Detailed Rationale

Crisil Ratings has downgraded its ratings on the bank facilities of Jindal Poly Films Limited (JPFL) to ‘Crisil A+/Crisil A1’ from 'Crisil AA-/Crisil A1+' and the ratings continues on ‘Rating Watch with Negative Implications’.

 

The rating action factors in significant damage to the manufacturing capacities of JPFL Films Private Ltd (the subsidiary with packaging division; JPFL Films; ‘Crisil A+/Watch Negative/Crisil A1/Watch Negative’), on account of a fire accident at company’s Nashik plant on May 21, 2025, which is expected to impact its business risk profile. The cause of the fire is currently under investigation and the company is assessing the full impact of the damage. The plant was fully shut down due to the impact of fire for ~20 days and the operations have now partially commenced from June 9, 2025, onwards. Presently, undamaged lines accounting for 25-30% of total capacity are operational and the company expects to gradually increase the capacity to 50% by this year end. While the damage due to fire to the inventory and plant & machinery is covered under insurance as per the management, loss of profit due to shutdown of plant is not covered and will have to be borne by the company. Management is yet to ascertain the full quantum of loss.

 

Crisil Ratings will continue to engage with the management and will resolve the watch post attaining complete clarity on the quantum of damage and company’s ability to restore its capacity.

 

The financial risk profile is expected to be impacted in coming fiscals. With reduction in net worth because of loss due to fire, the capital structure is expected to be impacted. Further, owing to sizeable decline in scale of operations, debt protections metrics like interest coverage and Debt/EBITDA will also get moderated substantially for fiscal 2026. However, presence of cash and equivalent of over Rs 4,100 crore as on September 30, 2024, in the parent Jindal Poly Films Ltd provides comfort. The management has articulated that they will support continuation of operations in JPFL Films and shall provide required fund infusion to support its business plan including all payments and debt obligations of the Company.

 

JPFL’s revenue has grown by 37% y-o-y in 9M fiscal 2025 against de-growth of 27% during the corresponding period previous fiscal and 14% de-growth for the full fiscal 2024. The revenue recovery was driven by volume growth in both domestic and export markets supported by improvement in the prices of biaxially-oriented polypropylene (BOPP) and biaxially oriented polyethylene terephthalate (BOPET). EBITDA Margins also showed a substantial sequential improvement in the current year to 7% in Q3 fiscal 2025, 8.0% in Q2 fiscal 2025 from 5.0% in Q1 fiscal 2025 against 2.8% in fiscal 2024; though it remains below the normalized margin of 12.0-13.0% during the pre-pandemic period. Crisil Ratings expect a substantial drop in revenue and EBITDA margin in fiscal 2026, impacted by the fire incident.

 

The ratings continue to reflect market leadership of the company in non-wovens fabric business and healthy liquidity profile. These strengths are partially offset by loss of market share in packaging, vulnerability to volatility in raw material prices, and demand-supply dynamics.

Analytical Approach

For arriving at its ratings, Crisil Ratings has combined the business and financial risk profiles of JPFL and its subsidiaries on account of managerial, operational, and financial linkages among the entities. The company will continue to hold the majority shareholding in JPFL Films Private Limited (JPFL Films) and strong management linkages as well as shared name will ensure fungibility of funds between JPFL and JPFL Films.

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

Strengths:

Leadership position in the domestic market in the GnL division: The company has non-woven business where the capacity is 58,000 TPA. JPFL undertakes regular capital expenditure (capex) to expand capacities and will likely maintain its leadership position over the medium term in the GnL Division.

 

Strong liquidity profile supporting the business: The financial risk profile is currently supported by cash and equivalents of Rs 4,100 crores (as on September 30, 2024), majorly deployed over mutual funds, debt and equity investments. With the impact in accruals during fiscal 2026, the company has articulated that shareholder support will be available to meet out any required funding to meet shortfall in payments including debt payment obligations.

 

Weaknesses:

Weaking of market position due to fire: JPFL Films was the largest flexible packaging player in India. JPFL Films had BOPET and BOPP capacities of 173,000 tonne per annum (TPA) and 294,000 TPA, respectively. However, post fire, currently only 68,000 tonnes of BOPET and nil capacity of BOPP remain operational. The recovery in operational capacity remains monitorable.

