Rating Rationale
November 13, 2020 | Mumbai
Riddhi Siddhi Gluco Biols Limited
Rating placed on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities Rated Rs.385 Crore
Long Term Rating CRISIL BBB- (Placed on 'Rating Watch with Developing Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its rating on the long-term bank facilities of Riddhi Siddhi Gluco Biols Limited (RSGBL) on 'Rating Watch with Developing Implications'..

Shree Rama Newsprint Ltd (SRNL), a subsidiary of RSGBL, applied for restructuring of loans on September 24, 2020, under guidelines issued by the Reserve Bank of India (RBI) on August 6, 2020: 'Resolution framework for Covid-19-related stress'. The proposal is under assessment by the bankers.
 
Under the aforementioned conditions, SRNL did not honour its monthly principal repayment due on September 30, 2020. The repayment is part of the restructuring plan under consideration. Interest payments are being serviced on time.
 
Since the application for restructuring was made before the due date of the debt repayment and the concerned lenders have not cited any reservation to accepting the application, CRISIL is not treating the missed debt repayment as default. The rating action is in line with CRISIL's approach to Covid-19 related restructuring
 
CRISIL will continue to monitor the developments on the formal sanctioning of the restructuring by lenders and resolve the watch once the formal approval is received by the company. If there is any delay in receipt of approval from the lender or the application is rejected, support from RSGBL will be essential to ensure timely servicing of SRNL's debt.
 
The rating continues to reflect the extensive experience of RSGBL's promoters, strong financial flexibility and moderate financial risk profile These strengths are partially offset by exposure to counterparty risk associated with Inter Corporate Deposits, susceptibility to competition and volatility in the paper industry, and counterparty risk in the windmill division.

Analytical Approach

For arriving at its rating, CRISIL has combined the financial and business risk profiles of RSGBL and its subsidiaries, SRNL, Riddhi Siddhi Estate Creators LLP, and Riddhi Siddhi Infraspace LLP. RSGBL has extended financial support to SRNL in the form of loans and has also provided corporate guarantee to a portion of the latter's debt.
 
In the case of the limited liability partnerships (LLPs), while RSGBL does not hold more than half the voting rights, it directs relevant business activities by virtue of LLP agreements. Also, RSGBL contributes to over 99% of capital in the LLPs and also shares profit and loss in the proportion of capital. A list of all the subsidiaries being consolidated is provided in the annexure.
 
As per IndAs accounting, Rs 86.13 crore of zero coupon bonds (in SRNL) as on March 31, 2020, were reported after discounting as their repayment starts only in fiscal 2026. CRISIL has made adjustments such that the debt reflects the full quantum of these zero coupon bonds with a corresponding reduction in equity.

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: Backed by more than four decades of experience in the starch business, the promoters have an established track record in successfully reviving sick units (including the Gokak starch manufacturing plant acquired from Glaxo in Karnataka and a biopolymer unit acquired from Hindustan Unilever in Puducherry). Since RSGBL has been manufacturing and supplying special starches to the paper industry, the promoters have gathered sufficient insight into the paper business and subsequently acquired the stressed company, SRNL.
 
* Financial flexibility from liquid assets: While liquid assets have reduced significantly since March 2019, the company has also lowered its debt obligation. It had Rs 158 crore of unencumbered liquid assets as on March 31, 2020, compared with Rs 232 crore as on March 31, 2019. However, the gross debt has also reduced to Rs 323 crore as of March 2020 from Rs 409 crore a year earlier. The company partly sold its land parcels and real estate projects, of which Rs 50 crore has been received as of March 2020, with the remaining expected to be liquidated in fiscal 2021. Proceeds from the sale will be provided as loans to group companies and will remain a key monitorable.
 
* Moderate financial risk profile: Gearing and total outside liabilities to tangible networth ratio were healthy at 0.21 time and 0.29 time, respectively, as on March 31, 2020. Interest coverage ratio was also robust at 4.32 times for fiscal 2020. These ratios are expected to remain stable over the medium term. Furthermore, consolidated debt reduced to Rs 323 crore as on March 31, 2020, from Rs 409 crore as on March 31, 2019.
 
Weaknesses:
* Exposure to counterparty risk associated with ICDs: The ICDs extended to non-related and undisclosed parties increased to Rs 395 crore as on March 31, 2020, from Rs 326 crore as on March 31, 2019, against expectation of significant reduction by March 2020. Given the increased quantum, counterparty risk associated with the ICDs continues to be high.
 
