|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 100.00 | ACUITE A | Stable | Reaffirmed | - |
| Bank Loan Ratings | 900.00 | - | ACUITE A1 | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 1000.00 | - | - |
| Rating Rationale |
|
Acuite has reaffirmed the long-term rating to 'ACUITE A' ('read as ACUITE A') and the short-term rating to 'ACUITE A1' ('read as ACUITE A One') on the Rs. 1000 crore bank loan facilities of Gandhar Oil Refinery India Limited (GORIL). The outlook is 'stable'.
Rationale for the Rating The rating reaffirmation considers Gandhar Group’s stable revenue growth, comfortable financial risk profile, and improved operating profitability on a consolidated level. The improvement is in line with Acuite's expectations. The improved profitability is attributable to the group’s decision to separate the coal trading segment to a different entity in line with the promoters' stated focus on deepening its presence in the manufacturing specialty oil industry. The rating also takes comfort from the group's established track record of operations, relationships with reputed clientele, and strong liquidity profile. However, the rating is constrained on account of high working capital intensity and the susceptibility of the group's profitability to volatility in raw material prices and forex fluctuations. |
| About Company |
|
GORIL, incorporated in 1992, is engaged in the specialty oil industry. It was started by Mr. Ramesh Parekh, who is also the current chairman. The company is engaged in manufacturing products like white oils and other allied products that have applications in cosmetics, healthcare, pharmaceuticals, and chemical segments, apart from lubricants (industrial and automotive oils) and other specialty oils (transformer oils and rubber processing oils). GORIL has an installed capacity of 2,60,000 kiloliters (KL), which is in the process of being expanded to 3,32,000 KL with manufacturing facilities at MIDC Taloja and Silvassa, catering to the overseas and domestic markets, respectively. The company is ISO 9001:2008, ISO 14001:2004, OHSAS 18001 certified, and FDA approved for manufacturing pharmaceutical-grade mineral oils. The company was also historically engaged in coal trading; however, the trading revenue has reduced considerably and it has completely separated from Gandhar Group in line with the promoter’s vision of deepening its presence in the specialty oil industry, particularly in the white oil segment.
|
| About the Group |
|
Gandhar Group is a Mumbai-based entity engaged in manufacturing products like white oils and other allied products and began its operations in 1992 through its flagship company, GORIL. The group was also historically engaged in coal trading; however, currently the trading segment has been separated with a slump sale agreement under a different entity, namely Gandhar Coals and Mines Private Limited. The other entities in the group include Gandhar Shipping and Logistics Private Limited (GSLPL) and Texol Lubritech FZC (TLF). GSLPL is a Mumbai-based company incorporated in 2010. It is engaged in providing logistical support to the flagship company's (GORIL) operations. It is fully owned by GORIL. TLF is a Sharjah-based company that started its operations in 2019. It is engaged in manufacturing products like white oils, petroleum jelly, industrial and automotive lubricants, transformer oils, and a variety of other specialty oils. It is a subsidiary company of GORIL, where GORIL has around 50.10% ownership. Its manufacturing facility is in Hamriyah Free Zone, Sharjah.
|
Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has consolidated the business and financial risk profiles of Gandhar Oil Refinery (India) Limited (GORIL), Gandhar Shipping and Logistics Private Limited (GSLPL), and Texol Lubritech FZC (TLF). Together the entities are referred to as the 'Gandhar Group' (GG). The consolidation is in view of the common management, strong operational & financial linkages between the entities and corporate guarantee extended by GORIL.
In the earlier rating review Gandhar Global Singapore PTE Limited (GGSPL) was considered in the consolidated analysis, however since November 2020 the Company has been shut down. |
Key Rating Drivers
| Strengths |
| Extensive experience of promoters in the industry and a long operational track record.
