ICRA has assigned LBB+ rating to Rs. 17.50 crore fund based facilities of Godavari Polymers Private Limited (GPPL). ICRA has also assigned an A4 rating to Rs.23.50 crore non-fund based facilities of GPPL. The outlook on the long-term rating is Stable.

The ratings draw comfort from the GPPL?s presence of over 20 years in the business with its own brand ?Godavari? and a dealer network of over 540 distributor network covering six states. GPPL witnessed moderate growth in top line at a CAGR of 33.5% over the last two years. The increase in top line is due to the healthy demand in drip irrigation and potable water supply segments into which the company forayed in FY 08. GPPL is an enlisted supplier to Andhra Pradesh Micro Irrigation Project (APMIP). The Government of Andhra Pradesh extended the Micro Irrigation Project till FY2013 for successful implementation of the MIP to cover an area of 7.5 lakh hectares.

Also, the state government increased the subsidy to 90 per cent to big farmers adopting drip irrigation system from February 1, 2009. The demand outlook for the company?s products is expected to be favorable due to gaining popularity of sprinkler and drip irrigation system within the farming community as a result of the subsidy provided by the government. The entry barriers are low due to low capital intensity; hence there is high degree of fragmentation and competition in this industry. Having an established brand, a wide dealer network, quality of service and multi-location manufacturing presence remain important in the business in order to gain competitive edge.

The rating however is constrained by the modest size of operations of GPPL with limited product offerings and regional focus. GPPL continues to depend on Andhra market, despite being present in six states. Over 70% of the total sales in H1 FY11 were made in Andhra Pradesh. The gearing is moderate as majority of the capacity expansion in the past was funded through internal accruals. The gearing had reduced from 1.89 times as on 31st Mar, 2008 to 1.63 times as on 31st mar, 2010 due to increase in retained earnings. The coverage indicators are moderate with OPBITDA/Interest at 2.24 times and NCA/Debt at 18% in FY 10.

Over the last three years, there has been an improvement in the coverage ratios due to improved operating margins. The working capital intensity is moderate at 20% in FY 10. Going forward, due to the proposed expansion in FY 12, the gearing is expected to increase significantly if it is debt funded. However, the margins are expected to improve in future as the backward integrated nature of operations would lead to cost rationalization.