Rating Rationale
December 03, 2018 | Mumbai
Jindal Poly Films Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.848 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reassigned)
 
Rs.60 Crore Commercial Paper CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's ratings on the bank facilities and debt instrument of Jindal Poly Films Limited (JPFL; a part of the BC Jindal group) continue to reflect market leadership in the domestic flexible packaging business and healthy operating efficiency. These strengths are partially offset by vulnerability to volatility in raw material prices and demand-supply dynamics of the business, and increase in debt following ongoing capacity expansion in domestic operations.
 
The ratings also factor in the announcement made in August 2018 to expand capacity at a total capital expenditure (capex) of Rs 750 crore. This includes Rs 350 crore to enhance the bi-axially oriented polypropylene (BOPP) capacity by 52,500 tonne per annum (tpa) in Jindal Poly Division and Rs 400 crore for setting up an 18,000 tpa capacity for spun-melt fabric under Global Non-Wovens Division (GNL). The capex is expected to be implemented by June 2020 and will be funded through mix of debt (85%) and internal accruals (15%). Consequently, debt is expected to peak in fiscal 2020 with cash accrual starting only from fiscal 2021. Nonetheless, the financial risk profile should remain commensurate with the rating category. The capex is in addition to the new lines for bi-axially-oriented polyethylene terephthalate (BOPET) and coated products which are being added in fiscal 2019.

Analytical Approach

CRISIL previously combined the business and financial risk profiles of JPFL with its subsidiaries and with the overseas operations housed under JPF Netherlands BV, Netherlands (JPF).
 
However, from December 2017, JPF 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 has 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. Based on these, CRISIL has now adopted a standalone approach for arriving at the ratings.
 
Furthermore, CRISIL continues to reduce the networth of the company by the outstanding investments in the group’s power entity, Jindal India Thermal Power Ltd (JITPL), through Jindal India Powertech Ltd.

Key Rating Drivers & Detailed Description
Strengths
* Leadership position in the domestic market
JPFL is the largest player in India's BOPET and BOPP markets, with capacities of 127,000 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. In fiscal 2019, it is expected to further increase the domestic capacities of BOPET by 50,500 tpa and coated products by 19,678 tpa. It also has plans to expand domestic BOPP capacity to 3,03,500 tpa from 251,000 tpa by June 2020 along with setting up a new line of 18000 TPA in GNL. 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 new business segment under GNL commenced operations in fiscal 2016. In this segment, earnings before interest and tax were Rs 12.81 crore in fiscal 2018 against a loss of Rs 1.2 crore in fiscal 2017, and it is expected to remain profitable over the medium term.
 
Weakness
* Vulnerability to volatile raw material costs and demand-supply dynamics in the BOPP business
The BOPP and BOPET business is cyclical; product realisations have fluctuated in the past depending on 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. 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 remain subdued over the medium term, 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, 2018, was Rs 988 crore against Rs 726 crore a year earlier. In fiscal 2019, the company is increasing its domestic BOPET and coated products capacities with an investment of Rs 380 crore. Further, an investment of Rs 750 crore will be undertaken over the next two years for expanding domestic BOPP and spun-melt fabric capacities. Consequently, debt is expected to remain high over the medium term. Moreover, investments in JITPL in the past have precluded debt reduction. However, this exposure is not expected to increase further and Rs 160 crore of the investment has already been written off in fiscal 2018. 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.
Outlook: Stable

CRISIL believes JPFL will sustain its financial risk profile and established market position, while its sound operating efficiency will help maintain healthy cash accrual, over the medium term.
 
Upward scenario
* Significant and sustained improvement in profitability, coupled with lower-than-expected debt.
 
Downward scenario
* Weakening of the financial risk profile due to delay in ramp-up of new capacities, new sizeable debt-funded capex/acquisitions, or further investment in the power project.
 

About the Company

JPFL, part of 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 127,000 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 manufactures non-woven products for hygiene and medical applications and has a reputed customer base. Also, 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 merged with JPFL. JPL has two manufacturing units, one each in Daman and Diu; and Samba, Jammu & Kashmir.

