| Riddhi Siddhi Gluco Biols Limited | ||||||
| Rating outlook revised to 'Negative'; 'CRISIL A3' reassigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities Riddhi Siddhi Gluco Biols Limited (RSGBL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at 'CRISIL BBB-' and reassigned its ‘CRISIL A3’ rating to the short term bank facility.
The revision in outlook follows weakening of the business risk profile with substantial reduction in revenue expected from operations in fiscal 2023. This is because the operations of the paper segment were shut down in November 2021 and there are no plans for resuming operations at least in the current fiscal. This was following substantial increase in the price of the raw material (wastepaper) and fuel cost, which could not be passed on to customers, leading to operating losses. Revenue from the trading business also moderated as not much trading was undertaken in fiscal 2022. It is expected to improve in fiscal 2023, but remain lower than fiscal 2021. Revenue from the wind business is also low due to challenges in operations and maintenance (O&M) of the windmills. While the company has changed the O&M contractor, revenue will remain modest in fiscal 2023, given the company’s plans to undertake capital expenditure (capex) and the assets will not be in operation for the entire fiscal. Only the newest business segment, which is packaged drinking water, witnessed revenue traction, which increased over 3 times to Rs 31 crore with revival in hospitality and aviation segments (key customer segments) and is expected to sustain at similar levels. The resumption of operations of Shree Rama Newsprint Ltd (SRNL) will remain a key monitorable.
Liquidity continues to remain strong in the form of unencumbered liquid funds of Rs 173 crore as on March 31, 2022. While inter-corporate deposits (ICDs) to unrelated parties were higher at Rs 343 crore as on March 31, 2022 (Rs 186 crore as on March 31, 2021), the increase was temporary and around Rs 147 crore has been paid back to the company during the current fiscal resulting in further improvement in liquidity. Additionally, another Rs 100 crore are expected to be received from related parties during fiscal 2023. Interest income on ICDs to both related and unrelated parties remained adequate at Rs 55 crore and should continue to remain at a similar level over the medium term.
The ratings continue to reflect the extensive experience of the promoters in turning around sick units, the starch business and RSGBL’s strong financial flexibility and moderate financial risk profile. These strengths are partially offset by exposure to counterparty risk associated with ICDs, susceptibility to competition and volatility in the paper industry, shut down of the paper manufacturing facility and vulnerability to counterparty risk in the windmill division. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of RSGBL and its subsidiary, SRNL. This is because RSGBL has extended support to SRNL in the form of loans (Rs 425 crore as on March 31, 2022, including investment in zero coupon bond of Rs 20 crore as on March 31, 2022) and has also provided corporate guarantee to some part of SRNL's debt. RSGBL also holds 74.8% stake in SRNL and is involved in the strategic decision making as well as day-to-day operations of the company.
CRISIL Ratings has made adjustments such that the debt reflects the full quantum of these zero-coupon bonds with a corresponding reduction in equity.
With effect from December 31, 2021, Riddhi Siddhi Estate Creators LLP and Riddhi Siddhi Infraspace LLP ceased to be subsidiaries of RSGBL. These companies were landholding entities, and the land parcels have now been sold and consideration received.
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: Extensive experience of the promoters Presence of more than four decades in business, has enabled the promoters to have a successful track record in reviving sick units (including the Gokak starch manufacturing plant acquired from Glaxo in Karnataka and a biopolymer unit acquired from Hindustan Unilever in Puducherry). RSGBL had been manufacturing and supplying special starches to the paper industry and the promoters have gathered sufficient insight into the paper business. Subsequently, after sale of the starch business, the management acquired the stressed company, SRNL. Since acquisition, capex has been incurred to include manufacturing of writing and printing paper (WPP) and kraft paper, apart from newsprint, thus improving and diversifying the product mix.
