Gravita India Ltd.

Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 295.23 Crs. of Gravita India Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (04 Jan 2021)	Present
Fund Based	238.87	257.33	Long Term	BWR A-/Stable Reaffirmed	BWR A /Stable Upgrade
Non Fund Based	20.00	10.00	Long Term	BWR A-/Stable Assignment	BWR A /Stable Upgrade
	27.90	27.90	Short Term	BWR A2 Reaffirmed	BWR A2 + Upgrade
Grand Total	286.77	295.23	(Rupees Two Hundred Ninety Five Crores and Twenty Three lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The upgrade in the ratings of Gravita India Ltd ( GIL or the company) factors in its consistent improvement in  revenue and profitability at the consolidated level, aided by a substantial improvement in cash accruals on account of ramping up of the operations at its overseas units,  along with improvement in its operational efficiency levels. The management has also made efforts towards improving its margins by reducing its overall working capital requirements and borrowing costs in FY21. The capacities of its overseas units are  running at enhanced levels, which also added to its consolidated revenues and operating margins in FY21. The percentage of raw material procured from the domestic market for its domestic units  has also increased in FY21, which has enabled it to  enhance its operational efficiencies. The group's liquidity position remains adequate with modest utilization in its working capital limits over the past 12-month period  ended Sep 2021. The ratings continue to factor in its established market position in the lead recycling industry, with a presence across multiple locations in India and abroad. It also has strong operational synergies with its overseas subsidiaries to cater to its customer demand internationally, and derives benefits from the requisite licenses available to import lead-acid battery scrap. As a risk mitigation strategy, the  group completely hedges its exposure in inventory and currency position on a daily basis.

The ratings are, however, constrained by susceptibility to changes in government regulations, environmental policies, and other factors and inherent cyclicity associated with the end-user industry. The group is also exposed to customer concentration risks, though the majority of its revenues are generated from industry majors. 

KEY RATING DRIVERS

Credit Strengths:

• Healthy revenue growth and improvement in profitability margins during FY21 :

  At a consolidated level, the Company's revenues increased from Rs. 1347.80 Cr to Rs. 1409.75 Cr during FY21 on account of healthy sales volume of its overseas units coupled with additional supply arrangements with one of its customers i.e. Amara Raja Batteries Ltd (ARBL). The group's EBITDA margins also improved from 5.23% in FY19 to 7.73% in FY20 and further to 8.6% in FY21 on account of measures undertaken by the management to improve its operational efficiency levels. It has increased procurement of scrap from the domestic market, which enabled it to save logistics costs and working capital requirements. The Company's revenue share of the value-added products has also increased which added up to its margins as well. The Company's interest coverage ratio also stood adequate at 3.92x (3.32x) in FY20), NCA/Total Debt of 0.30x (0.21x in FY20), and Total Debt/EBITDA of 2.15x (2.68x) in FY21. The Company's revenue and profitability levels are expected to improve on the back of reduction in overall borrowing costs, healthy volume growth, and improvement in operational efficiencies.

• Back-to-back hedging mechanism in place :

  The Company follows a formal hedging mechanism to hedge the entire commodity price exposure and foreign currency exposure. With respect to hedging its foreign exchange exposure, it generates around 50% of its revenues through exports, which provides a partial natural hedge coupled with the availing majority of its PCFC limits in USD. With respect to hedging its commodity price risk, the Company has also started hedging its core (perpetual) inventory position by taking forward contracts on LME exchange from FY20 onwards. These measures resulted in generating stable margins over the past few years. 

• Manufacturing units strategically located :

  The Company has four manufacturing units in India that are strategically located. Unit I and III are located at Jaipur, Unit II in Gandhidham, Gujarat, and Unit IV in Chittoor, Andhra Pradesh. Unit II and IV are located nearby the custom port and are used for most of the Company's overseas business. The Company is also in the process of establishing a new plant at Mundra, Gujarat. Further, it has units located in Ghana, Mozambique, Tanzania, Nicaragua, Senegal, Jamaica, and Sri Lanka, which have the advantage of being located close to the lead scrap as well as customers in the nearby region. Some of the subsidiaries also get a duty advantage on sales to the European market.

