| Niyogi Enterprise Private Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Negative’ rating on the non-convertible debentures (NCDs) of Niyogi Enterprise Private Limited (NEPL).
The rating reaffirmation factors in high criticality of NEPL as the holding company for the cement business of the Nirma group, and the healthy credit risk profile of the operating company, NVCL. The ratings also factor in the presence of an unconditional and irrevocable corporate guarantee given by Nirma on the NCDs and the company’s strong financial flexibility, being part of the group.
The negative outlook reflects a possibility that financial risk profile of company could weaken in case of delay in the equity issuance coupled with lower-than-expected deleveraging in the Nirma group. However, CRISIL Ratings has noted the announcement by Nuvoco Vistas Corporation Ltd (NVCL; rated ‘CRISIL AA/CRISIL AA-/Negative/CRISIL A1+’) for equity issuance of Rs 5,000 crore, a large part of which is expected to be used towards deleveraging of Nirma group.
The strengths are partly offset by minimal cash flow on a standalone level and unlisted nature of shareholding in NVCL. |
Analytical Approach For arriving at the rating, CRISIL Ratings has followed the holding company approach. CRISIL Ratings has not consolidated the business and financial risk profiles of NVCL and NEPL, despite the former being a subsidiary of the latter, as NEPL is likely to act as an investment vehicle holding the cement business of the Nirma group, with no major operations of its own.
Treatment of preference shares: In fiscal 2020, Nirma had transferred its shareholding in NVCL to NEPL and in the process had subscribed to around Rs 4,200 crore of non-cumulative, redeemable preference shares issued by NEPL. In the last fiscal Nirma had infused funds for the Nu Vista Ltd (NVL) acquisition by subscribing to preference shares of about Rs 1,200 crore issued by NEPL. These non-cumulative, redeemable preference shares are treated as 50% debt and 50% equity, as these are subscribed to by the promoter group company (Nirma). There is a no step-up coupon or call option and these shall remain subordinated to external debt and shall be redeemed only through primary or secondary stake sale in NVCL. |
Key Rating Drivers & Detailed Description Strengths:
NEPL is 100% held by the promoters of the Nirma group. The company has been incorporated as an investment vehicle to hold the group’s stake in the cement business. In fiscal 2020, Nirma’s entire shareholding in NVCL was transferred to NEPL through issuance of preference shares of around Rs 4,200 crore. Subsequently, post transfer of the Nimbol asset, NEPL currently holds 83% of NVCL and the rest is held by the promoters of Nirma.
In the last fiscal, NEPL had infused about Rs 1,200 crore in NVCL to fund the acquisition of NVL. The entire acquisition with enterprise value of Rs 5,265 crore was funded through debt of Rs 1,330 crore at NVCL, equity infusion of Rs 1,161 crore from NEPL, private equity investment of Rs 500 crore at NVCL, standalone debt of Rs 2,044 crore at NVL and rest through NVCL’s accrual. The equity infusion of Rs 1,161 crore from NEPL has been funded through Rs 425 crore NCDs borrowed by NEPL and rest from Nirma through issuance of preference shares. The contribution from Nirma was funded through debt of Rs 740 crore. In addition, NVCL has also repaid inter-corporate deposits (ICDs) from Nirma through additional equity infusion of Rs 439 crore from NEPL, which in turn has been funded through proceeds from Nirma. NEPL is expected to remain strategically important to the group over the medium term, given its high investment value and common shareholding of Nirma and NEPL.
NEPL enjoys strong financial flexibility since it is strategically important to the group. Also, the company’s external debt is backed by an unconditional and irrevocable corporate guarantee by Nirma. NEPL should continue to receive strong managerial and financial support to meet its debt obligation. NEPL plans to repay debt from proceeds of Offer for Sale (OFS) and become debt free in the current fiscal. Any delay in the same will be a key rating sensitivity factor. With listing of NVCL, NEPL shall have high financial flexibility as there are no leverage plans over the medium term.
Weakness:
Being an investment vehicle, the standalone cash flow of the company remains minimal and, hence, it remains dependent upon Nirma to meet its debt obligation.
The NCDs have a bullet redemption on June 30, 2022. Interest servicing is on annual basis and is being met in July 2021 through fund infusion from Nirma Group. NEPL also has option to voluntarily redeem NCDs in full along with accrued interest prior to the due date. Also, NEPL will not raise any additional external debt over the tenor of the instrument, while funds from the promoters or Nirma shall remain subordinated to the NCDs. |
Liquidity: Strong Liquidity is supported by the company’s strong financial flexibility, being part of the Nirma group, given its high criticality to the group and is reflected in unconditional and irrevocable corporate guarantee extended by Nirma to NEPL’s external debt. Cash accrual is likely to be minimal over the medium term and NEPL shall be dependent upon Nirma for operating expenses and debt servicing. NEPL plans to repay debt from the OFS this fiscal and there are no further leverage plans in the company. NEPL does not have any major operations and, hence, no working capital lines. The promoters should continue to provide timely, need-based support to meet the debt obligation and other expenses of NEPL. |
Outlook: Negative The outlook signifies that the financial risk profile may deteriorate in case of delay in equity issuance or lower-than-expected deleveraging in the Nirma group. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Incorporated in 2019, NEPL is an investment vehicle of the Nirma group, which holds a majority stake in NVCL. The company has no major operations and is 100% held by the promoters of the Nirma group. |
Key Financial Indicators
* Provisional |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
#yet to be issued |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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