Gandhar Group began its operations in 1992 with the establishment of its flagship company, GORIL. It was started by Mr. Ramesh Parekh, who is also the current chairman. He has spent over three decades in the industry. The day-to-day operations are managed by his sons, Mr. Samir Parekh and Mr. Ashlesh Parekh, both of whom have over a decade of experience in the industry. The long operational track record and experience of the promoters have helped the group achieve a relatively large scale of operations and establish relationships with reputed clients and suppliers. Its large scale of operations is reflected in consolidated revenue of Rs. 4081 crore in FY2023 (prov.) against Rs. 3546 crore in FY2022. The revenue growth is attributable to contributions from its subsidiary company, Textol Lubritech FZV (TLF). TLF’s revenues stood at Rs. 1183 crore in FY2023 (prov.) against Rs. 617 crore in FY2022. Further, the increase can also be attributed to the group’s manufacturing segment, which has product applicability in a diverse range of industries. The product portfolio includes white oils, petroleum jelly, industrial and automotive lubricants, transformer oils, and a variety of other specialty oils. Products manufactured by Gandhar Group have applications in varied industries, including pharmaceutical, FMCG, texturizers, polymers, electricity generation and transmission, railways, steel, sugar, engineering equipment, chemical, rubber and tyre manufacturing, automotive, and defence. The group also caters to a reputed clientele base in more than 100 countries, including the UAE, Brazil, the USA, Europe, and Asia. Besides having two units in India at Taloja and Silvassa, it also has a plant in Sharjah held through its subsidiary, TLF. Some of its noteworthy clients include Indian Railways, State Electricity Boards, and Discoms. The company also has established relationships with its suppliers. The group has entered into supply contracts with large international as well as domestic oil refineries such as Saudi Aramco, S-Oil Corporation, BPCL, and HPCL, respectively. Acuité believes that Gandhar Group will continue to benefit from its experienced management, established relations with clients and suppliers, and long track record of operations. Comfortable financial risk profile Gandhar Group’s financial risk profile has remained comfortable despite debt additions in the last two years. The tangible net worth stood strong at Rs. 729.88 crore as of March 31, 2023 (prov.) against Rs. 527.95 crore as of March 31, 2022. The total debt stood at Rs. 217.50 crore as of March 31, 2023 (prov.) against Rs. 190.77 crore as of March 31, 2022. This includes term loans and lease liabilities of around Rs. 23 crore and Rs. 48 crore, respectively. Further, working capital loans stood at Rs 68.98 crore, and unsecured loans from related parties stood at Rs 58.45 crore. Besides this, the group also has non-fund-based facilities to the tune of Rs. 370 crore in the form of LC and BG. The gearing stood at 0.30 times as of March 31, 2023 (prov.) against 0.36 times as of March 31, 2022. However, the gearing inclusive of non-fund-based limits stood at 0.81 times as of March 31, 2023 (Prov.). Interest coverage ratio (ICR) stood marginally reduced but comfortable at 6.32 times in FY2023 (Prov.) due to additional debt availed as against 8.40 times in FY2022. Further, DSCR stood healthy at 3.91 times during FY2023 (prov.) against 5.98 times in FY2022. Going forward, the coverage indicators are expected to improve in the absence of any additional debt on account of further expected improvements in profitability. The TOL/TNW stood at 1.17 times as of March 31, 2023 (prov) against 1.47 times as of March 31, 2022. Acuité believes that the group will maintain a comfortable financial risk profile in the absence of any major debt-funded capex over the medium term. Improvement in operating profitability. The group’s operating profitability has seen improvement on a consolidated level, mainly on account of a reduction in coal trading business over the years. The contribution of the trading segment almost stood at nil in FY2023, against 4 percent in FY2022 and 11 percent in FY2021. This has resulted in a YoY increase in operating profitability as the company has been able to generate stable margins from its manufacturing segment. Revenue and operating margins stood at Rs. 4076 crore and 7.70 percent for FY2023 (prov.) against Rs. 3546 crore and 6.81 percent in FY2022 and Rs. 2220 crore and 5.36 percent in FY2021, respectively. Gandhar Group's ability to sustain its profitability over the medium term will remain a key rating sensitivity. |
| Weaknesses |
| Elongation in the working capital cycle
