By Shreyas Vaidya

India Ratings and Research (Ind-Ra) has upgraded Greenstar Fertilizers Limited’s (GFL) Long-Term Issuer Rating to ‘IND BBB+’ from ‘IND BBB’. The Outlook is Stable. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based limits

-

-

-

INR1,270 (reduced from INR2,500)

IND BBB+/Stable/IND A2

Long-term rating Upgraded; Short-term rating affirmed

Non-fund-based limits

-

-

-

INR300

IND BBB+/Stable/IND A2

Long-term rating Upgraded; short-term rating affirmed

Long-term loan^#

-

-

FY22

INR115 (reduced from INR1,200)

IND BBB+/Stable

Upgraded and Assigned

Proposed long-term loan*

-

-

-

INR2,315

Provisional IND BBB+/Stable

Assigned

^ The final ratings have been assigned following the receipt of executed financing documents by Ind-Ra

#Upgraded to provisional INDBBB+/Stable before being assigned

* The amount is unallocated  

The upgrade reflects the stabilisation of GFL’s operations post the expansion of its phosphoric acid (PA) manufacturing capacity, leading to an increase in the EBITDA, and the consequent improvement in the credit profile, with a sustained decline in the debt levels, and the receipt of continued support from the group companies in the form of extended credit periods on the procurement of raw material. Furthermore, Ind-Ra expects the EBITDA to sustain at FY20 levels over the near-to-medium term. 

KEY RATING DRIVERS

Improvement in EBITDA in FY20: GFL’s EBITDA increased to INR1,343 million in FY20 (provisional numbers) (FY19: INR1,093 million), with margins rising to 5.3% (5.0%), led by i) an improvement in the capacity utilisation to 97% in FY20 (FY19: 69%), leading to higher sales volumes and better absorption of fixed costs; ii) higher realisations for complex fertilisers as well as for by-products such as AlF3 and gypsum; and iii) savings on account of higher in-house production of PA. The profitability was also supported by the subsidy levels for Nitrogen, Phosphorus, and Potassium remaining at FY19 levels in FY20 despite a decrease in raw material prices. However, the improvement in profitability was restricted by the increase in discounts and rebates given on the products to 6.1% (INR1,538 million) of the total sales in FY20 from 2.5% (INR537 million) in FY19.  

The management expects the EBITDA to improve further in the medium term on account of the likely cost savings resulting from the higher proportion of in-house PA production due to increased capacity, and the benefits of low per unit logistics/handling costs due to the construction of new ammonia tanks by FYE21.   

However, GFL’s margins remain susceptible to factors such as the discounts offered by the company to maintain the competitiveness of its products, an increase in the prices of raw materials (rock phosphate, ammonia, and sulphur), the vagaries of monsoon, minimum support prices for crops, and delays in the realisation of the benefits from the capex and the Indian rupee’s depreciation against the US dollar. 

Improvement in Credit Metrics: GFL’s net leverage (net debt/EBITDA) improved to 2.5x in FY20 (FY19: 3.9x) due to a decline in the total debt to INR3,650 million (FY19: INR5,574 million) and the improvement in the EBITDA. The net leverage adjusted for the subsidy receivables has been negative since FY17. GFL’s interest coverage ratio (EBITDA/interest expense) also improved to 2.5x in FY20 (FY19:1.8x) due to the increase in the EBITDA and decrease in the interest expenses to INR535 million (INR618 million). Ind-Ra does not expect any major decline in debt at FYE21, as the scheduled repayments would also be followed by the undertaking of new long-term debt for implementing the capex planned in FY21 and the incurring of short-term debt to support the working capital requirements, since the subsidy payments from government of India are typically stretched during October-March. Consequently, the reduction in the net leverage would be more dependent upon an improvement in EBITDA and the timeline of subsidy receivables.  

Improvement in Revenue in FY20: GFL’s revenue increased to INR25,341 million in FY20 (FY19: INR21,783 million), with an increase in capacity utilisation during the year having led to higher sales volumes across segments. The capacity utilisation for manufactured fertilisers increased to 97% in FY20 (FY19: 69%; FY18: 89.9%) as GFL completed the stabilisation process post augmenting the capacity of its PA plant to 500 metric tonnes per day (mtpd) during FY19 from 300mtpd. The utilisation had been lower in FY19 as the company had implemented a shutdown for 50-60 days for enhancing the capacity of the PA plant.  The sales volumes of manufactured fertilisers increased to 613,190 metric tonnes per annum(mtpa) in FY20 (FY19: 470,080mtpa; FY18: 574,450mtpa). The average realisation for complex fertilisers remained stable on a yoy basis in FY20. The revenues are likely to be improve in FY21, backed by the healthy demand witnessed in 1HFY21 along with high utilisation capacity.  

Support from Group Companies: GFL’s parent company, AM International Holdings, and other group companies have supported it in the past by way of the following: i) providing of extended credit periods on raw materials; ii) offering of long-term loans in the form of masala bonds and external commercial borrowings; and iii) the provision of cash margins for GFL’s working capital loans.  

GFL imports a major portion of its raw material from the promotor company, Wilson International Holdings Pte Ltd, Singapore, and benefits from an extended credit period, leading to lower reliance on external borrowings. The trade payables increased to INR14,887 million in FY20 (1HFY21: INR10,220 million; FY19: INR12,894 million). GFL issued masala bonds to AM International Holding in FY16 and FY17; the outstanding amount stood at INR320 million at 1HFYE21 (FY20: INR654 million; FY19: INR1,535 million).  

