| Tega Industries Limited | ||||||
| Long-term rating upgraded to 'CRISIL A+/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long term bank facilities of Tega Industries Limited (TIL; a part of the Tega group) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’, and reaffirmed the short-term rating at ‘CRISIL A1’.
The upgrade reflects the improvement in operating efficiency and financial risk profile.
Revenue of the group improved 19% in fiscal 2021 driven by strong performance in its Chilean subsidiary, which clocked over 30% growth. Operating profitability improved to 28% in fiscal 2021 from 17.5% in fiscal 2020, partly due to foreign exchange (forex) fluctuation. Profitability (ex-forex fluctuation) is expected to sustain at recently improved levels of 22-23% from 21% in fiscal 2020 and 17% in fiscal 2019 because of improved operating leverage following sustained demand for mill liner and non-mill liner products (especially DynaPrime).
Financial risk profile has also strengthened, with gearing improving to 0.34 time as on March 31, 2021, from 0.6 time in the previous fiscal. The ratio is expected to remain below 0.5 time despite additional capital expenditure (capex) of around Rs 225 crore over the medium term. Debt protection metrics are also expected to remain strong, with interest coverage and net cash accrual to total debt (NCATD) ratios of above 5 times and over 50%, respectively.
The ratings reflect the established market position of the Tega group in the wear-resistant rubber products and components industry and healthy financial risk profile. These strengths are partially offset by working capital-intensive operations and exposure to risks relating to aggressive growth through acquisitions and capex. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of TIL and its subsidiaries - Losugen Pty Ltd, Tega Industries Chile SpA, Tega Industries Inc USA, Tega Industries Canada Inc, Tega Do Brasil Servicos Tecnicos Ltda, Tega Investments Ltd, Tega Holdings Pte Ltd, Tega Holdings Pty Ltd, Tega Industries Australia Pty Ltd, Edoctum SA, Edoctum Peru SA, Tega Investment South Africa Proprietary Ltd, and Tega Industries Africa Proprietary Ltd. This is because all these entities, collectively referred to as the Tega group, have strong operational linkages and fungible funds.
CRISIL Ratings has considered the compulsorily convertible participatory preference shares of Rs 8.7 crore as 100% equity. These are expected to be converted into equity in the current fiscal.
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:
The group is one of the world’s leading and experienced players in the wear-resistant rubber products and components segment. The product profile is wide and includes both mill and non-mill products such as grinding mills, wear components, screens, conveyors and hydro cyclones. Demand is highly stable with 70-75% of revenue coming from repeat orders. The group has grown both organically and inorganically in the recent past. Income is geographically diversified, with forex-denominated revenue accounting for 85-90% of sales. Its latest product in the mill liner segment has been a success in South America and was the driver of the turnaround in the Chilean subsidiary. The group is also getting good traction from Africa, North America, Asia Pacific, EMER and Europe for the same.
Networth was large at Rs 550 crore and gearing healthy at 0.34 time, as of March 2021. Gearing is likely to remain below 0.5 time over the medium term, despite partly debt-funded capex. Debt protection metrics are also robust, as reflected in interest coverage and NCATD ratios of 14 times and 94%, respectively, in fiscal 2021. The metrics are expected to remain healthy over the medium term on account of efficient operational performance.
Weaknesses:
Gross current assets (GCAs; net off cash) were 182 days as on March 31, 2021 (receivables were 102 days and inventory 100 days), and are likely to remain high on account of the export-oriented nature of business. The GCAs improved from 211 days as on March 31, 2019, because of better receivables realisation.
The group has grown inorganically in the past through acquisitions outside India. Overseas subsidiaries play a significant part in its performance and contribute 35-40% to total sales. The group has also planned capex of around Rs 225 crore over the medium term (partly funded through debt) to improve capacities in Chile and India. Thus, organic and inorganic growth remain key monitorables. |
Liquidity: Strong Net cash accrual is expected to be Rs 160-180 crore per annum against yearly term debt obligation of Rs 22-50 crore during fiscals 2022-24. Capex of about Rs 225 crore in the medium term will be partly funded through debt. The NCATD ratio is expected to remain healthy over the medium term. Bank limit utilisation averaged 42% during the 6 months through June 2021. Unencumbered cash and equivalent and marketable securities improved to Rs 174 crore as on March 31, 2021, from Rs 120 crore as on March 31, 2020. |
Outlook: Stable The Tega group will continue to maintain its business and financial risk profiles, driven by favourable demand for products and improving performance of subsidiaries. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group Established in 1976 by Mohanka family, the Tega group manufactures wear-resistant rubber products and components for mineral-processing applications and polyurethane lining. Facilities are at Kalyani and Samali in West Bengal, and at Dahej in Gujarat. In 2001 and 2002, the company set up two wholly owned subsidiaries in the US and Australia for increasing exports to these countries. In 2006, it established a wholly owned subsidiary in the Bahamas as a holding company that owns Tega Industries South Africa Pty Ltd, a manufacturing unit in South Africa. In March 2008, it established wholly owned subsidiaries in Canada and Brazil for enhancing its presence in these regions. In February 2011, it acquired Australia-based Losugen Pty Ltd and Chile-based Tega Industries Chile SPA (formerly, Tega Acotec SA). Losugen Pty Ltd manufactures and distributes wear-resistant mining equipment products. Tega Industries Chile SPA manufactures fluid transportation products (pipe-lining products) and has an established position in Chile, Peru, Argentina and Bolivia. Tega Industries (SEZ) Ltd, a wholly owned subsidiary of TIL, was merged with the latter with effect October 1, 2016, to improve financial strength and flexibility, management control and operational efficiency |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
^Fully interchangeable with export packing credit, packing credit in foreign currency, postshipment in foreign currency, working capital demand loan and bill discounting, letter of credit, bank guarantee, and buyer's credit #Fully interchangeable with letter of credit, bank guarantee, and buyer’s credit |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit^ | 20 | Axis Bank Limited | CRISIL A+/Stable |
| Cash Credit^ | 47 | Citibank N. A. | CRISIL A+/Stable |
| Cash Credit^ | 40 | ICICI Bank Limited | CRISIL A+/Stable |
| Cash Credit^ | 24 | RBL Bank Limited | CRISIL A+/Stable |
| Cash Credit^ | 55 | Standard Chartered Bank Limited | CRISIL A+/Stable |
| Letter of credit & Bank Guarantee# | 25 | Axis Bank Limited | CRISIL A1 |
| Letter of credit & Bank Guarantee# | 20 | ICICI Bank Limited | CRISIL A1 |
| Letter of credit & Bank Guarantee# | 5 | Standard Chartered Bank Limited | CRISIL A1 |
| Proposed Cash Credit Limit | 9 | Not Applicable | CRISIL A+/Stable |
| Term Loan | 70 | ICICI Bank Limited | CRISIL A+/Stable |
| Term Loan | 35 | RBL Bank Limited | CRISIL A+/Stable |
This Annexure has been updated on 16-Dec-2021 in line with the lender-wise facility details as on 06-Dec-2021 received from the rated entity.
^Fully interchangeable with export packing credit, packing credit in foreign currency, postshipment in foreign currency, working capital demand loan and bill discounting, letter of credit, bank guarantee, and buyer's credit
#Fully interchangeable with letter of credit, bank guarantee, and buyer’s creditCriteria Details
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