Key Financial Indicators (Standalone)
As on/for the period ended March 31   2018 2017
Revenue Rs crore 2950 2592
Profit after tax (PAT) Rs crore 15 95
PAT margin % 0.5 3.7
Adjusted debt/adjusted networth Times 0.88 0.63
Interest coverage Times 5.03 5.82

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 60 CRISIL A1
NA Proposed Fund-Based Bank Limits^ NA NA NA 250 CRISIL A+/Stable
NA Proposed Non Fund based limits^^ NA NA NA 315 CRISIL A1
NA Rupee Term Loan NA 8.65% Jun-21 65 CRISIL A+/Stable
NA Rupee Term Loan NA 9.05% Aug-22 28 CRISIL A+/Stable
NA Long Term loan NA 9% May-19 115 CRISIL A+/Stable
NA Rupee Term loan NA 8.25% Mar-23 40 CRISIL A+/Stable
NA Working Capital Facility ** NA NA NA 35 CRISIL A+/Stable
^ Fully interchangeability with Non Fund based limits
^^ 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
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  60.00  CRISIL A1  23-08-18  CRISIL A1  10-08-17  CRISIL A1  16-09-16  CRISIL A1  11-12-15  CRISIL A1  CRISIL A1+ 
        20-04-18  CRISIL A1  18-07-17  CRISIL A1  18-05-16  CRISIL A1  18-02-15  CRISIL A1+   
        03-04-18  CRISIL A1  28-02-17  CRISIL A1  19-02-16  CRISIL A1  20-01-15  CRISIL A1+   
Non Convertible Debentures  LT    --  03-04-18  Withdrawal  10-08-17  CRISIL A+/Stable  16-09-16  CRISIL A+/Negative  11-12-15  CRISIL A+/Negative  CRISIL A+/Stable 
            18-07-17  CRISIL A+/Stable  18-05-16  CRISIL A+/Negative  18-02-15  CRISIL A+/Stable   
            28-02-17  CRISIL A+/Negative  19-02-16  CRISIL A+/Negative  20-01-15  CRISIL A+/Stable   
Fund-based Bank Facilities  LT/ST  533.00  CRISIL A+/Stable  23-08-18  CRISIL A+/Stable  10-08-17  CRISIL A+/Stable  16-09-16  CRISIL A+/Negative  11-12-15  CRISIL A+/Negative  CRISIL A+/Stable 
        20-04-18  CRISIL A+/Stable  18-07-17  CRISIL A+/Stable  18-05-16  CRISIL A+/Negative  18-02-15  CRISIL A+/Stable   
        03-04-18  CRISIL A+/Stable  28-02-17  CRISIL A+/Negative  19-02-16  CRISIL A+/Negative  20-01-15  CRISIL A+/Stable   
Non Fund-based Bank Facilities  LT/ST  315.00  CRISIL A1      10-08-17  CRISIL A1  16-09-16  CRISIL A1  11-12-15  CRISIL A1  CRISIL A1+ 
            18-07-17  CRISIL A1  18-05-16  CRISIL A1  18-02-15  CRISIL A1+   
            28-02-17  CRISIL A1  19-02-16  CRISIL A1  20-01-15  CRISIL A1+   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Long Term Loan 115 CRISIL A+/Stable Long Term Loan 115 CRISIL A+/Stable
Proposed Fund-Based Bank Limits^ 250 CRISIL A+/Stable Proposed Working Capital Facility* 565 CRISIL A+/Stable
Proposed Non Fund based limits^^ 315 CRISIL A1 Rupee Term Loan 133 CRISIL A+/Stable
Rupee Term Loan 133 CRISIL A+/Stable Working Capital Facility** 35 CRISIL A+/Stable
Working Capital Facility** 35 CRISIL A+/Stable -- 0 --
Total 848 -- Total 848 --
* Includes working capital demand loan and packing credit, which are interchangeable
** This facility is for Jindal Photo Division of Jindal Poly Films Limited
^ Fully interchangeability with Non Fund based limits
^^ Fully interchangeability with Fund based limits
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 Criteria for rating short term debt

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