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Banks (Finance)

ICRA Reaffirms Ratings for Gowra Petrochem Pvt. Ltd.

Strategic Insights

— 1 min read

Gowra Petrochem Pvt. Ltd. (GPPL) has been a Del Credere Agent (DCA) for Reliance Industries Limited (RIL) since 1996, distributing polymer products in Andhra Pradesh. Despite a 15% reduction in volume off-take in FY2015 due to discontinued business with Finolex and lower off-take of Reliance PVC resins, GPPL's established relationship with RIL and diversified revenue streams have contributed to its stable financial risk profile. However, the company's exposure to counterparty credit risk and moderate customer concentration in both trading and DCA businesses pose rating sensitivities.

Key Takeaways:

  • ICRA has reaffirmed the BBB rating for GPPL's long-term fund-based limits, revised from Rs. 17.50 crore to Rs. 7.00 crore, due to its established relationship with Reliance Industries Limited and diversified revenue streams.
  • The ratings also factor in GPPL's comfortable financial risk profile, with a gearing of 0.78 times, interest coverage of 3.52 times, Total Debt/OPBDITA at 1.96 times, and NCA/Total Debt at 23% as of FY2015.
  • The ratings are constrained by GPPL's dip in operating margins during FY2015, increasing contribution from trading sales, and moderate net worth base compared to credit risk undertaken, with top 5 debtors accounting for 84% of total net worth as of 31st March 2015.
  • GPPL is exposed to counterparty credit risk in the DCA business, as any defaults on payments could have an adverse effect on the company's profitability.
  • Going forward, increase in RIL volumes, improvement in profitability, and management of liquidity will be key rating sensitivities.

Statistics:

  • Long-term ratings: ICRA BBB (stable)
  • Long-term fund-based limits: Rs. 7.00 crore (revised from Rs. 17.50 crore)
  • Long-term non-fund-based limits: Rs. 1.10 crore
  • Short-term ratings: ICRA A3+ (stable)
  • Short-term non-fund-based limits: Rs. 9.40 crore (revised from Rs. 9.20 crore)
  • Unallocated limits: Rs. 10.30 crore (revised from Rs. 0.00 crore)
  • Gearing ratio (31st March 2015): 0.78 times
  • Interest coverage ratio (31st March 2015): 3.52 times
  • Total Debt/OPBDITA ratio (31st March 2015): 1.96 times
  • NCA/Total Debt ratio (31st March 2015): 23%

Sources:

  • ICRA Limited, August 2015
  • Reliance Industries Limited
  • Gowra Petrochem Pvt. Ltd.

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