Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Technocraft Industries India Limited (TIIL) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL A+’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1+’.

 

The revision in outlook reflects improvement in the business risk profile supported by healthy product diversity, increasing proportion of value added products in the drum closures segment and healthy growth across business segments leading to expansion in operating profitability. Techncoraft has significant pricing power across most of their product offerings, however going forward, performance improvement is expected to be led by increase in volumes as well. Further, turnaround in the textile division resulting from structural changes undertaken by the company to improve operating efficiencies, coupled with continued strong financial risk profile may result in a rating upgrade.

 

Revenue increased by ~50% y-o-y to Rs.1949 crores in fiscal 2022 driven by higher realizations and uptick in volumes across product categories. Sustained improvement in volumes, coupled with company’s pricing power on account of healthy market shares in steel drum closures and optimization of product and geographical mix across divisions will result in steady revenue growth of 10-12% in fiscal 2023 as well. Volume growth in the scaffolding division is expected to sustain going forward owing to increasing thrust on infrastructure development. Further, planned capacity expansions in the textile division and diversifying into plastic drum closures, will also help drive the growth going forward.

 

Increasing operating efficiencies in the textile and engineering services division due to cost rationalization measures undertaken, and ability to pass on rise in commodity prices through calibrated price hikes will keep operating margins stable at 17-20% over the medium term.

 

Company’s financial risk profile remains comfortable marked by healthy capital structure resulting from networth estimated at over Rs. 1500 core as on March 31, 2023 and total debt of ~Rs 600  crores. The company has prepaid part of their existing long term debt amounting to Rs 50 crores in fiscal 2022. Despite debt funded capex plans, steady improvement in cash accruals of Rs. 300-320 crores annually is expected to lead to further improvement in financial risk profile over the medium term. Any significant debt funded capex, increased working capital intensity or outflow of cash through buyback/dividend thus materially deteriorating the cash position would be key rating sensitivity.

 

The ratings continue to reflect Technocraft’s established market position in the drum closure industry and increasing market share in the scaffolding industry. The ratings also factor in healthy financial risk position and strong liquidity leading to healthy capitalization and coverage indicators. These strengths are partially offset by weaker operating performance of the yarn & fabric division.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has consolidated the business and financial risk profiles of Technocraft, its domestic & foreign subsidiaries, step-down subsidiaries, Limited Liability Partnership and joint ventures because of strong financial and operational linkages between these entities.

 

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 market position in the international drum closure industry and increasing market share in the scaffolding industry: Technocraft is one of the leading manufacturers of drum closures with a worldwide market share of around 36%, excluding China, and caters to major drum manufacturers. It is reputed globally for the quality and wide range of products. The company supplies drum closures to most leading drum and drum part manufacturers in the world including -, B-POL, Drum Parts Inc,. Mauser Group worldwide, Schutz Group worldwide and August Berger Metallwarent Gmbh. The ultimate end-user industries predominantly include oil and gas, packaging, chemicals, and food and beverages.

 

The scaffolding segment comprises scaffolding and formwork business with 70-75% of revenue accruing from the overseas markets. The company has also started manufacturing of sophisticated engineered formwork systems for building, construction and infrastructure projects. The company supplies its products to a diversified set of end markets including oil & gas, power, refineries, petrochemical, infrastructure and commercial construction.

 

• Strong financial risk profile: The financial risk profile has been strong, marked by healthy networth, and robust debt protection metrics. Over the years, networth has grown to Rs 1330 crore as on March 31, 2022 from Rs 553 crore as on March 31, 2016, driven by steady accretion to reserves. Debt protection metrics remained stable with net cash accrual to total debt and interest coverage at 0.64 time and 20.7 times, respectively, for fiscal 2022.

 

Weaknesses:

• Weaker yarn & fabric division: The yarn and fabric industry in India is highly competitive and dependent on exports to neighboring countries, such as China and Bangladesh. With low value added products in the portfolio, the company is susceptible to the volatility in demand and spreads affecting the profitability. With completion of the upgradation cum capacity expansion of textile division the performance of division would remain key monitorable.

 

• Exposure to volatility in raw material prices and foreign exchange (forex) rates: Key raw materials, steel and cotton account for over 70% of consumption. Consequently, profitability is exposed to risks relating to fluctuations in steel, and cotton and yarn prices. While the drum closure business is more resilient, owing to the value added nature of the product, and strong cost and technology competitiveness, the scaffoldings and yarn businesses, which use steel and cotton, respectively, as key raw materials are likely to be impacted more, owing to volatility in these commodities.

Liquidity: Strong

Technocraft enjoys healthy liquidity, driven by expected cash accrual of Rs 340 crore over fiscal 2022 and cash & cash equivalents (including investments) of around Rs 520 crore as on March 31, 2022. Average fund based utilisation remain moderate at 50% for the twelve month ended through March 2022. Cash accrual, cash & cash equivalents and unutilised bank lines should meet repayment obligations as well as incremental working capital requirement in the near term.

Outlook: Positive

CRISIL Ratings believes Technocraft’s credit risk profile will could strengthen from sustained revenue growth and operating efficiency in the textile and scaffolding divisions and sustenance of their established market position in the drum closure segment.  Its financial risk profile is expected to remain strong, driven by steady revenue growth, healthy debt protection metrics and cash accruals over the medium term.

