Rating Rationale
June 14, 2024 | Mumbai
TCPL Packaging Limited
Rating outlook revised to 'Positive'; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.450 Crore
Long Term RatingCRISIL A/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of TCPL Packaging Limited (TCPL) to ‘Positive’ from ‘Stable while reaffirming the rating at ‘CRISIL A’. The short term ratings have been reaffirmed at ‘CRISIL A1’.

 

The revision in the outlook reflects the expected improvement in overall credit risk profile of TCPL marked by steady growth in scale of operations and stable profitability, along with improving capital structure. Revenues have remained healthy in the range of Rs. 1450-1550 crore for the past two fiscals through fiscal 2024 while operating margins has remained healthy at around during the same period. Sustained improvement in the scale of operations backed by healthy demand from customer and strong ramp up in planned capacity additions, along with improvement in capital structure with healthy accretion to reserves, maintaining operating margins would remain a key monitorable over the medium term. Liquidity remains strong with high cash accrual against moderate debt obligation, cushion in bank limits and strong cash and bank balance.

 

The ratings reflect the comfortable financial risk profile, established position of TCPL in the domestic packaging industry, and diversified end-user industry base. These strengths are partially offset by exposure to intense competition, and large working capital requirement.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has consolidated the business and financial risk profiles of TCPL Packaging Ltd,, its 3 subsidiaries- TCPL Innofilms Pvt Ltd, TCPL Middle East FZE and Creative Offset Printers Pvt Ltd, which are strategically important to, and have a significant degree of operational integration with TCPL Packaging Ltd. CRISIL Ratings considers these entities as being strategic to TCPL Packaging Ltd in view of their strong integration with TCPL’s operations.

  

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established position in the packaging industry: Presence of three decades in the folding cartons business has enabled the promoters to gain a strong understanding of market dynamics and build healthy relationships with customers and suppliers. Revenue registered steady growth to around Rs 1540-1550 crore in fiscal 2024 from Rs 1474 crore in fiscal 2023. The company has pan-India presence with multi-location manufacturing units, and also exports to various countries. Moreover, it has diversified by recently setting up a unit to manufacture recyclable film used in flexible packaging products under TIPL.

 

  • Established customer relationships and wide end-user industry base: TCPL benefits from its long-standing relationships with its reputed clientele which supports steady growth and repeat business. The company has a wide customer base including some large players in the industry with no single customer accounting for more than 15% of its total sales. In addition, TCPL’s products are widely used for packaging by various end-user industries such as  fast-moving consumer goods (FMCG), food and beverages, cosmetics, toiletries, cigarettes, liquor and pharmaceuticals. This further supports the business and allows the company to overcome the risk of slowdown in any particular industry segment.

 

  • Comfortable financial risk profile: Networth has increased to around Rs 525 crore as on March 31, 2024, as compared to Rs. 444 crore a year ago backed by healthy accretion to reserves. This has led to improved capital structure marked by gearing and total outside liabilities to adjusted networth (TOLANW) at around 0.95-1 time and 1.5-1.55 times respectively as on March 31, 2024 (as compared to 1.12 and 1.77 times respectively a year ago). Debt protection metrics are also robust as reflected in interest coverage ratio and net cash accrual to total debt ratio of around 4.6-4.7 times and 0.3-0.35 times respectively for fiscal 2024.  The metrics will remain stable over the medium term owing to healthy profitability. Sustenance of financial profile will remain a key monitorable over the medium term.

 

Weaknesses:

  • Exposure to intense competition: The packaging industry has many players in the market leading to intense competition. While large, organized players offer products at competitive rates because of economies of scale and access to advanced technology, small players cater to local, price-sensitive customers. Although high customisation partially limits threat from imports, intense competition may continue to constrain scalability, pricing power and profitability.

 

  • Large working capital requirement: Working capital requirement of the company is large as reflected in expected gross current assets of around 139-140 days for the past two fiscals through fiscal 2023 and is expected to remain at similar range over the medium term. This is driven by debtors and inventory of around 85-90 days and 55-60 days as on March 31, 2024. The working capital requirement is partially supported by creditors of around 65-70 days while the rest through reliance on external debt leading to moderate bank limit utilization. Working capital cycle is expected to remain large over the medium term.

Liquidity: Strong

Expected annual cash accrual of over Rs 155-170 crore will be sufficient to meet debt obligation of Rs 70 crore and Rs 60 crore in fiscals 2025 and 2026, respectively. Fund-based limit was utilised 87% on average over the 12 months through March 2024. Cash and bank balance stood at around Rs 24 crore as on March 31, 2024.  CRISIL Ratings believe that internal accrual and unutilised bank limit will be sufficient to meet debt obligation as well as incremental working capital requirement.

Outlook: Positive

CRISIL Ratings believe TCPL's business and financial profile will continue to improve backed by healthy demand and capacity enhancement.

