Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AA+/Stable/Crisil A1+’ ratings on the proposed non-convertible debentures (NCDs) and commercial paper programme of Pilani Investment and Industries Corporation Ltd (PIICL).

 

The rating factors the sustenance of healthy debt cover above the management articulation to maintain net debt cover (ratio of total market value of investments in listed companies to net external debt) of atleast 7 times over the medium term. Further, Crisil Ratings takes comfort from management stance to ensure 7x cover through, support from group entities, if needed. Any change in management stance and their prudence in maintaining the desired net debt cover will be a key monitorable for the ratings going forward.

 

The ratings continue to reflect the healthy cover of 22.3x for the company’s external debt of Rs 1,000 crore, given the market value of investments of more than Rs 22,281 crore as on Jan 31, 2025. The ratings also factor in the strong financial flexibility of PIICL as a key holding company in the Birla  group, with significant investments in operating companies of the group, such as Grasim Industries Ltd (Grasim; ‘Crisil AAA/Stable/Crisil A1+'),  Aditya Birla Real Estate Limited  (ABREL; ‘Crisil AA/Stable/Crisil A1+’), Ultratech Cement Ltd (Ultratech; ‘Crisil AAA/Stable/Crisil A1+’), Hindalco Industries Ltd (Hindalco; ‘Crisil A1+'), Aditya Birla Capital Ltd (ABCL; ‘Crisil AAA/Stable/Crisil A1+'), Aditya Birla Fashion and Retail Ltd (ABFRL; ‘Crisil AA+/Watch Negative/Crisil A1+'),Vodafone Idea Ltd (VIL) and others. Furthermore, PIICL, being a promoter group company and part of the Birla Group, is expected to receive liquidity support when required.

 

The ratings also consider the healthy debt metrics and additional financial flexibility available in the form of cash flow support from the Group companies and the discipline demonstrated by the management in maintaining healthy cover levels by prudently managing external debt, which support the ratings. The strong reputation of the Group and the healthy credit risk profiles of the operating entities, with presence in diverse sectors, such as textiles, chemicals, metals, commodities, fashion, telecommunications and financial services, also support the ratings.

 

These strengths are partially offset by exposure to market-related risks

Analytical Approach

Crisil Ratings has followed the holding company approach to arrive rating of PIICL. This is because PIICL is amongst the key group companies that hold shares of various listed companies of the Birla group. Further, to arrive at the debt cover calculation, Crisil Ratings has only considered the external debt raised by PIICL.

 

Further, Crisil Ratings has also combined the business and financial risk profiles of PIC Realcon Ltd and PIC Properties Ltd, as these are 100% subsidiaries of PIICL.

 

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:

• Strong financial flexibility, driven by investments in listed Birla Group companies: PIICL is amongst the key holding companies of the Birla Group, with a simplified holding structure and greater diversity in terms of investments in group companies. PIICL strong financial flexibility emanates from its equity stakes in Grasim (3.83% of the total shareholding of the company), ABREL (33.46%), Ultratech (1.22%), Hindalco (1.33%), ABCL (1.31%), ABFRL (0.35%) and VIL (0.27%).  The market value of PIICL stake in these companies was around Rs 22,281 crore as on Jan 31, 2025, while external debt stood at Rs 1,000 crore, translating into a healthy cover of 22.3 times for the debt.

 

• Diversified investment portfolio, strong credit profile of key underlying entities and healthy reputation of the Birla Group: PIICL has a diversified investment portfolio with underlying entities operating in different sectors such as textiles, chemicals, metals, commodities, fashion, telecommunications and financial services. PIICL benefits from the robust credit risk profiles of these key operating entities of the group as well as from the strong reputation of the Birla Group. PIICL is likely to receive steady dividend and interest income from its significant investments in the Birla Group companies.

 

• Expected sustenance of healthy debt cover and likely support from the Birla Group: Crisil Ratings understands that the management of PIICL intends to maintain debt at Rs 2,000-2,500 crore over the medium term. At this debt cap, the debt cover stands at ~8.9 times as on January 31, 2025. It has also indicated that apart from participating in the preferential issuance of ABFRL, there are no other major investment plans for the company over the near to medium term, which should help sustain healthy debt cover levels, and its intention to keep debt cover levels at or above 7 times over the medium term. Nevertheless, any incremental debt added by the company, to invest in or to provide loans/advances to group entities, will be supported by market value of such investments, and dividend and interest flow.  Any change in the above understanding will be a rating sensitivity factor.

 

• Strong Debt Protection Metrics: On a consolidated basis, operating income rose in fiscal 2024, led by higher interest income from loans and advances disbursed to group companies. While the principal is typically refinanced, interest servicing is met through dividend inflow and interest income; the servicing is expected to be managed prudently. The financial risk profile is also supported by the high value of the shares of operating companies, which can be pledged to refinance debt. Debt protection metrics continue to be healthy, with gearing at 0.06 time as on March 31, 2024 (0.07 as on March 31, 2023) and the interest coverage ratio at 3.94 times in fiscal 2024 (5.57 times in fiscal 2023).

 

Weakness:

• Exposure to market-related risks: The company remains susceptible to market-related risks, as financial flexibility in terms of the debt cover available will depend, to a great extent, on the prevailing market sentiments and share prices of the underlying investments. Any increase in market-related risks, leading to a sharp fall in the share prices of Grasim, Hindalco, ABFRL, ABCL, Century and others will be a key rating sensitivity factor in case of erosion of debt cover below desired thresholds.

Liquidity: Strong

PIICL has healthy financial flexibility to refinance maturing debt on account of its shareholding in group companies (Rs 22,281 crore against debt of Rs 1,000 crore as on January 31, 2025). Crisil Ratings understands that the debt is likely to increase but remain range bound between Rs 2,000-2,500 crore over the medium term. The cover, along with benefits from being part of the Birla Group, provides sufficient financial flexibility to refinance the debt. Also, in case of adverse market movements, adequate financial flexibility through Birla Group companies shall be available to correct the cover. Dividends from the operating entities and interest income from intercorporate deposits/loans will be sufficient to meet the interest obligation.

 

PIICL has no capital expenditure or working capital requirement.

Outlook: Stable

PIICL will sustain its comfortable debt cover over the medium term, supported by the healthy value of investments in key operating entities of the Birla group. Also, PIICL will enjoy strong financial flexibility as a key holding company of the group.

Rating sensitivity factors

Upward factors

• Articulation and track record of debt cover sustaining above 8-9 times, with continued strong financial flexibility of the group
• Improvement in the credit risk profiles of the operating entities of the group by at least one notch

 

Downward factors

• Steep increase in debt or fall in the market value of investments, weakening the debt cover below 6 times on a sustained basis.
• Significant weakening of credit risk profile of the operating entities.
• Change in stance of support by the Group or weakening of the company’s strategic importance for the group.

About the Company

PIICL, incorporated in 1948, is registered as a systematically important non-deposit-taking non-banking financial company with the Reserve Bank of India. It functions as a core investment company. Its main activity is investment in shares and securities of Birla group companies and providing finance to them. PIC Realcon Ltd and PIC Properties Ltd are the company’s subsidiaries; they do not have any major operations.

Any other information: Not Applicable