.Crore	399	306
Profit after tax (PAT)	Rs.Crore	-133	-204
PAT margin	%	NM	NM
Adjusted debt/adjusted networth	Times	0.22	0.22
Interest coverage	Times	0.76	0.69

NM: Not meaningful

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs.Crore)	Complexity Level	Rating assigned with outlook
NA	Commercial paper	NA	NA	7-365 days	2,000	Simple	CRISIL A1+
NA	Non-convertible debentures*	NA	NA	NA	1,000	Simple	CRISIL AA/stable

*Not yet issued

 

Annexure – Details of Rating Withdrawn

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs.Crore)	Complexity Level	Rating assigned with outlook
NA	Non-convertible debentures*	NA	NA	NA	1,000	Simple	Withdrawn

*Not yet issued