* 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 waste paper import, which accounts for nearly 40% of the total raw material cost. This exposes operating margin to any increase in waste paper prices and fluctuations in foreign exchange rates.
 
Operating margin decreased to less than 3% in fiscal 2020 from 19.4% in fiscal 2019, with raw material and newsprint prices correcting to previous levels after China lifted the ban on import of waste paper, which had led to fall in raw material prices globally and higher realisations for players in India in fiscal 2019. With the pandemic affecting circulation of newspapers and demand for paper from schools, colleges and offices (which remain closed), performance in fiscal 2021 is likely to remain subdued.
 
* Exposure to counterparty risk in the windmill division: As a significant portion of wind power generation capacities are located in Tamil Nadu, risks related to stretched receivables persist, given the weak financial risk profile of the key customer, Tamil Nadu Electricity Board.
Liquidity Adequate

Cash and equivalent were Rs 32 crore as on March 31, 2020, and bank limits of Rs 50 crore (for RSGBL) and Rs 56 crore (for SRNL) were utilised at 61% and 96%, respectively, on average over the 10 months through May 2020. Liquidity is supported by unencumbered liquid investment of Rs 158 crore as on March 31, 2020. Internal accrual, cash and equivalent and undrawn bank limits should be sufficient to meet debt obligation.

Rating Sensitivity factors
Upward factors
* Sustained improvement in revenue and profitability of SRNL with earnings before interest, tax, depreciation and amortisation margin above 8%
* Decrease in ICDs below Rs 200 crore
 
Downward factors
* Reduction in liquid assets or large, debt-funded capital expenditure or expansion, with net debt increasing to more than Rs 150 crore
* Increase in ICDs above Rs 400 crore
* Decline in revenue or profitability resulting in lower net cash accrual
* Rejection of the restructuring plan by the bank
About the Company

RSGBL was set up in 1994 by Mr Ganpatraj L Chowdhary and his family 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; it is also engaged in investment activities. The company has 33.15 megawatt installed windmill capacity across multiple locations, and has entered into power purchase agreements with state electricity boards at fixed tariffs.

About SRNL
SRNL manufactures newsprint and writing and printing paper at its plant in Surat, Gujarat. RSGBL acquired majority stake in SRNL from West Coast Paper Mills Ltd in June 2015. SRNL has an installed capacity, based on virgin pulp and recycled fibre, to manufacture either 0.14 MTPA of newsprint or 0.18 Mtpa of printing and writing paper, or a mix of both using the swing facility.

Key Financial Indicators
As on/for the period ended March 31 Unit 2020 2019
Revenue Rs.Crore 577 683
Profit After Tax (PAT) Rs.Crore 24 67
PAT Margin % 4.2 9.8
Adjusted debt/adjusted networth Times 0.21 0.27
Interest coverage Times 4.32 5.3

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
 ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Crore) Complexity Level Rating assigned with outlook
NA Long Term Loan NA NA Sept-2021 135 NA CRISIL BBB-/Watch Developing
NA Cash Credit NA NA NA 50 NA CRISIL BBB-/Watch Developing
NA Proposed Long Term Bank Loan Facility NA NA NA 200 NA CRISIL BBB-/Watch Developing
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
Shree Rama Newsprint Ltd Full Strong financial and business linkages with RSGBL
Riddhi Siddhi Estate Creators LLP Full Strong financial and business linkages with RSGBL
Riddhi Siddhi Infraspace LLP Full Strong financial and business linkages with RSGBL
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
Fund-based Bank Facilities  LT/ST  385.00  CRISIL BBB-/(Watch) Developing  23-07-20  CRISIL BBB-/Stable  19-09-19  CRISIL BBB/Negative      27-12-17  CRISIL BBB/Stable  CRISIL BBB/Stable 
            27-02-19  CRISIL BBB/Negative           
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
Cash Credit 50 CRISIL BBB-/Watch Developing Cash Credit 50 CRISIL BBB-/Stable
Long Term Loan 135 CRISIL BBB-/Watch Developing Long Term Loan 135 CRISIL BBB-/Stable
Proposed Long Term Bank Loan Facility 200 CRISIL BBB-/Watch Developing Proposed Long Term Bank Loan Facility 200 CRISIL BBB-/Stable
Total 385 -- Total 385 --
Links to related criteria
CRISIL's approach to Covid-19-related restructuring
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 Paper Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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