| Jindal Poly Films Limited | ||||||
| Rating outlook revised to 'Positive'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has revised its rating outlook on the long-term bank facilities of Jindal Poly Films Limited (JPFL; part of the BC Jindal group) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL A+'; the rating on the short-term bank facilities and commercial paper has been reaffirmed at 'CRISIL A1'. |
| Analytical Approach |
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CRISIL continues to have a standalone approach for arriving at the ratings. From December 2017, JPF Netherlands BV, Netherlands, ceased to be a subsidiary of JPFL as due to issuance of new shares to third-party investor, the shareholding of JPFL in the former had been diluted to 49.5% from 51%. Further, as per the management, overseas operations are self-sustainable and cash flows from domestic and overseas entities are not fungible. The debt in overseas operations is ring-fenced from JPFL and there are limited business linkages between domestic and overseas operations. |
| Key Rating Drivers & Detailed Description |
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Strengths * Leadership position in the domestic market JPFL is the largest player in India's bi-axially-oriented polyethylene terephthalate BOPET and BOPP markets, with capacities of 177,500 tpa and 251,000 tpa, respectively. The company also has a strong position in the high-value-added metallised films market, with consolidated capacity of 71,000 tpa and in coated products of 19,678 tpa. It also has plans to expand domestic BOPP capacity to 3,03,500 tpa by June 2020 along with setting up a new line of 18,000 tpa in GNL to double the capacity. The company is expected to maintain its leadership position over the medium term. * Healthy operating efficiency Operating efficiency in the domestic business is driven by a single-location manufacturing capacity in Nashik, Maharashtra, which results in economies of scale and hence low per-unit cost of production. Moreover, as the market leader, the company enjoys flexibility in procurement of raw material because of its ability to choose between foreign and local suppliers, depending on the price quoted. The BOPET operations are backward integrated into polymer chips, which mitigates inherent volatility in raw material cost. Also, the business segment under GNL has shown healthy operating profitability of 18-20% in fiscal 2019, and it is expected to remain profitable over the medium term. Weaknesses * Vulnerability to volatile raw material costs and demand-supply dynamics The BOPP and BOPET business is cyclical; product realisations have fluctuated in the past depending on the demand-supply gap. Also, the industry is highly fragmented and players tend to add large capacities whenever there is improvement in prices, leading to a fall in product realisations. For instance, the operating margin of JPFL increased to 34.9% in fiscal 2011 from 21.4% in fiscal 2010 before correcting to 15.3% in fiscal 2012 and 7.3% in fiscal 2013 as new capacities were added. Similarly, while the margin gradually improved to 14.9% in fiscal 2016, it has again moderated to 10.5% in fiscal 2018. The margin has again increased to over 12% in fiscal 2019 with healthy realisations across product segments. Profitability is also vulnerable to volatility in raw material prices as cost of raw material accounts for 55-60% of sales. The operating margin is expected to moderate over the medium term to 10-11%, though cash accrual should be healthy. * Increased debt due to ongoing capacity expansion Debt has remained high due to regular capacity additions. Debt as on March 31, 2019, was Rs 1,066 crore against Rs 988 crore a year earlier. In fiscal 2019, the company increased its domestic BOPET and CPP capacities with an investment of Rs 380 crore. Further, an investment of Rs 750 crore is being undertaken for expanding domestic BOPP and spun-melt fabric capacities which will come on stream by June 2020. Consequently, debt is expected to remain high over the medium term. While, investments in JITPL in the past have precluded debt reduction, this entire exposure has been written off in fiscal 2019. No further support to this entity is expected. Any delay in ramp-up of new capacities, or any new large, debt-funded capex or acquisition could adversely impact the financial risk profile and hence will remain a key monitorable. |
| Liquidity |
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Liquidity continues to remain healthy with cash and liquid investments of Rs 458 crore as on March 31, 2019. The company has maintained over Rs 200 crore cash and liquid investments since March 2017. Liquidity is further aided by fund-based working capital lines of Rs 275 crore, which were utilised at an average of 47% during fiscal 2019. In fiscal 2020, net cash accrual is expected to be healthy at about Rs 300 crore against repayment obligation of around Rs 185 crore. Internal cash accrual, cash and cash equivalents, and unutilised bank lines should be sufficient to meet repayment obligation as well as incremental working capital requirement in the near term. |
| Outlook: Positive |
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CRISIL believes improving capacity utilisation along with healthy realisations, coupled with absence of any large debt-funded capex/ acquisition, could further improve the financial risk profile. |
| About the Company |
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JPFL, part of the BC Jindal group, was incorporated in 1974 to manufacture partially oriented yarn (POY). In 1996, the company diversified into the packaging films segment by manufacturing BOPET. It stopped manufacturing POY in fiscal 2006 to focus on its packaging films division. It currently manufactures polyester chips and the complete range of packaging films comprising BOPET and BOPP. It has capacities of 1,77,500 tpa and 2,51,000 tpa for BOPET and BOPP, respectively. In February 2014, it acquired 60.45% stake in GNL; the stake increased to 100% in fiscal 2017. GNL's unit at Nashik, having a capacity of 18,000 tpa, manufactures non-woven products for hygiene and medical applications and has a reputed customer base. In fiscal 2019, the manufacturing division of Jindal Photo Ltd (JPL), which is primarily engaged in the photo-print paper, X-ray films, and thermal printing machines business, was demerged from JPFL. JPL has two manufacturing units, one each in Daman and Diu; and Samba, Jammu & Kashmir. |
| Key Financial Indicators (Standalone - Company Reported) | ||||||||||||||||||||||||
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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) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^^ Fully interchangeability with Fund based limits ** This facility is for Jindal Photo Division of Jindal Poly Films Limited |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
^Fully interchangeability with Non Fund based limits ^^Fully interchangeability with Fund based limits | ||||||||||||||||||||||||||||||||||||||||||||||||
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