Rating Rationale
January 14, 2022 | Mumbai
Pilani Investment And Industries Corporation Limited
'CRISIL AA / Stable' assigned to Non Convertible Debentures
 
Rating Action
Rs.100 Crore Non Convertible DebenturesCRISIL AA/Stable (Assigned)
Rs.1000 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the non-convertible debentures of Pilani Investment And Industries Corporation Limited (PIICL) and reaffirmed its 'CRISIL A1+' rating on the company’s commercial paper programme.

 

The ratings reflect the strong financial flexibility of PIICL as a holding company in the Birla group backed by the large market value of its investments in strong operating companies. These include Hindalco Industries Ltd (Hindalco; 'CRISIL AA+/Stable/CRISIL A1+'), Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+'), Aditya Birla Capital Ltd (ABCL; 'CRISIL A1+'), Ultratech Ltd (Ultratech; ‘CRISIL AAA/Stable/CRISIL A1+’), Century Textiles and Industries Ltd (Century Textiles; ‘CRISIL AA/Stable/CRISIL A1+’), and Aditya Birla Fashion and Retail Ltd (ABFRL; 'CRISIL AA/Stable/CRISIL A1+'). These investments provide a healthy cover for debt. Furthermore, PIICL, being a promoter group company and part of the Birla group, has healthy financial flexibility and is expected to receive liquidity support from the group, if required.

 

The ratings also factor in the strong reputation of the Birla group and investments in operating entities with healthy credit risk profiles and presence in diverse sectors such as cement, textiles, fashion, telecommunication, chemicals and financial services. These strengths are partially offset by exposure to market-related risks.

Analytical Approach

CRISIL Ratings has followed the holding company approach for arriving at the ratings as PIICL is one of the companies that holds shares for various Birla group entities such as Hindalco, Grasim, ABCL, ABFRL, Ultratech, Century Textiles and Vodafone Idea Ltd and others.

 

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:

As one of the holding companies of the Birla group, PIICL enjoys strong financial flexibility arising from the sizeable market value (more than Rs 11,500 crore as on December 21, 2021) of its stake in operating companies such as Hindalco, Grasim, ABFRL, ABCL, Ultratech, Century Textiles and Hindalco. Moreover, the management intends to maintain debt, excluding loans and preference shares from group companies, around Rs 1,000 crore. This provides healthy cover for the rated debt. PIICL had debt of about Rs 695 crore as on December 21, 2021.

 

  • Stable operations of the operating companies, diversification in investment portfolio, and healthy reputation of the Birla group:

The company has a diversified investment portfolio and benefits from the robust credit risk profiles of the operating entities in which the value of investments is substantial, and the strong reputation of the Birla group. Steady dividend inflows are expected from these investments. The company has net surplus of over Rs1000 - 1,200 crore which along with external debt has been extended as loans and advances to the Birla group companies.

 

On a consolidated basis, PIICL received dividend and interest income of about Rs 45 crore and Rs 103 crore, respectively, in the first six months fiscal 2022 and about Rs 19 crore and Rs 177 crore, respectively, in fiscal 2021. The principal needs to be refinanced regularly and interest servicing should be met through dividend inflows and interest income; the servicing is expected to be prudently managed. The financial risk profile is also supported by the high value of shares of operating companies, which can be pledged to refinance debt. The gearing and debt protection metrics were healthy. The gearing was around 0.1 time as on September 30, 2021 (0.1 time as on March 31, 2021), and the interest coverage was 3.1 times in the first half of fiscal 2022 (around 3.5 times in fiscal 2021).

 

  • Expected sustenance of healthy debt cover and likely support from the Birla group:

CRISIL Ratings understands that the PIICL management intends to maintain debt around Rs 1,000 crore over the medium term, which will result in a healthy cover. The company has adequate financial flexibility backed by support from the Birla group, if required, and the large unencumbered cash and investments of the group which can be used to correct the debt cover if the market value of PIICL’s investments falls significantly.

 

The other rated holding companies of the Birla group have demonstrated a track record of maintaining the expected cover by reducing external debt through fund infusion from group companies. Any significant reduction in the expected debt cover that is not corrected will be a key rating sensitivity factor.

 

Weakness:

  • Exposure to market-related risks:

Financial flexibility in terms of cover available will, to some extent, depend on the prevailing market sentiments and share prices. Any increase in market-related risks, leading to a sharp fall in the market value of the investments in the operating companies, will be a key rating sensitivity factor.

Liquidity: Strong

PIICL has healthy financial flexibility to refinance maturing debt due to its shareholding in group companies (more than Rs 11,500 crore against debt of Rs 695 crore as on December 21, 2021). CRISIL Ratings understands that the management intends to maintain debt at around Rs 1,000 crore over the medium term. The cover, along with benefits from being part of the Birla group, gives sufficient financial flexibility to refinance the maturing repayment obligation. 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 interest obligations.

 

PIICL has no capital expenditure plan or working capital requirement. The Birla group is likely to provide support if required.

Outlook: Stable

PIICL will sustain its heathy debt cover over the medium term, supported by the healthy value of investments in key operating entities of the Birla group, and will enjoy strong financial flexibility as part of the Birla group.

Rating Sensitivity factors

Upward factors:

  • Increase in the strategic importance of the company in the Birla Group while maintaining healthy cover
  • Improvement in the credit risk profiles of the operating entities of the group by one or more notches

 

Downward factors:

  • Large debt or fall in the market value of investments weakening the debt cover to below 5 times on a sustained basis
  • Significant weakening of the credit risk profiles of the operating entities
  • Change in stance of support of the Birla group or any weakening in the strategic importance

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 the Birla group companies and providing finance to them. PIC Realcon Ltd and PIC Properties Ltd are subsidiaries with no major operations.

Key Financial Indicators

As on/for the period ended March 31

Unit

2021

2020

Revenue

Rs Crore

197

122

Profit after tax (PAT)

Rs Crore

97

175

PAT margin

%

49

143

Adjusted debt/adjusted networth

Times

0.1

0.1

Interest coverage

Times

3.5

5.5

 

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)

ISIN Type of instrument Date of allotment Coupon Rate (%) Maturity date Issue size (Rs crore) Complexity level Rating assigned with outlook
NA Commercial paper programme NA NA 7-365 days 1000 Simple CRISIL A1+
NA Non-convertible debentures* NA NA NA 100 Simple CRISIL AA/Stable

*Yet to be issued

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

PIC Realcon Ltd

Full

Subsidiary

PIC Properties Ltd

Full

Subsidiary

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 1000.0 CRISIL A1+ 04-01-22 CRISIL A1+ 25-05-21 CRISIL A1+ 08-05-20 CRISIL A1+   -- --
Non Convertible Debentures LT 100.0 CRISIL AA/Stable   --   --   --   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Criteria for rating holding companies (including debt backed by pledge of shares)
CRISILs Criteria for Consolidation

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