Strong financial flexibility driven by liquid assets Liquid assets, which are unencumbered, have increased to Rs 173 crore as on March 31, 2022, from Rs 133 crore as on March 31, 2021. Sale of land for Rs 147 crore was completed in fiscal 2022 and the sale proceeds have been received. RSGBL is also expected to receive Rs 100 crore from related parties in fiscal 2023, which will further enhance liquidity.
Moderate financial risk profile Consolidated debt reduced to Rs 193 crore as on March 31, 2022, from Rs 260 crore as on March 31, 2021. Gearing and total outside liabilities to tangible networth ratio were healthy at 0.10 time and 0.15 time, respectively, as on March 31, 2022. Adjusted interest coverage ratio has improved in fiscal 2022 to 4.4 times and is expected to improve further in fiscal 2023 as debt is expected to reduce.
Weaknesses: Susceptibility to competition and volatility in the paper industry The paper industry is highly fragmented, largely commoditised and cyclical. Newsprint prices are significantly volatile, constraining operating performance. Furthermore, because of low tariff barriers, newsprint prices of domestic players are exposed to pressure from cheap imports. Besides, SRNL depends on wastepaper import, which accounts for nearly 40% of the total raw material cost. This exposes the operating margin to any increase in wastepaper prices and fluctuations in foreign exchange rates. Furthermore, the company is currently in the wait-and-watch phase and there is lack of clarity on restarting the paper business.
Exposure to counterparty risk associated with ICDs ICDs extended to unrelated and undisclosed parties were Rs 343 crore as on March 31, 2022. This is expected to reduce to around Rs 200 crore as the company has received Rs 147 crore in fiscal 2023. However, since the credit profile of these entities are unknown, the counterparty risk associated with the ICDs continues to remain. Reduced ICDs from external parties have been provided as loans to group companies and will remain a key monitorable.
Vulnerability to counterparty risk and O&M in the windmill division As a significant portion of wind power generation capacities are in Tamil Nadu, risks related to stretched receivables persist, given the weak financial risk profile of the key customer, Tamil Nadu Electricity Board. Furthermore, the company has been facing O&M challenges, which has impacted the operations. Although, the management has confirmed that they have recently changed the O&M contractor, performance of the windmill division will be a key monitorable. |
Liquidity: Adequate Cash and cash equivalent were Rs 20 lakh as on March 31, 2022. Bank limits of Rs 75 crore (for RSGBL) and Rs 56 crore (for SRNL) were utilised at 13% and 57%, respectively, on average over the 12 months through June 2022. Liquidity is supported by unencumbered liquid investment of Rs 173 crore as on March 31, 2022. Internal accrual, cash and cash equivalent, and undrawn bank lines should be sufficient to meet debt obligation of Rs 10-18 crore over the medium term. |
Outlook: Negative CRISIL Ratings believes RSGBL's liquidity should remain adequate over the medium term. Revival in operations of the paper segment will be a key monitorable. |
Rating Sensitivity Factors Upward Factors
Downward factors
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About the Company RSGBL was set up in 1994 by Mr Ganpatraj L Chowdhary and his family members to manufacture starch and starch derivatives. It sold its starch segment to Roquette India Pvt Ltd (‘CRISIL AA-/Negative/CRISIL A1+’) for Rs 950 crore in 2012. RSGBL currently generates wind energy and trades in agricultural and metal commodities. The company also undertakes investment activities. It has installed windmill capacity of 33.15 megawatt across multiple locations and has entered into power purchase agreements with state electricity boards at fixed tariffs.
About the Subsidiary SRNL manufactures newsprint, WPP and kraft paper at its plant in Surat, Gujarat. RSGBL acquired majority stake in SRNL from West Coast Paper Mills Ltd in June 2015. SRNL has installed capacity, based on virgin pulp and recycled fibre, to manufacture either 0.13 million tonne per annum (MTPA) of newsprint or 0.17 MTPA of WPP for manufacturing kraft paper or a mix of both using the swing facility. |
Key Financial Indicators
CRISIL Ratings-adjusted financials |
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)
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Annexure – List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||
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Criteria Details
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