Rationale

 The rating 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 FY2020, GIL's standalone operating income (OI) witnessed a moderate YoY decline of ~8%, due to ~4% YoY decline in its oleochemicals business and relatively lower dividend income from its investee companies of ~Rs. 245 crore vis-à-vis Rs. 342 crore in FY2019. Furthermore, in H1 FY2021, GIL reported ~21% YoY decline in its standalone OI, primarily due to the adverse impact of the Covid-19 pandemic on its oleochemicals business in Q1 FY2021 (~38% YoY revenue decline), and lower dividend income from its investee companies of ~Rs. 63 crore in H1 FY2021 vis-à-vis ~Rs. 147 crore in H1 FY2020. 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, following the issue of Rs. 1,500 crore non-convertible debentures in the current fiscal, through two tranches of Rs. 750 crore each in July 2020 and October 2020, the company's debt mix has improved sequentially. Furthermore, the sizeable market value of GIL's listed investments vis-à-vis its net debt outstanding, as reflected in its net debt/market value of listed investments of 8.0% as on September 30, 2020 (10.4% as on March 31, 2020), also 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 Rationale The rating 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 FY2020, GIL's standalone operating income (OI) witnessed a moderate YoY decline of ~8%, due to ~4% YoY decline in its oleochemicals business and relatively lower dividend income from its investee companies of ~Rs. 245 crore vis-à-vis Rs. 342 crore in FY2019. Furthermore, in H1 FY2021, GIL reported ~21% YoY decline in its standalone OI, primarily due to the adverse impact of the Covid-19 pandemic on its oleochemicals business in Q1 FY2021 (~38% YoY revenue decline), and lower dividend income from its investee companies of ~Rs. 63 crore in H1 FY2021 vis-à-vis ~Rs. 147 crore in H1 FY2020. 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, following the issue of Rs. 1,500 crore non-convertible debentures in the current fiscal, through two tranches of Rs. 750 crore each in July 2020 and October 2020, the company's debt mix has improved sequentially. Furthermore, the sizeable market value of GIL's listed investments vis-à-vis its net debt outstanding, as reflected in its net debt/market value of listed investments of 8.0% as on September 30, 2020 (10.4% as on March 31, 2020), also 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 of its listed investments, which lends strong financial flexibility.