 

Vulnerability to volatile raw material costs and demand-supply dynamics: The BOPP and BOPET business are cyclical in nature. Product realizations have fluctuated in the past depending on the demand-supply gap. Also, the players tend to add large capacities when prices improve, leading to a fall in product realization. The last 5 fiscals saw a huge fluctuation in margins due to a surge in demand and supply. The operating margins, which remained around 12-13% historically, rose to 19.2% in fiscal 2020, 27.6% in fiscal 2021 and to 25.2 % in fiscal 2022 backed by healthy demand and hence realizations across product segments. Due to capacity addition in the industry between fiscal 2022 and fiscal 2023 leading to oversupply and correction in product prices, the margins declined to 9.5% in fiscal 2023 and further to 2.8% in fiscal 2024. 9M fiscal 2025 has shown a stabilization in demand and supply scenario which led to a sequential improvement in margins to 5% in Q1 FY25, 8% in Q2 FY25 and 7% in Q3 FY25, the full year margins are expected at 8%-10% in fiscal 2025. Improvement in supply demand dynamics and prices of BOPET and BOPP will remain monitorable going forward. The EBITDA margins during fiscal 2026 is expected to be substantially impacted owing to the fire incident and the plant operating at sub optimal capacity.

 

Profitability is vulnerable to volatility in raw material prices as raw material cost accounts for 55-60% of sales.

 

Weaking of operating efficiencies due to demand and supply imbalance: The imbalance in demand and supply scenario had impacted all packaging players across industry in the last few fiscals. Despite JPFL having the single largest facility in Nashik, operating margins have been impacted more as compared to few of the peers due to large share of commoditized products in the product offerings.

 

However, the company has been adding value added products to the product portfolio in the last 2 years. JPFL added capacitor films, self-adhesive labels in 2022, nylon films in 2023 and BOPA September 2024. Value added products help shield operating profitability during commodity price fluctuations. The ability of these other businesses/ value added products to support businesses during the current year, will remain monitorable.

Liquidity: Strong

Liquidity remains robust with cash and liquid investments of around Rs 4,100 crore as on September 30, 2024 (out of which encumbered portion was Rs 150-200 crores), on a consolidated basis. The working capital limit of over Rs 1,600 crore was utilized ~35% on average over the 6 months through August 2024. With inventory loss the DP (Drawing Power) of the company remains monitorable in the coming fiscals. The net cash accruals are expected to be negative during fiscal 2026 due to damage due to fire, however liquidity is expected to support the debt obligations during the period.

 

The ESG profile of JPFL supports its credit risk profile

 

Flexible packaging manufacturers have a high impact on the environment primarily driven by high power consumption done during their manufacturing process. The sector also has a significant social impact because of its large workforce across its own operations and value chain partners, and due to its nature of operations affecting the local community and health hazards involved. JPFL has been focusing on mitigating its environmental and social risks.

 

Key ESG highlights:

• ESG disclosures of the company are evolving; and it is in the process of further strengthening the disclosures going forward.
• Company has taken various steps that maximized the conservation of energy like Installation of energy efficient fans, increased usages of solar panels, led lights, Installation of Air Compressors, Turbo Ventilators, Energy efficient pumps etc.
• Motion sensors and Plant Ambient temperature monitoring systems were installed, Air cooling and pumping system operation sequence was optimized. These initiatives led to reduction in energy consumption.
• The gender diversity remained at has improved with the percentage of women improving from 13.9% in fiscal 2023 to 16% in fiscal 2024
• The governance structure is characterized by 33% independent director, effectiveness in board functioning and enhancing shareholder wealth, presence of investor grievance redressal mechanism and extensive financial disclosures.

There is growing importance of ESG among investors and lenders. The commitment of JPFL to the ESG principle will play a key role in enhancing stakeholder confidence given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Rating sensitivity factors

Upward factors

• Improvement in business risk profile driven by increase in operational capacity at packaging division leading to substantial revenue growth and an improvement in operating profitability with EBITDA margins improving to over 10%
• Improvement in financial risk profile driven by increasing cushion between net cash accruals and repayment obligations while maintaining healthy liquidity position.

 

Downward factors

• Weakening of business risk profile due to inability to restore the impacted capacities owing to fire incident resulting in sustained drop in scale of operations
• EBITDA margins below 6-7% on sustaining basis.
• Weakening of financial risk profile due to under recovery or delay in insurance receipts, depletion in liquidity or debt funded capex or acquisition plans.
• Material deviation from understanding of management, operating and financial linkages with JPFL Films, which may warrant reviewing analytical approach.

About the Company

JPFL, a part of the BC Jindal group, was incorporated in 1974 to manufacture polyster yarn (POY). In 1996, the company diversified into packaging films by manufacturing BOPET. It stopped manufacturing POY in fiscal 2006 to focus on the packaging films division. It now manufactures polyester chips and the complete range of packaging films comprising BOPET, BOPP and non-Woven fabrics. JPFL had capacities of 173,000 TPA and 294,000 TPA for BOPET and BOPP, respectively, however the same was partially damaged due to the fire.

 

In February 2014, it acquired 60.45% stake in GNL and increased the stake to 100% in fiscal 2017. GNL has a unit at Nashik with capacity of 58,000 TPA of nonwoven products for hygiene and medical applications and has a reputed customer base.

 

During August 2022, the company de-merged its packaging division to its subsidiary JPFL Films. This subsidiary is to be jointly held by JPFL and Brookfield SPV.

Any other information: Not Applicable