Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the Rs.250 crore non-convertible debentures (NCDs) of Century Textiles and Industries Ltd (Century). The ratings on the other debt instruments and bank facilities have been reaffirmed at ‘CRISIL AA/Stable/CRISIL A1+’.

 

Operating income fell marginally on-year to Rs 3,492 crore during the first nine months of fiscal 2024, with earnings before interest, tax, depreciation and amortisation (Ebitda) of Rs 338 crore at 9.7% margin compared with 11.1% in fiscal 2023. The moderation reflects reduced realisations mainly in the paper segment impacted by lower priced imported products while weakness in the textile segment has continued. The textile segment continues to face EBITDA losses despite re-structuring exercise and outsourcing of production of fabric spinning and weaving. EBITDA also includes Rs 78 crore received from sale of TDR rights during the third quarter of this fiscal, supporting cash generation. While fiscal 2024 is expected to remain moderate, operating performance over the medium term is expected to improve supported by improved capacities, de-bottlenecking and cost efficiencies in the paper segment with steady demand of paper, paperboard and tissue paper. Performance of the commercial real estate segment is likely to remain healthy while losses at textile segment may continue for few more quarters.

 

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 December 31, 2023, company achieved cumulative sales value of ~Rs 6,300 crore or ~85% of aggregate launched project value across all projects on owned and JDA projects (through its wholly owned subsidiary, Birla Estate Pvt Ltd [BEPL]) while having healthy collections. This includes ~99% of project value booking achieved within a few days of its launch in the Birla Trimaya at Bengaluru signifying strong “Birla” brand even in the newly established residential real estate business. The company has begun to deliver projects at three locations viz. Kalyan, Bangalore and Delhi and is expected to book revenue in the next 2 quarters. Residential real estate profits will be lumpy in nature till the company attains a steady pipeline of projects by fiscal 2026-2027. Further, Century continues to generate steady lease rental income from its commercial properties in Mumbai.

 

Century has purchased five new land banks across Mumbai, Delhi, Bengaluru, and Pune apart from spending on approvals costs for new project launches during the current fiscal which was met partly from internal accruals as well as new debt resulting in gross debt increasing to Rs 2,356 crore as of Dec-2023 from Rs 1,038 crore in Mar-23; while funding construction on existing projects using customer collections. Consequently, gearing grew to about 0.6 times by Dec-2023 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 1,200-1,500 crore annually to improve residential project pipeline, and in-sufficient manufacturing segment cash flows, gross debt levels are expected to further increase over the medium term. Gross debt may peak at Rs 3,000-3,500 crore by fiscal 2026-2027 with peak gearing of about 0.7-0.8 times given lumpy residential real estate profit booking. 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 strong share of the higher-margin paper business, which is well supported by textile and commercial real estate businesses. The ratings are also supported by Century’s healthy financial risk profile. 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 and textile businesses.

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 including BEPL and other subsidiaries, given financial fungibility, and included share of profits from joint-venture, Birla Advanced Knits Private Limited

 

Please Refer to Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment.

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 2,356 crore as of Dec-2023 from Rs 1,038 crore in Mar-23 resulting in gearing growing to about 0.6 times by Dec-2023 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 1,200-1,500 crore annually to improve residential project pipeline, and in-sufficient manufacturing segment cash flows, gross debt levels are expected to further increase over the medium term. Gross debt may peak at Rs 3,000-3,500 crore by fiscal 2026-2027 with peak gearing of about 0.7-0.8 times given lumpy residential real estate profit booking; and remains our key monitorable. Debt protection metrics has continued to remain healthy with interest coverage of 8.44 times during the first nine month of this fiscal while moderating from 10.11 times during fiscal 2023 with interest cost related to projects being inventorised. With healthy operating performance over the medium term, adjusted interest coverage ratio is expected remain at 4-5 times 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 pulp, paper, paper board and textile segments. The paper segment is the major revenue contributor, at about 75% 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. In the textile segment, healthy domestic demand is expected to provide support despite moderating export demand.

