| Trafigura India Private Limited | ||||
| ‘CRISIL A1+’ assigned 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 assigned its ‘CRISIL A1+' rating to the short-term bank facilities of Trafigura India Private Limited (TIPL).
The rating derives comfort from the strong operational, managerial, and financial support provided by the ultimate parent, Trafigura Group Pte. Ltd. (Trafigura). TIPL is of strategic importance to the group in establishing its presence in India. The strong financial support is reiterated by Trafigura extending a corporate guarantee for the bank facilities availed by TIPL.
TIPL is a commodities trader, dealing primarily in nickel and coking coal, with a leading market position established in India. Given the trading nature of its business, operating margins have been thin, except for a boost in fiscal 2022. While overall performance derives comfort from the company’s robust risk management policies, its ability to maintain its market position as well as operating profitability amidst the intense competition faced in the commodities trading space, would be a key rating monitorable.
Financial risk profile is moderate, with external debt availed of Rs 1,623 crore as on June 30, 2022, to fund its working capital requirements. TIPL maintained a cash and equivalent balance of Rs 349 crore as on June 30, 2022, wherein liquidity is supported by sufficient cushion in the bank limits. Overall liquidity position is further comforted by the need-based support extended by the parent. |
Analytical Approach CRISIL Ratings has notched up the standalone rating for the parental support expected from Trafigura. It owns a 100% stake in TIPL, through its group companies. TIPL is of strategic importance to Trafigura, wherein the latter has extended a corporate guarantee for the bank facilities availed by the company. |
Key Rating Drivers & Detailed Description Strengths: Strong support from the ultimate parent, Trafigura: TIPL benefits from the strong operational, financial and managerial linkages with its ultimate parent, Trafigura, which owns a 100% stake in the company. India is a key geography, wherein TIPL is strategically important in terms of extending varied value-added services to its customers, namely, providing just in time inventory, offering favourable deal structures etc. This differentiates TIPL from the other players present in this business space.
Operations are closely linked with TIPL sourcing its entire requirement from the Trafigura group entities. The risk management policies followed are also in line with the group’s policies designed.
Trafigura has been extending need-based financial support to the company. Around Rs 450 crore of equity was infused in fiscal 2020. Further, the strong financial support is reiterated by Trafigura extending a corporate guarantee for the bank facilities availed by TIPL.
Strong market position: Trafigura commands around 60% market share in the nickel trading business and holds a leading market position with regards to trading of coking coal in India. The value-added services the company provides, namely, providing just in time inventory, offering favourable deal structures etc. differentiates TIPL from the other players present in this business space. Overall, TIPL leverages the strong goodwill created by its parent over the years.
Robust risk management policies: TIPL follows the robust risk management policies designed by Trafigura, wherein the group does not enter into speculative transactions. The company fully hedges its commodity price risk, by entering into derivative positions for nickel where pricing is benchmarked against the London Metal Exchange (LME); while for coal, back-to-back index-linked contracts are structured or are fixed-priced. Similarly, the company hedges its foreign exchange fluctuation risk through entering into suitable derivative positions. Inventory obsolescence risk is minimized by the company pre-selling major portion of its imported cargoes. Furthermore, trading exposures are monitored at a group level, wherein there are pre-defined VaR limits set. CRISIL believes that these robust risk management policies followed should enable the group to sustain any headwinds faced in the commodity trading business space.
Weakness: Moderate financial risk profile: Financial risk profile is moderate, with external debt availed of Rs 1,623 crore as on June 30, 2022, to fund its working capital requirements. While the funding tied up is mainly to fund its inventory, since a significant portion is pre-sold, the recovery risk is low. Debt protection metrics are expected to remain moderate, given the thin margin nature of business. The company is not expected to avail any long-term debt given the asset light balance sheet maintained.
Exposed to inherent business risk, including vulnerability to government regulations: While TIPL has its price risk and foreign exchange fluctuation risks hedged, the company’s cash flows are however susceptible to recovery from uncollectible accounts. In the past fiscals, the company took a write-off of around Rs 250 crore, mainly due to a customer turning insolvent. While as a part of its risk management policies, the company monitors timely recovery from its customers, given the thin margin nature of business, any significant non-recovery could materially impact the cash flows of the company. Further, Government regulations also play a significant role, as any change in duty structures or regulations on trade of any commodity could impact the industry’s operating performance. |
Liquidity: Strong TIPL maintained a cash and equivalent balance of Rs 349 crore as on June 30, 2022, wherein liquidity is supported by sufficient cushion in the bank limits. It utilised an average 65% of its working capital limits over the past 12 months through March 2022. Given the asset light balance sheet maintained, the company does not have any long-term debt. Overall liquidity position is further comforted by the need-based support extended by the parent. |
Rating Sensitivity Factors Downward factors
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About the Company Incorporated in 2009, TIPL is a wholly owned subsidiary of the Trafigura Group (Trafigura). It is the only operating trading entity in India for the group, dealing primarily in nickel in refined form and concentrates, and coking coal and coke. While the group trades in various commodities in India namely, refined metals (copper, aluminium, lead, zinc, nickel), concentrates, oil and coal, the stock and sale trading of nickel, coking coal and coke is undertaken through TIPL, the remaining trades are directly handled by the parent.
Founded in 1993, Trafigura is one of the world’s leading independent commodity trading and logistics houses. It is a global commodities trader, with an industry-leading position in oils and metals trading. With 88 offices is 48 countries, the group has established its global reach and scale. While energy and metals & mining trading business continues to contribute to a major share of its business performance, the group has also been building its presence and position in the fast-evolving power and renewables sector through a series of strategic, targeted engagements. |
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)
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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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This Annexure has been updated on 16-Aug-22 in line with the lender-wise facility details as on 16-Aug-22 received from the rated entity.
Criteria Details
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