Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the Rs.1000 crore non-convertible debentures (NCDs) of Century Textiles and Industries Ltd (Century) and reaffirmed its existing debt instruments and bank facilities at ‘CRISIL AA/Stable/CRISIL A1+’ The rating on Rs 56 Crore of bank facilities and Rs 238 Cr of NCD is withdrawn since these bank facilities and debt instruments are repaid. This is in line with CRISIL Ratings policy on withdrawal of ratings.

 

In March 2024, the board of directors of the company approved discontinuation of the ‘Textile Division’ at Bharuch. Crisil Ratings has taken note of the same with results of the division now disclosed as ‘discontinued operations’.

 

Operating income improved to Rs 4514 crore on-year in fiscal 2024, with Rs 449 crore of Ebitda with Margins of 11.4% compared with 14.7% in fiscal 2023 (re-stated). The moderation reflects reduced realisations in the paper segment impacted by lower priced imported products amid the rise seen in raw material costs. EBITDA does not include Rs 202 Crore received from sale of TDR rights during the third & fourth quarter of this fiscal, supporting cash generation. While operating performance in fiscal 2025 is expected to remain moderate for paper segment, performance over the medium term is expected to improve supported by de-bottlenecking and cost efficiencies in the paper segment with steady demand of paper, paperboard and tissue paper. Further, performance of the commercial real estate segment is likely to remain healthy while residential real estate business is expected to show traction, providing support.

 

Century has continued to achieve healthy sales traction across its residential projects signifying the company’s strong brand name, attractive project features and ability to achieve sales booking. As on Q1FY25, the company achieved cumulative sales value of ~Rs 9,428 crore or ~71% of aggregate launched project value across all projects on owned and JDA projects while having healthy collections. This includes ~99% of project value booking achieved for its 3 JDA projects Birya Navya at Gurugram & Birla Tisya, Birla Trimaya as well as 97% achieved for Birla Alokya  projects in Bengaluru. Century has purchased several new land banks across Mumbai, Delhi, Bengaluru, and Pune apart from spending on approvals costs for new project launches during FY 24 & the same has continued in Fiscal 2025 which was met partly from internal accruals as well as new debt resulting in gross debt increasing to Rs 2,482 crore as of March 2024 from Rs 1,038 crore in Mar-23; while continuing with construction on existing projects using customer collections. Consequently, gearing grew to about 0.6 times by March 2024 from 0.26 time as on March 31, 2023. The residential real estate projects of Century on owned land and joint development agreements (JDA) will continue to generate healthy sales booking with continuing collections supporting ongoing project construction costs. However, given high investments towards approval costs for new launches, land banks and JDAs totalling Rs 1,000-1,500 crore annually to improve residential project pipeline, gross debt levels are expected to further increase over the medium term and is expected at  ~Rs 4,000 crore in fiscal 2025. The company will continue to follow a flexible approach with a mix of asset-light JDA model as well as outright land purchases to create a healthy pipeline of projects. Any larger-than-expected investment in JDAs or new projects could adversely impact the capital structure of Century and will remain a key monitorable. The company continues to benefit from business diversity, with ~80% share of paper business and are also supported by Century’s healthy financial risk profile and adequate liquidity buffer. Furthermore, the ratings benefit from strong, need-based and timely financial support from the Aditya Birla (AB) group.

 

These strengths are partially offset by exposure of the residential real estate development business to demand and implementation risks, although it is mitigated by the group’s development track record in commercial real estate and focus on quality and timely project completion. Also, the commoditised nature of businesses and susceptibility to intense competition and cyclical business conditions, renders some volatility to its paper business.