Rating Sensitivity factors

Upward factors:

• Sustained strong business performance and stability in operating profitability resulting from material improvement in the textile division, resulting in annual cash generation above Rs 500 Crores
• Further strengthening of financial risk profile

 

Downward factors:

• Slowdown in demand across its business segment impacts the operating profitability below 13%
• Debt funded capex resulting into moderation in capital structure
• Stretch in liquidity due to increase in working capital cycle or significant outflow on account of any large acquisition, buyback or dividend leading to net debt position above Rs 250 crore.

About the Company

Technocraft was set up as a partnership firm in 1972 and was reconstituted as a private limited company in 1991. It has three major manufacturing divisions: drum closures, scaffoldings, and garments and cotton yarn. It is the leading drum closure manufacturer in the international market, with a sizeable market share and annual capacity of 55 million sets of drum closure in India and 20 million sets of drum closure in China. It has capacity of 40,000 metric tonne (MT) in India, for scaffoldings, and around 60382 spindles in its yarn division. Technocraft has several marketing subsidiaries in the US, Europe, and Australia..

 

For the quarter ended June 2022, company reported net profit of Rs 72 crore on revenue of Rs. 539 crore, compared to PAT of Rs. 72 crore on revenue of Rs.405 crore during the corresponding period of previous fiscal

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISINBottom of Form	Name of the instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned with outlook
NA	Term Loan	NA	NA	Jun-24	3.6	NA	CRISIL A+/Positive
NA	Term Loan	NA	NA	Oct-25	54.36	NA	CRISIL A+/Positive
NA	Term Loan	NA	NA	Aug-25	1	NA	CRISIL A+/Positive
NA	Fund-Based Facilities	NA	NA	NA	75.00	NA	CRISIL A+/Positive
NA	Non-Fund Based Limit	NA	NA	NA	77.02	NA	CRISIL A1+
NA	Fund-Based Facilities*	NA	NA	NA	180.00	NA	CRISIL A+/Positive
NA	Fund-Based Facilities@	NA	NA	NA	160.00	NA	CRISIL A+/Positive
NA	Fund-Based Facilities#	NA	NA	NA	100.00	NA	CRISIL A+/Positive
NA	Fund-Based Facilities$	NA	NA	NA	41.00	NA	CRISIL A+/Positive
NA	Fund-Based Facilities%	NA	NA	NA	100	NA	CRISIL A+/Positive
NA	Fund-Based Facilities^	NA	NA	NA	40.00	NA	CRISIL A+/Positive
NA	Fund-Based Facilities&	NA	NA	NA	100.00	NA	CRISIL A+/Positive
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	44.02	NA	CRISIL A+/Positive

* Fungible with Fund base and Non-Fund base upto Rs. 100 Cr., Overdraft Rs. 30 Cr., Export Pre Shipment/ Post Shipment Rs. 50 Cr.

@ Fungible with Fund base and Non-Fund base upto Rs. 80 Cr.

#Fungible with Fund base and Non-Fund base upto Rs. 50 Cr.

$Fungible with Fund base and Non-Fund base upto Rs. 41 Cr.

%Fund base upto Rs. 62 Cr. and Non-Fund base upto Rs. 38 Cr.

^Fund base upto Rs. 20 Cr. and Non-Fund base upto Rs. 20 Cr.

&Total Sanction limit of Rs. 100 Cr.  Fungible with Fund base upto Rs. 50 Cr.

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
Technosoft Engineering Projects Limited (“TEPL”)	Full consolidation	Operational and financial linkages
Technocraft Tabla Formwork Systems Private Limited	Full consolidation
Techno Defence Private Limited	Full consolidation
Shivale Infraproducts Private Limited	Full Consolidation
Technocraft Fashion Limited $	Full Consolidation
Technocraft International Limited, UK (WOS of the Company) (“TIL-UK”)	Full consolidation
Technocraft Trading Spolka Zoo, Poland (WOS of the Company)	Full consolidation
Technocraft Australia Pty Ltd., Australia) (WOS of the Company)	Full consolidation
Anhui Reliable Steel Technology Co Ltd, China (WOS of the Company)	Full consolidation
Technocraft NZ Ltd., New Zealand (WOS of the Company)	Full consolidation
Technosoft Engineering, Inc., USA (WOS of TEPL) (“TEI-USA”)	Full consolidation
Technosoft Engineering UK Ltd (WOS of TEPL)	Full consolidation
Technosoft GMBH, Germany, (Subsidiary of TEPL)	Full consolidation
Highmark International Trading FZE, UAE (WOS of TIL-UK) (“HITF-UAE”)	Full consolidation
AAIT / Technocraft Scaffold Distribution LLC, USA (Subsidiary of TIL-UK)	Full consolidation
Technosoft Innovations INC, USA (WOS of TEI-USA)	Full consolidation
Technosoft Services, INC.,USA (WOS of TEI-USA)	Full consolidation
Shreyan Infra & Power LLP.*	Full consolidation
Swift Projects Inc., USA (WOS of 2045690 Alberta Ltd, CANADA [Step Engineering])^	Full consolidation
2045690 Alberta Ltd, CANADA [Step Engineering] (Subsidiary of TEI-USA)#	Full consolidation
Benten Technologies LLP	Equity method	Associate

$ incorporated on October 15, 2020

*sold w.e.f. November 26, 2019

^closed w.e.f December 31, 2019

# divested w.e.f. January 01, 2020