Rating Rationale

Strengths
* Healthy business risk profile
Diversified product and client profiles, better economies of scale, wide geographical reach, and a dominant market position have supported the group's business risk profile. The group has gradually diversified its product portfolio across the polymer-application segment using a consolidated technology platform comprising blow, extrusion, and injection moulding. Hence, it caters to varied segments such as industrial packaging (69%), infrastructure (23%), automotive (3%), and lifestyle and others (5%). Innovative and value added products give Time group competitive advantage in highly competitive market. Value added products contributed about 19% to the revenue in fiscal 2019 and the proportion is expected to increase to about 25% over medium term.

* Steady operating profitability
The group has stabilised its operating margin at around 15%. This is largely because of increased revenue from the new, higher-margin products. Though the profitability is susceptible to volatility in crude prices, TTL is able to pass on variations in raw material prices to its clients with a lag of 3 to 6 months. This can be seen in recovery of operating margin in the fourth quarter of fiscal 2019 from the weak second quarter of fiscal 2019. The operating margin is expected to remain range bound over medium term supported by increasing share of value added products and competitive pressures in established products

* Strong financial risk profile
Annual cash accruals of over Rs 300 crore has been healthy, and networth robust at Rs 1715 crore as on March 31, 2019. Moreover, prudent funding of capital expenditure and progressive debt repayment is expected to keep debt to EBITDA (earnings before interest, tax, depreciation, and amortisation) below 2 times over medium term. Interest coverage and net cash accrual to total debt ratios were healthy at 5.34 times and 0.32 time, respectively, in fiscal 2019, as against 5.42 times and 0.36 time, respectively, in fiscal 2018.

Weaknesses
* Large investments in geographical expansion
The group has pursued an aggressive growth strategy by entering into several geographies. These investments have been mostly debt-funded and had led to a steady weakening of gearing and RoCE, despite healthy accretion to reserves. However, performance of the overseas subsidiaries have turned profitable since then. Going forward, though the group may explore new geographies and product segments, RoCE and the ratio of total debt to EBITDA are expected to improve to 15-17% and 1.5-1.8 times, respectively, because of minimal incremental debt addition and improving profitability.

* Exposure to intense competition
The group faces intense competition, especially in the lifestyle, healthcare, and telecom battery segments. Low entry barrier and simple technology (injection moulding) enabled several unorganised players to enter the market, thereby restricting the group's pricing flexibility. In the batteries segment, subsidiary NED Energy Ltd (NED) faces competitive pressure from other major players. Intense competition may continue to limit pricing power with suppliers and customers, thereby constraining profitability.