• Improvement in capacity utilization levels across all the product segments :

  The total installed capacity of the group has increased from 167,419 MTPA to 190,319 MTPA during the current financial year. The utilization levels of the units (at consolidated level) are increasing on a y-o-y basis across all its product segments. During FY21, the utilization levels (across all the group units) increased from 58.12% to 64.78%. With ramping up the operation of its overseas units, the group has reported a substantial increase in cash accruals during FY21. 

• Experienced Management :

  Dr. Mahavir Prasad Agarwal (Chairman) and Mr. Rajat Agarwal (Managing Director) have extensive experience of more than two decades in the lead recycling industry. Over time, the group has set up various entities and plants at various Indian and overseas locations.

Credit Risks:

• Susceptibility to changes in government regulations, environmental policies, and other factors :

  The lead metal industry is susceptible to changes in government policies and environmental norms. The lead industry falls under the category of industries that are hazardous to health, and it is governed by strict environmental laws and regulations, which may become more stringent in the times ahead. Any non-compliance with these laws and regulations could affect the company’s business.

• Inherent cyclicality associated with the end-user industry :

  The use of lead is primarily in the manufacturing of lead-acid batteries which caters to the requirements of the sectors such as solar power systems, automobiles, Invertors, etc. The automobile industry is one of the major end-use industries for lead-acid batteries and thus, Gravita India Ltd is exposed to the risks inherent in it.   

• Customer concentration risks :

  The Company is exposed to customer concentration risks as the revenue from the top 10 customers contributes to over 70% of its total sales achieved in FY21 (FY20: 68% and FY19: 45%). Though the majority of the revenues are generated from reputed customers such as Amaraja Batteries, Trafigura, Luminous Power, KEI, etc. It also entered into recycling arrangements with some of its customers which reflects stability in its revenue profile up to some extent. 

ANALYTICAL APPROACH - Consolidated

Analytical Approach - Consolidated: For arriving at its ratings, BWR has considered the consolidated performance of Gravita India Limited, along with the business linkages with its various subsidiaries (herein referred to as a Group). The list of these subsidiaries is placed below  at  Annexure III. 

RATING SENSITIVITIES

Positive Factors: The ability of the group to report consistent improvement in revenue and profitability levels. The ability to sustain its adequate liquidity position despite availing additional debts for Capex over the medium term. Special triggers which will lead to an upgrade include sustenance of its gearing ratio, liquidity position, and other credit metrics over the medium term.

Negative Factors: Weakening in the revenues and profit margins, leading to a sustained deterioration of interest coverage ratios and debt coverage metrics. Any significant deterioration in its net working capital and elongation in the trade payable cycle with a high inventory position, resulting in deterioration in the company’s liquidity position would also be a negative factor.

LIQUIDITY INDICATORS - Adequate

The group's liquidity position stood adequate marked by adequate cash accruals of around Rs. 77.13 Cr against the annual fixed debt obligation of around Rs. 20 Cr during FY21. Further, the net cash accrual is expected to be over Rs. 100 Cr which would be sufficient to meet its annual fixed debt obligation of around Rs. 26 Cr, its immediate liquidity requirements for capex and working capital in FY22. The group has unutilized bank lines of ~ Rs. 64 Cr with average working capital limit utilization at 68% over the past 12-month ended August 2021. The company had free cash and cash equivalent of ~ Rs. 7.42 Cr at a standalone level, and Rs.19.86 Cr at a consolidated level as of 31st March 2021.

ABOUT THE ENTITY

Gravita India Limited (GIL) is a listed public limited company, incorporated in 1992 by Mr. M.P. Agrawal and Mr. Rajat Agrawal. GIL is majorly engaged in the recycling of lead and manufacturing of lead-based products.

