Rating Rationale
February 05, 2020 | Mumbai
Linde India Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.958.18 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on long term bank facilities to 'CRISIL AA/Stable' of Linde India Limited (Linde India).
 
The rating continue to reflect its established market position and strong financial and operational support it receives from ultimate parent, Linde AG (rated 'A/Stable/A-1' by S&P Global Ratings). These strengths are partially offset by Linde India's exposure to risks inherent in the highly competitive, capital-intensive, and cyclical industrial gases industry, and end-user industry (primarily steel and other metallurgical industries) concentration in revenue profile
 
The reaffirmation takes into account improvement in financial risk profile led by prepayment of long term debt from the successful divestment of assets in the southern region. Linde has divested assets in southern region at total consideration of Rs. 1380 crore, the proceeds were utilized to prepay the debt to the tune of Rs. 866.8 crore. Linde is also expected to divest its stake in Belloxy Oxygen Plant in near to medium term.  As a result, capital structure of the company strengthened further to 0.05 times estimated as on December 31, 2019 compared to 0.81 times as on December 31, 2018.
 
Financial risk profile Linde India is expected to improve led by prepayment of debt of Rs. 866.6 crore in December 2019, prepayment of debt has resulted in significant decline in debt levels to Rs. 100 crore as on December 2019 as compared with debt of Rs. 1190 crore as on December 2018. Prepayment of debt constitutes debt repayment of Rs. 656.8 crore from Linde AG and Linde Engineering. Debt/EBIDTA is expected to improve to 0.29 as on December 31, 2019 times as compared with 3.29 times as on December 31, 2018.
 
Revenue grew by 6% on like to like basis in first nine months of calender year 2019 while operating margin improved to 18.3% compared to 14.8% in first nine months of calender year 2018, improvement in operating margin is on account of adoption of Ind AS 115'Ã''?Revenue from contracts with customers coupled with savings in power cost.
 
Following the completion of global merger in 2018, Indian entities, Linde India and Praxair India Pvt Ltd are also expected to be subsequently merged. The Competition Commission, as part of its approval for the merger, has stipulated divestment of the company's units at Bellary, Hyderabad and Chennai. Arising from these divestments the scale of operations of the Linde India is expected to decline in calendar year 2020. Furthermore, Linde India is in process of delisting which is crucial for completion of the merger.
 
CRISIL believes business profile of the merged entity will benefit from increase in scale of operations, and dominant market position of onsite business in India. Besides, as it enhances business and geographic diversity, amalgamated entity will have better positioning in merchant gas segment. CRISIL will monitor the progress of the proposed merger, required divestments/delisting of the company and reassess credit profile post adequate clarity on the impact of the amalgamation and business and financial profile of combined entity. Further, delisting of Linde India is subject to acceptance of offer by institutional investors and will be key monitorable.

Analytical Approach

CRISIL has combined the business and financial risk profile of Linde India and its only joint venture, Bellary Oxygen Company Pvt. Ltd due to its operational and financial linkages. The entities are collectively referred to as Linde India. The ratings have been notched up for support received from Linde Plc.

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:
* Established market position in the industrial gas segment: Linde India is one of the largest players in the domestic industrial gas industry, with experience of more than 75 years, diverse product portfolio, and presence in industrial, medical, compressed, and special gases. These are backed by brand equity and ability to provide end-to-end solutions to customers in the tonnage segment.

* Strong financial, operational, and management support from parent: Linde India's standalone financial profile remains moderate due to high debt contracted for capital expenditure (capex) in the past coupled with inadequate returns against those capex. However, CRISIL takes comfort from the support Linde India receives from parent, Linde Plc.

CRISIL believes that support from Linde PLC will continue, in view of Linde India's strategic importance to Linde PLC, and Linde PLC's business expansion plans in Asia and other emerging markets.

* Healthy business risk profile: A significant proportion of revenue in the gas segment comes from installation/tonnage, where the company enters into long-term (15-20 years) take or pay contracts with customers, which provide stable cash flow and profitability and prevent significant decline in revenues during downturn. Further, the ongoing merger is expected to benefit the company in the long run while divestments are likely to have a temporary impact on the scale and profitability.