Analytical Approach

• CRISIL Ratings has applied its criteria for notch-up of ratings based on group support.
• CRISIL Ratings has followed a full consolidation approach for the real estate and other subsidiaries, given financial fungibility, and included share of profits from joint-venture, Birla Advanced Knits Private Limited

Key Rating Drivers & Detailed Description

Strengths:

Healthy financial risk profile: Century’s financial risk profile continues to be healthy, as indicated by sound capital structure and debt protection metrics. Increased investments in real estate has led to gross debt increasing to Rs 2,482  crore as of Mar-24  from Rs 1,038 crore in Mar-23 resulting in gearing growing to about 0.6 times by March 31, 2024 from 0.26 time as on March 31, 2023. The residential real estate projects of Century on owned land and joint development agreements (JDA) will continue to generate healthy sales booking with continuing collections supporting ongoing project construction costs. However, given high investments towards approval costs for new launches, land banks and JDAs totalling Rs 1,000-1,500 crore gross debt levels are expected to further increase over the medium term at ~Rs 4000 crore by fiscal 2025 and remains a key monitorable. Debt protection metrics has continued to remain healthy with interest coverage of 16 times during fiscal 2024 with interest cost related to projects being inventorised. With healthy operating performance over the medium term, adjusted interest coverage ratio is expected remain comfortable over the medium term.

 

Diversified business risk profile, supported by established presence in the paper and textile segments: Century benefits from its established market position in the paper, paper board and textile segments. The paper segment is the major revenue contributor, at about 70-80% of the total operating income, with healthy realisations and demand pick-up from the e-commerce, fast-moving consumer goods and pharmaceutical sectors driving capacity utilisations despite the moderation in realizations.

 

Expected steady cash flow from paper and commercial real estate assets, albeit offset by investment risk from foray into the residential segment: Century ventured into real estate development in 2010. Its 22-storey (15 floors for lease and the rest for car parking) commercial building, Birla Aurora, at Worli in Mumbai, has been fully leased out and generates steady rentals. The company’s second commercial building, Birla Centurion, located at its Worli mill compound, was also fully leased out. Both these properties benefit from a diversified clientele, long-term lease contracts with in-built escalation of 10-15% every three years. Steady annual lease rental income of about Rs 150-160 crore annually from commercial real estate assets is expected to support cash flow over the medium term.

 

Century has entered into development of residential projects in 2010 through a mix of owned land and JDAs with purchase of land banks in later years to improve its project pipeline. While Century is still a relatively new entrant in the real estate project, it has entered into new JDAs and has also purchased land across Mumbai, NCR, Bengaluru, and Pune enhancing its project pipeline. The investment requirement in residential real estate development projects and JDAs would be met through a mix of cash accrual from the manufacturing business and additional debt of Century over the medium term. The extent of investment in real estate business, ramp-up of projects and the resultant cash flow and debt levels will be key monitorables over the medium term. 

 

Strong and need-based timely financial support from the AB group: Century benefits from the strong and need-based timely financial support of the AB group. CRISIL Ratings believes the promoter group will continue to provide timely financial support in future, in case of exigencies, as has been demonstrated in the past.

 

Weaknesses:

Exposed to demand and implementation risks in the residential real estate business:

Birla Estates Private Limited (WOS of Century Textile and Industries Limited) plans to expand substantially its residential real estate business. It currently has 7 launched projects across locations totalling 6.2 million sqft t. It will be launching 2 new projects within the next 2-3 quarters having development potential of additional 2.6 million sqft besides having purchased land bank having development potential of 11.3 million sqft which will be launched over next 1-2 years.

 

The company has achieved healthy sales traction in the launched residential projects having achieved total sales value of ~Rs 9428  crore or ~71% of aggregate launched project value across all projects. Various new project launches planned over the next few quarters, and hence at an early stage of development exposes Century to demand and implementation risks. While the company has started delivering on these projects suggesting healthy execution capabilities, new project launches and early stage of project development continue to exposes the company to demand risk, which in turn could impact the overall business risk profile of the company.

 

Nevertheless, it is expected to benefit from the established “Birla” brand, as demonstrated in healthy sales booking. Furthermore, the development track record of Century of completing 6.6 lakh sq ft of Grade A commercial projects in Mumbai, the phased growth strategy and tie-ups with reputed contractors mitigate project implementation risks. Progress on the projects and ramp-up in scale will, nevertheless, be closely monitored.