 

Expected steady cash flow from paper and commercial real estate assets, albeit offset by investment risk from foray into the residential segment: Cash flow generation mainly driven from the paper segment is expected to moderate this fiscal, with net cash accrual of ~Rs 300 crore as compared to Rs 447 crore during fiscal 2023. During the current fiscal, capacity de-bottlenecking led improved volumes along with increase in realisation is expected to drive growth in cash flows given steady demand from e-commerce, pharma, FMCG and food and beverage segments. The textile segment has remained weak, however, restructuring initiatives are expected to contain losses. Century ventured into real estate development in 2010. Its 22-storey 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 140-150 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, Delhi, 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 businesses 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:

BEPL plans to expand substantially its residential real estate business. It currently has 6 launched projects across locations totalling 5.3 million sqft with subsequent additional phases totalling 10.5 million sqft. It will be launching 3 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 6,300 crore or ~85% 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 is soon expected to begin delivering on three 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 and textiles are commoditised, 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 397 crore as on December 31, 2023, along with nominal utilisation of the bank limit over the six months through December 2023. Cash flow generation is expected to moderate to ~Rs 300 crore in fiscal 2024 before improving to Rs 350-400 crore thereafter in next two fiscals and sufficient to fund capital expenditure (capex) of Rs 200-250 crore in manufacturing and to partly fund the required investments in the new residential real estate projects. Term debt obligation of Rs 400 crore NCDs due fiscal 2026 is expected to be re-financed too in-line with current refinancing of Rs 250 crore NCDs due 2025. 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 characterised 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 2023 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 1.92 tco2 in fiscal 2023
• It is continuously seeking to improve energy savings through process optimization and alternate energy. In fiscal 2023, about 40% of its energy needs was generated using renewable sources
• Its loss-time injury frequency rate (LTIFR) of 0.37 in fiscal 2023 for workers is lower than last year, representing healthy employee safety and well-being standards. Gender diversity is an improvement area with only 3% of employees being women as of fiscal 2023.
• The governance structure is characterised 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

• Material and sustained revenue growth combined with operating profitability margin over 20%
• Steady contribution from the residential real estate business
• Improvement in the capital structure, with sustained debt reduction
• Improvement in credit risk profile of AB Group

 

Downward Factors

• Material 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 0.6-0.8 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.

 

Century reported net profit of Rs 40 crore on operating income of Rs 3,492 crore during nine months of fiscal 2024 compared to net profit Rs 122 crore on operating income of Rs 3591 crore during the same period last fiscal.

Key Financial Indicators

Particulars	Unit	2023	2022
Operating income	Rs.Crore	4,803	4,132
Profit After Tax (PAT)	Rs.Crore	265	162
PAT Margin	%	5.5	3.9
Adjusted debt/adjusted networth	Times	0.26	0.34
Adjusted interest coverage	Times	10.11	8.89

 

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned with outlook
INE055A07104	Debentures	22-Feb-2022	6.32%	21-Feb-2025	250	Complex	CRISIL AA/Stable
INE055A08029	Debentures	30-Jan-2023	7.97%	30-Jan-2026	400	Simple	CRISIL AA/Stable
INE055A08037	Debentures	31-May-2023	8.10%	25-Apr-2026	400	Simple	CRISIL AA/Stable
NA	Debentures^	NA	NA	NA	250	Simple	CRISIL AA/Stable
NA	Commercial paper programme	NA	NA	7 – 365 days	1,000	Simple	CRISIL A1+
NA	Term Loan	NA	NA	31-Aug-2028	200	NA	CRISIL AA/Stable
NA	Rupee Term Loan*	NA	NA	31-Dec-2028	250	NA	CRISIL AA/Stable
NA	Rupee Term Loan*	NA	NA	31-Dec-2028	250	NA	CRISIL AA/Stable
NA	Proposed Rupee Term Loan	NA	NA	NA	465	NA	CRISIL AA/Stable
NA	Cash Credit	NA	NA	NA	600	NA	CRISIL AA/Stable
NA	Overdraft Facility**	NA	NA	NA	125	NA	CRISIL AA/Stable
NA	Overdraft Facility	NA	NA	NA	125	NA	CRISIL AA/Stable
NA	Letter of Credit & Bank Guarantee	NA	NA	NA	460	NA	CRISIL A1+

^Yet to be issued

*Includes Rs 50 crore LC/BG sub-facility

**Includes Rs 125 crore line of credit short term loan sub-facility