Weaknesses:
* Exposure to the competitive, capital-intensive, and cyclical industrial gas industry: The domestic industrial gas industry is intensely competitive because of commoditised nature of products. The company has to compete with both organized (other international players present in the Indian market) and unorganised players. Furthermore, the onsite sales business is capital-intensive involving large capex, long gestation, and lengthy payback. If implementation of onsite projects were to coincide with downturn in the industry, Linde India would be adversely affected.

* Segment concentration in revenue: Steel and other metallurgical industries account for around two-third of total revenue from the gases segment, which exposes the company to inherent cyclicality and sluggish growth during economic downturns.
Liquidity Strong

Linde India has healthy liquidity position supported by healthy cash accruals, cash surplus and low bank limits utilization. Utilisation of its bank lines of Rs 416 crores was low at ~50 % as on December 31, 2019 while the cash accruals of Rs. ~200-220 crore are expected from the business. Receipt of consideration from divestment of assets is likely to result in increase in cash built up despite prepayment of over Rs 800 crore debt. Linde India derives strong financial flexibility by the way of support from Linde Plc in the past. Linde India has received support from parent in the form of additional loans and elongation of debt repayment schedules based on cash flow expectations. CRISIL believes Linde India's internal cash accruals will be continued to remain healthy and Linde will continue to derive financial support from Linde Group.

Outlook: Stable

CRISIL believes Linde India's financial risk profile is expected to remain strong in medium term led by significant deleveraging. Merger of Linde and Praxair is expected to benefit business risk profile from significant operational and cost synergies. Further Linde India will continue to benefit from its association with Linde PLC.

Rating Sensitivity factors
Upward Factors
* Significant improvement in the scale of operations and operating profitability and consequently cash accruals, liquidity and net worth from business integration of Linde India and Praxair India. For instance, cash accruals of over Rs.400 crore
* Significant improvement in capital structure and debt protection metrics.
 
Downward Factors
* Moderation in rating of parent by over 2 notches
* Large debt-funded capex or acquisitions leading to weakening of financial risk profile.
* Calling off of merger due to unforeseen reasons
About the Company

Linde India is a 75% subsidiary of The BOC Group Ltd, UK (wholly owned subsidiary of Linde AG  and part of the Linde group), and is one of the largest players in the domestic gases business.

The Linde group is the world's leading supplier of industrial, process, and specialty gases, with operations across 100 countries.
 
Linde India has reported revenue of Rs. 1727 crore on like to like basis and PAT of Rs. 93 crore for nine months of calendar year 2019 as compared with revenue of Rs. 1629 crore and PAT of Rs. 18 crore for nine months of calendar year 2018.

Key Financial Indicators *
As on / for the period ended December 31 2018 2017
Revenue Rs crore 2,196 2,038
Profit after tax Rs crore 33 19
PAT margins % 1.2 0.9
Adjusted Debt/Adjusted Net worth Times 0.81 0.91
Interest coverage Times 3.31 2.96
* 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 Cr)		 Rating Assigned
with Outlook
NA Overdraft* NA NA NA 648.18 CRISIL AA/Stable
NA Term Loan NA NA 11-July-19 150.00 CRISIL AA/Stable
NA Term Loan NA NA 15-May-20 100.00 CRISIL AA/Stable
NA Term Loan NA NA Jul-19 60.00 CRISIL AA/Stable
* Interchangeable with fund-based and non-fund-based bank facilities.
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Bellary Oxygen Company Pvt. Ltd 50% Joint Venture
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST    --    --  12-02-19  Withdrawal  29-01-18  CRISIL A1+  19-01-17  CRISIL A1+  CRISIL A1+ 
            29-01-19  CRISIL A1+           
Fund-based Bank Facilities  LT/ST  958.18  CRISIL AA/Stable      12-02-19  CRISIL AA/Stable  29-01-18  CRISIL AA/Stable  19-01-17  CRISIL AA/Stable  CRISIL AA/Stable 
            29-01-19  CRISIL AA/Stable           
Non Fund-based Bank Facilities  LT/ST          29-01-19  CRISIL A1+  29-01-18  CRISIL A1+  19-01-17  CRISIL A1+  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
Overdraft* 648.18 CRISIL AA/Stable Overdraft* 648.18 CRISIL AA/Stable
Term Loan 310 CRISIL AA/Stable Term Loan 310 CRISIL AA/Stable
Total 958.18 -- Total 958.18 --
* Interchangeable with fund-based and non-fund-based bank facilities.
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
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

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