Rating Sensitivity factors

Upward factors

  • Steady revenue growth and stable operating margin   leading to higher cash accruals
  • Sustenance of financial performance in the absence of any larger than expected debt funded capex with TOLANW below 1.5 times

 

Downward factors

  • Decline in revenue or fall in operating margin below 13%-14%, leading to lower-than-expected cash accrual
  • Stretched working capital cycle or large, debt-funded capex weakening liquidity

About the Company

TCPL was incorporated as Twenty First Century Printers Ltd in 1987 by Kanoria family and was renamed TCPL in 2008. It manufactures folding cartons, printed blanks and outers, litho lamination, blister packs and flexible packaging products used in the food, FMCG, cigarette, liquor, pharmaceutical, pesticide and stationery segments. It has four manufacturing units in Silvassa, two in Haridwar (Uttarakhand), and one each in Goa and Guwahati (Assam). The company is listed on the Bombay Stock Exchange and the National Stock Exchange.

 

TIPL was incorporated in February 2020 and is now a wholly owned subsidiary of TCPL. The company has set up an integrated unit in Silvassa to manufacture recyclable plastic blown film. It began generating revenue from the current fiscal.

 

Incorporated in 2002, COPPL was initially promoted by Mr Rohit Khanna and Mr Gazal Dhillon. On December 4, 2021, TCPL bought majority stake in COPPL and currently owns 100% stake in the company, while the remaining is with erstwhile promoters. COPPL manufactures printed rigid boxes and leaflets for the mobile phone and consumer electronics industries. It has a unit in Noida, Uttar Pradesh.

Key Financial Indicators - consolidated

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

1474

1084

Reported profit after tax (PAT)

Rs crore

109

46

PAT margin

%

7.4

4.2

Adjusted debt / adjusted networth

Times

1.12

1.34

Interest coverage

Times

5.15

4.57

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of
allotment

Coupon
rate (%)

Maturity
date

Issue size
(Rs crore)

Complexity 
levels

Rating assigned
with outlook

NA

Non-Fund Based Limit

NA

NA

NA

26

NA

CRISIL A1

NA

Cash Credit

NA

NA

NA

262.5

NA

CRISIL A/Positive

NA

Proposed Working Capital Facility

NA

NA

NA

2.41

NA

CRISIL A/Positive

NA

Term Loan

NA

NA

Mar-2028

76.17

NA

CRISIL A/Positive

NA

Term Loan

NA

NA

Mar-2028

31.51

NA

CRISIL A/Positive

NA

Term Loan

NA

NA

Mar-2028

28.16

NA

CRISIL A/Positive

NA

Term Loan

NA

NA

Mar-2024

5.15

NA

CRISIL A/Positive

NA

Term Loan

NA

NA

Mar-2024

4.37

NA

CRISIL A/Positive

NA

Term Loan

NA

NA

Mar-2028

13.73

NA

CRISIL A/Positive

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

TCPL Packaging Ltd 

100%

Common management and significant operational linkages

TCPL Innofilms Pvt Ltd 

100%

TCPL Middle East FZE 

100%

Creative Offset Printers Pvt Ltd

100%

 

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 424.0 CRISIL A/Positive   -- 31-05-23 CRISIL A/Stable 25-11-22 CRISIL A-/Positive 28-12-21 CRISIL A-/Stable CRISIL A-/Stable
      --   -- 18-04-23 CRISIL A/Stable   -- 06-09-21 CRISIL A-/Stable --
      --   -- 30-03-23 CRISIL A-/Positive   --   -- --
Non-Fund Based Facilities ST 26.0 CRISIL A1   -- 31-05-23 CRISIL A1   -- 28-12-21 CRISIL A2+ CRISIL A2+
      --   -- 18-04-23 CRISIL A1   -- 06-09-21 CRISIL A2+ --
      --   -- 30-03-23 CRISIL A2+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 61 Bank of Baroda CRISIL A/Positive
Cash Credit 60 HDFC Bank Limited CRISIL A/Positive
Cash Credit 30 ICICI Bank Limited CRISIL A/Positive
Cash Credit 45 YES Bank Limited CRISIL A/Positive
Cash Credit 17.5 Axis Bank Limited CRISIL A/Positive
Cash Credit 35 Citibank N. A. CRISIL A/Positive
Cash Credit 14 DBS Bank Limited CRISIL A/Positive
Non-Fund Based Limit 15 Bank of Baroda CRISIL A1
Non-Fund Based Limit 10 ICICI Bank Limited CRISIL A1
Non-Fund Based Limit 1 Axis Bank Limited CRISIL A1
Proposed Working Capital Facility 2.41 Not Applicable CRISIL A/Positive
Term Loan 76.17 Axis Bank Limited CRISIL A/Positive
Term Loan 31.51 YES Bank Limited CRISIL A/Positive
Term Loan 28.16 HDFC Bank Limited CRISIL A/Positive
Term Loan 5.15 ICICI Bank Limited CRISIL A/Positive
Term Loan 4.37 RBL Bank Limited CRISIL A/Positive
Term Loan 13.73 DBS Bank Limited CRISIL A/Positive
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for Consolidation

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