 

Commoditised nature of business, intense competition and cyclicality: Century's key businesses of paper is ommoditised, besides being vulnerable to business cycles. This exposes the company's performance to volatile demand conditions and realisations, in addition to variations in input cost, as seen in the past few quarters. Also, its businesses are highly competitive because of the presence of a large number of established and unorganised players. Operating profitability is likely to remain partly susceptible to pricing pressures in both the segments because of intensifying competition, although a direct correlation exists between raw material prices and the finished product.

Liquidity: Strong

Liquidity is backed by healthy net cash accrual and prudent working capital management. Liquid surplus was Rs 696 crore as on March 31,2024, along with nominal utilisation of the bank limit over the six months through July 2024. The Paper business is expected to generate Ebitda in the range of Rs 350-400 Crore. The company does not have any large repayments bligationso with around ~31 Crore repayment falling due this fiscal. Term debt obligation of Rs 400 crore NCDs are falling due in fiscal 2026 and will be addressed through a blend of refinancing and internal accruals. Healthy gearing, large networth and large owned land bank provide strong financial flexibility. Century is expected to maintain adequate liquidity in the near to medium term.

 

ESG Profile

CRISIL Ratings believes that Century’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The paper, textiles and real estate sectors can have a significant impact on the environment owing to high water consumption, waste generation and greenhouse gas (GHG) emissions. The sector’s social impact is characterized by health hazards, leading to higher focus on employee safety and well-being and the impact on local community, given the nature of its operations. Century has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights:

• Century has released its detailed sustainability report in fiscal 2024 with detailed description (including quantitative details) along with BRSR
• Company has been consistently improving on its emission intensity with green-house gas related Scope 1 and 2 emissions of 1.93 tco2 in fiscal 2024 with a 2.6 MWp solar plant installed in the last FY,
• It is continuously seeking to improve energy savings through process optimization and alternate energy. In fiscal 2024, about 32% of its energy needs was generated using renewable sources
• Its loss-time injury frequency rate (LTIFR) of 0.48 in fiscal 2024 for workers, representing healthy employee safety and well-being standards, albeit higher than 0.37 last year. Gender diversity is an improvement area with only 4% of employees being women as of fiscal 2024.
• The governance structure is characterized by 57% of the board comprising independent directors, split in chairman and CEO positions, and presence of an investor grievance redressal mechanism and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. Century’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets.

Outlook: Stable

Century will sustain its healthy financial risk profile and business diversity over the medium term.

Rating Sensitivity factors

Upward Factors

• Sustained improvement in operating performance led by improving performance of the paper business and steady contribution from the residential real estate business; supporting diversification in revenues
• Improvement in the capital structure, with sustained debt reduction improving gearing to below 0.2-0.3 times on a sustained basis
• Improvement in credit risk profile of AB Group

 

Downward Factors

• Moderation in the business risk profile, with decline in revenue and operating profitability
• Large debt raised for manufacturing businesses or funding residential real estate business, resulting in gearing above 0.7-0.9 times on a sustained basis
• Slower-than-expected sales and cash flow in the ongoing real estate projects
• Higher than expected investments in real estate business
• Deterioration in the credit risk profile of AB Group

About the Company

Incorporated in 1897, Century is promoted by Mr BK Birla and remains the flagship company of the BK Birla group. Following equity infusion in March and December 2015, the AB group is a significant stakeholder in the company. As on June 30, 2021, the promoters held 50.21% stake in the company. Mr Kumar Mangalam Birla was appointed as Chairman of the company effective July 20, 2019, following the demise of Mr BK Birla. Century operated a cotton textile mill until 1951. Since then, it has progressively expanded into diverse fields by setting up manufacturing units in rayon, cement and pulp and paper segments. The company also ventured into the real estate business. It manufactures a variety of paper products (including multi-layer packaging board and tissue paper) with total installed capacity of 4.86 lakh tonne per annum. In fiscal 2018, the company incorporated a wholly owned subsidiary, BEPL, to focus on the residential real estate business.

Any other information: Not Applicable