GIL presently runs four units – Unit I and Unit III are located at Jaipur, Unit II in Gandhidham (Gujarat) & Unit IV in Chittoor (Andhra Pradesh). Unit II and Unit IV are located nearby the custom ports for ease of Export and Import and saving in logistics costs. The total installed capacity of the said units is around 106,819 MTPA. Its aluminum recycling unit was set up at Phagi (Jaipur) during FY17 with a total installed capacity of 12,000 MTPA and the Plastics division was set up in FY19 with a total installed capacity of 12000 MTPA. GIL also provides turnkey solutions for the development of plant & machinery for lead manufacturing units.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	1231.25	1172.39
EBITDA	Rs.Crs.	65.04	64.59
PAT	Rs.Crs.	32.16	22.43
Tangible Net Worth	Rs.Crs.	188.63	163.60
Total Debt/Tangible Net Worth	Times	1.12	1.41
Current Ratio	Times	1.26	1.22

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2021 (History)		2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	257.33	BWR A/Stable (Upgrade)	04Jan2021	BWR A-Stable (Reaffirmed)	18Sep2020	BWR A-Stable (Reaffirmed)	25Sep2019	BWR A-Stable (Downgrade)	22May2018	BWR AStable (Assignment)
		NA	NA	NA	NA	NA	NA	17Jan2019	BWR AStable (Reaffirmed)	NA	NA
Non Fund Based	LT	10.00	BWR A/Stable (Upgrade)	04Jan2021	BWR A-Stable (Assignment)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	27.90	BWR A2+ (Upgrade)	04Jan2021	BWR A2 (Reaffirmed)	18Sep2020	BWR A2 (Reaffirmed)	25Sep2019	BWR A2 (Downgrade)	22May2018	BWR A2+ (Assignment)
		NA	NA	NA	NA	NA	NA	17Jan2019	BWR A2+ (Reaffirmed)	NA	NA
Grand Total		295.23	(Rupees Two Hundred Ninety Five Crores and Twenty Three lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

• Approach to Financial Ratios
• Consolidation of Companies
• Manufacturing Companies
• Short Term Debt
• General Criteria

Analytical Contacts
Peeush Middha Manager - Ratings Board : +91 172 5032 295 / 6 peeush.m@brickworkratings.com	Ashwini Mital Director - Ratings Board : +91 172 5032 295 / 6 ashwinimital@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Bandhan Bank	Term Loan - Sanctioned	12.94	_	12.94
2	Canara Bank	Cash Credit - Sanctioned	10.10	_	10.10
3	Canara Bank	Covid -19 Emergency Line Credit - Sanctioned	0.44	_	0.44
4	Canara Bank	GECL - Sanctioned	9.60	_	9.60
5	Canara Bank	ILC/FLC/BG - Sanctioned	_	1.40	1.40
6	ICICI Bank	Standby line of Credit (SLC) - Sanctioned	10.00	_	10.00
7	ICICI Bank	Cash Credit - Sanctioned	7.00	_	7.00
8	Jammu and Kashmir Bank	Cash Credit - Sanctioned	8.75	_	8.75
9	Jammu and Kashmir Bank	Covid -19 Emergency Line Credit - Sanctioned	_	_	0.00
10	Punjab National Bank	Covid -19 Emergency Line Credit - Sanctioned	1.76	_	1.76
11	Punjab National Bank	Term Loan - Sanctioned	0.40	_	0.40
12	Punjab National Bank	Cash Credit - Sanctioned	39.00	_	39.00
13	Punjab National Bank	GECL - Sanctioned	8.86	_	8.86
14	State Bank Of India (SBI)	ILC/FLC/BG - Sanctioned	_	23.00	23.00
15	State Bank Of India (SBI)	Cash Credit - Sanctioned	102.00	_	102.00
16	State Bank Of India (SBI)	GECL - Sanctioned	13.35	_	13.35
17	State Bank Of India (SBI)	Covid -19 Emergency Line Credit - Sanctioned	5.70	_	5.70
18	UCO Bank	Covid -19 Emergency Line Credit - Sanctioned	1.36	_	1.36
19	UCO Bank	Cash Credit - Sanctioned	20.50	_	20.50
20	UCO Bank	ILC/FLC/BG - Sanctioned	_	3.50	3.50
21	Union Bank of India	Covid -19 Emergency Line Credit - Sanctioned	0.82	_	0.82
22	United Bank of India	Cash Credit - Sanctioned	14.75	_	14.75
Total			267.33	27.90	295.23
TOTAL (Rupees Two Hundred Ninety Five Crores and Twenty Three lakhs Only)