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, which provides a stable source of dividend income and lends financial flexibility because of its market value, which is significantly higher than its net debt outstanding. 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 9M FY2021, GIL reported ~13% YoY decline in its operating income (OI), primarily due to lower dividend income from its investee companies. This further resulted in a net loss of Rs. 66.1 crore in 9M FY2021, against a profit after tax (PAT) of Rs. 29.8 crore in 9M FY2020. Its 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 that GIL's reliance on short-term borrowings for meeting its funding requirements leads to refinancing risks. Nonetheless, following the issue of Rs. 1,500 crore nonconvertible debentures in the current fiscal, its debt mix has improved sequentially. Furthermore, GIL has announced fund raising for an amount not exceeding Rs. 1,500 crore through debt instruments over the next one year to fund the expansion and diversification into housing finance and non-banking finance business through acquisition of 51.16% stake (to be further increased to 81.25%) in Pyxis Holdings Private Limited (PHPL) and 95% stake in Godrej Housing Finance Limited (GHFL) from Anamudi Real Estates LLP (AREL). Coupled with the ongoing investment and capital expenditure (capex) plans, this acquisition will result in an increase in GIL's standalone net leverage (net debt/OPBDITA1 ) over the next few years. However, ICRA draws comfort from the sizeable market value of GIL's listed investments vis-à-vis its net debt outstanding, which 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 the volatile stock market conditions may reduce GIL's financial flexibility derived from the market value of its listed investments in Group entities. ICRA notes that the acquisition will result in diversification of GIL's business areas into housing finance and non-banking finance and leverage the Group's established presence in the real estate sector via Godrej Properties Limited. However, the company's ability to scale up and generate cash flows from the financial services business, thereby leading to an improvement in the credit metrics, would be a key monitorable. 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.