GG’s operations are moderately working capital intensive, as marked by GCA days of 106 in FY2023 (prov.), increasing from 96 in FY2022. This is primarily on account of the increase in receivable period to 50 days in FY2023 (prov.) from 45 days in FY2022. Further, the inventory days have also increased to 45 in FY2023 (prov.) against 36 in FY2022. GCA also consisted of a balance with government authorities of Rs. 61 crore in FY2023, which has resulted in an overall increase in gross current assets. Although there is a marginal increase in the receivables, the clients that the group deals with are large, reputed companies, thus reducing the counterparty risk. The customer concentration risk is also lower, as the top clients in the manufacturing segment only account for 18 percent of the total sales. Acuité believes the group’s ability to restrict further elongation in the working capital cycle will remain a key rating sensitivity factor. Susceptibility to volatility in raw material prices and exposure to forex risk The key component in manufacturing specialty oils and lubricants is base oils. It forms 80 percent of the groups’ raw material costs. It is a derivative of crude oil, produced by refining crude, and therefore susceptible to volatility in crude oil prices. However, the company holds the requisite quantity of inventory and has ‘pass through’ clauses in the contracts with the customers to mitigate the risk of volatility in commodity prices, thereby protecting its margins. Further, the group is exposed to significant forex risk as it imports 85 percent of its raw materials. Exports account for 33 percent of the revenue. Hence, foreign exchange risk is reduced to some extent through a natural hedge. However, the group follows an active hedging policy, including forward contracts, and 70 percent of its foreign exchange exposure is hedged, which mitigates a substantial portion of forex risk. |
| ESG Factors Relevant for Rating |
|
Oil and gas businesses have substantial carbon emissions and toxic waste footprints. Issues like waste and water management, managing environmental impacts, and achieving energy efficiency are significant to the hydrocarbon exploration and refining industry. Furthermore, sustainable procurement is also a key material issue for the industry. Labour management, occupation, workplace health and safety standards, and community development are important socially related factors that can influence social scores in the oil and gas industry. Other material issues include product quality, product safety, and supply chain management. For oil and gas businesses, corporate governance remains a key risk. Regulatory compliance, board oversight, and business ethics are sensitive issues.
|
| Rating Sensitivities |
|
| Material Covenants |
| None |
| Liquidity Position |
| Strong |
|
Gandhar Group's net cash accruals (NCA) stood healthy in the range of Rs. 180–223 crore for the period FY2022-FY2023 against repayment obligations in the range of Rs. 3–14 crore during the same period. Going forward, the group’s NCA is expected to remain in the range of Rs. 225–250 crore for the period FY 2023–2024 against repayment obligations in the range of Rs. 20–23 crore for the same period. The company's operations are moderately working capital intensive, as marked by GCA days of 106 during FY2023 (Prov.). Although this makes the company dependent on bank borrowing to fund its working capital requirements, the same are utilised at moderate levels, and average fund-based and non-fund-based bank limit utilisation for the last twelve-month period ended March 2023 stood at 19 percent and 83 percent, respectively. The group has maintained cash in hand at around 1.56 crore and bank balances of Rs. 44.80 crore in FY2023 (prov.). The group’s liquidity profile is expected to remain strong over the medium term on account of its healthy cash accruals against repayment obligations, low bank limit utilisation, and healthy cash and bank balances.
|
| Outlook: Stable |
|
Acuité believes Gandhar Group will maintain a "stable" business risk profile in the medium term on the back of an established operational track record, the long-standing experience of the promoters in the business, and established relations with reputed customers and suppliers. The outlook may be revised to "positive" in the case of improvement in the operating risk profile and working capital cycle. Conversely, the outlook may be revised to "negative" in the event of a further decline in profitability or an elongation of the working capital cycle.
|
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 4081.24 | 3546.30 |
| PAT | Rs. Cr. | 206.80 | 164.12 |
| PAT Margin | (%) | 5.07 | 4.63 |
| Total Debt/Tangible Net Worth | Times | 0.30 | 0.36 |
| PBDIT/Interest | Times | 6.32 | 8.40 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any Other Information |
| Not Applicable |
| Applicable Criteria |
|
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm |
| Note on Complexity Levels of the Rated Instrument |
|
In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
|
|
| |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |
|
Contacts |
| Analytical | Rating Desk |
| About Acuité Ratings & Research |