Subsidy Receivables Keep Working Capital High: In FY20, GFL’s trade receivables (including subsidy receivables) increased to INR11,562 million (1HFY21: INR7,550 million; FY19: 9,150 million) as subsidy receivables rose to INR6,367 million (INR4,300 million; INR5,473 million). This was driven by lower subsidy realisations and higher subsidy claims due to higher sales. The company’s working capital requirements have traditionally been elevated due to high debtor days (FY20: 167 days; FY19: 153 days), resulting from the delays in the receipt of subsidy. However, since GFL procures key raw materials through group trading entities, it has been able to obtain a favourable credit period (FY20: 226 days; FY19: 227 days) to support the high subsidy receivables. Hence, the overall working capital cycle remained comfortable at 31 days in FY20 (FY19: 54 days). In 1HFY21, GFL’s total receivables fell to INR7,550 million as the subsidy receivables decreased to INR4,300 million. The inventory also declined to INR3,650 million in 1HFY21 (FY20: INR4,574 million), supporting the cash flows.  

GFL has also funded receivables partly by the receipt of loans under special banking arrangement of INR216 million (FY19: INR349 million) and partly through working capital loans of INR1,305 million at FYE20 (FYE19: INR1,200 million).

Liquidity Indicator - Adequate; Supported by Parent: GFL’s cash and cash equivalent remained moderate at INR346 million at FYE20 (FYE19: INR1,303 million). The company has a working capital limit of INR1,270 million, with another INR300 million as overdraft facility. The average utilisation of the working capital limits was 83% for the 12 months ended September 2020. GFL’s cash flow from operations decreased to INR881 million in FY20 (FY19: INR2,740 million) due to an increase in receivables to INR11,562 million (FY19: INR9,150 million).  

The total debt decreased to INR3,650 million in FY20 (FY19: INR5,574 million) owing to the repayment of long-term loans of INR1,401 million and short-term debt from group company of INR494 million. The debt at end-FY20 included long-term loans (in the form of masala bonds) of INR654 million from the group companies (1HFY21: 320 million; FY19: INR1,535 million) and INR880 million (INR115 million; INR1,400 million) from banking/financial institutions, and short-term loans of INR596 million from other parties (INR305 million; INR1,089 million) and INR1,521 million (INR1,303 million; INR1,549 million) from banking/financial institutions. The total debt further declined to INR2,043 million at end-1HFY21, mainly because of the repayment of long-term loans of INR1,099 million and a special banking arrangement facility of INR216 million, backed by sustained profitability along with fall in subsidy receivables. As per the repayment schedule, the company will witness the maturity of INR320 million of masala bond in December 2020; however, according to the management, the amounts can be rolled over to future years, if required. GFL did not avail the Reserve Bank of India-prescribed debt moratorium.  

Ind-Ra expects GFL’s liquidity profile to remain dependent on the timeliness of the subsidy receivables from the government and continued support from the parent.  

Major Capex Planned over FY21-FY22: GFL plans to incur total capital expenditure of INR600 million-800 million over FY21-FY22 for the following purposes: i) the construction of an additional ammonia importation terminal tank facility near the port with a storage capacity of 20,000mt; this in addition to the present capacity of 10,000mt would help GFL obtain optimum parcel size of the vessel and reduce the costs of freight and procurement; ii) the PA revamp project that aims to increase the production capacity by an additional 100 metric tonnes per day; ii) creating a production capacity of 500 metric tonnes per day of granulated SSP. The capex would be funded through a combination of internal accruals and external long-term loans.


RATING SENSITIVITIES

Positive: An improvement in the scale of operations, timely completion of the planned capex, leading to sustained improvement in the EBITDA and EBITDA margins, an improvement in the net leverage, and the timely release of subsidy, leading to an improved receivables position, could be positive for the ratings. 

Negative: Lower-than-expected EBITDA, any substantial delays in subsidy receivables that could affect the working capital cycle, or higher-than-expected debt-led capex, leading to any deterioration in the credit metrics, could lead to a negative rating action. 

 


COMPANY PROFILE

Incorporated in October 2010, GFL was hived off from the phosphate fertiliser division of Southern Petrochemical Industries Corporation Limited (‘IND BBB’/Stable). GFL is one of the largest di-ammonium phosphate manufacturers in Tamil Nadu, with a local market share of over 50%. It is a part of Ashwin Muthiah Group of companies that operate under the brand name SPIC, which has a strong recall among farmers. In addition, GFL manufactures NPK complex and single superphosphate at its 0.715mmt facility in Tuticorin.  

FINANCIAL SUMMARY  

Particulars

FY20*

FY19

Revenue (INR million)

25,341

21,783

EBITDA (INR million)

1,343

1,093

EBITDA margin (%)

5.3

5.0

Total debt (INR million)

3,650

5,574

Interest expense (INR million)

535

618

Source: GFL, Ind-Ra

*Provisional financials

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

30 August 2019

11 July 2018

Issuer rating

Long-term

-

IND BBB+/Stable

IND BBB/Stable

IND BBB/Stable

Fund-based limits

Long-term/Short-term

INR1,270

IND BBB+/Stable/IND A2

IND BBB/Stable/IND A2

IND BBB/Stable/IND A2

Non-fund-based limits

Long-term/Short-term

INR300

IND BBB+/Stable/IND A2

IND BBB/Stable/IND A2

IND BBB/Stable/IND A2

Long-term loan

Long-term

INR2,430

IND BBB+/Stable

Provisional IND BBB/Stable

Provisional IND BBB/Stable


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

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Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Analyst Names

  • Primary Analyst

    Shreyas Vaidya

    Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th Floor, West Wing, Bandra Kurla Complex, Bandra East,Mumbai - 400051
    +91 22 40001775

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121