Rationale
The rating reaffirmation takes into account the status of
Godrej Industries Limited (GIL) as the flagship company of the Godrej Group and
its leadership position in its core business of oleochemicals in the domestic
market. GIL has a healthy portfolio of investments in the Group companies,
through which it derives a stable source of dividend income and also lends
financial flexibility because of its market value, which is significantly
higher than its book value. Besides being an investment holding company, GIL's
standalone business profile remains restricted to its oleochemicals and estate
management businesses. Over the years, GIL has gradually evolved as a holding
company for the Group's new business initiatives and has demonstrated its
capability to incubate businesses. While the ratings favourably factor in the
diverse business profile of GIL's investee companies, its credit profile
remains vulnerable to their performances and funding requirements. In 9M
FY2020, GIL's standalone operating income (OI) witnessed a moderate YoY decline
of ~9%, primarily due to relatively lower dividend income from its investee
companies of Rs. 196 crore vis-à-vis Rs. 293 crore in 9M FY2019. GIL's
financial profile remains vulnerable to the cyclicality in its oleochemicals
business, which has remained volatile over the years owing to fluctuating raw
material prices. The company's leverage and coverage indicators remain
moderate. ICRA notes GIL's reliance on short-term borrowings for meeting its
funding requirements, which expose it to refinancing risks. Nonetheless, the
sizeable market value buffer (excess of market value over the book value) on
its investments amounting to ~Rs. 32,025 crore (as on December 31, 2019) lends
high financial flexibility. GIL has a track record of monetising investments to
support its cash flows, whenever required, and ICRA expects this trend to
continue. ICRA notes that volatile stock market conditions may reduce GIL's
financial flexibility arising from the market value of its listed investments
in Group entities. The Stable outlook reflects ICRA's opinion that GIL will
continue to benefit from the significant market value buffer on its
investments, which lends strong financial flexibility.
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