| Trident Limited | ||||||
| 'CRISIL AA-/Stable/CRISIL A1+' assigned to bank debt and CP | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL AA-/Stable/CRISIL A1+' ratings to the bank facilities and commercial paper programme of Trident Limited (Trident). |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Trident and its two wholly owned subsidiaries, Trident Global Corp Ltd and Trident Europe Ltd, and associates, Trident Infotech Inc., Trident Global Inc, and Lotus Texpark Ltd due to business and financial linkages. In line with its analytical treatment, CRISIL has reduced revaluation reserve (Rs 768 crore as on March 31, 2017) while computing the adjusted net worth. The company has revalued its property, plant and equipment, and certain other assets as per Ind AS norms and created a revaluation reserve which has been reduced from net worth and assets. |
| Key Rating Drivers & Detailed Description |
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Strengths * Diversified revenue with leading market position in the home textiles segment, and established position in WPP Trident has an established presence in the textiles and WPP businesses. In the textile business too, revenue is diversified, with 37% coming from yarn and 63% from bed linen and bath linen (terry towels) in fiscal 2019. The diversity is expected to improve with increasing revenue contribution of bed linen and terry towels. The company is one of the largest manufacturers and exporters of terry towels in India, and following its entry into the bed linen segment, has positioned itself among the leading home textile players in the country. During fiscal 2019, the company increased capacity utilisation in the bed linen segment to 60%. In the WPP business too, Trident is one of India's leading players, with capacity of 175,000 tonne per annum (TPA). It has an established brand, Trident, in sub-segments such as copier paper, which is witnessing healthy growth. The diversity in business streams limits volatility in revenue and profit. * Strong operating efficiency driven by integration of operations Manufacturing processes of both the home textile and paper businesses are highly integrated. Total captive consumption of yarn stands at around 42%. The bed sheet unit commissioned in fiscal 2016 has captive spinning, weaving, and processing capability, which meets all its requirement. Furthermore, Trident has a captive power facility of about 50 megawatt (MW) which leads to substantial power savings. In the WPP segment, Trident manufactures paper using cost-effective wheat straw as the primary fibre source as against the commonly used wood pulp. The plant is at Barnala in Punjab, which is the largest wheat cultivating state in India. These factors have led to operating margin of over 38% in the WPP business, among the highest in the industry. CRISIL believes Trident will sustain healthy operating margin of 18-20% driven by improving efficiency in home textile operations as utilisation ramps up, and by continued strong performance in the paper segment. Increase in rebate of state levies (ROSL) from 2% to 8% will also support the operating margin apart from the increasing realisation of cotton yarns due to increasing cotton prices. While there is a possibility of withdrawal of Merchandise Exports from India Scheme (MEIS) rates of 4%, impact of same on profitability is not expected to be material. * Adequate and improving financial risk profile Financial risk profile will improve steadily over the medium term, supported by expected annual cash accruals of Rs.600-800 crore, and better credit metrics. Debt levels are not expected to materially increase from Rs.2400 crore at March 31, 2019, as debt added will be almost evenly matched by repayments on existing term debt. Debt protection metrics such as debt to EBITDA and interest cover will improve to healthy levels. The company's liquidity is adequate and supported by strong cash generating ability, unutilised bank line of around Rs 300 crore and liquid investment of Rs 93 crore as on March 31, 2019. Weaknesses * Exposure to volatility in cotton prices and rupee Trident's operating profitability is moderately susceptible to volatility in prices of key raw material, cotton (which constitutes 50% of the cost of yarn). Cotton prices are volatile as they are sensitive to international demand/supply, and factors such as monsoon or pest attacks. This does impact margins despite benefits derived from its large procurement and adequate risk management systems, Furthermore, Trident is a net exporter and derives nearly 50% of its revenue from exports. While it hedges its forex exposure, any significant volatility in forex rate could impact profitability. Sharp movement in forex rates and cotton prices will be a key rating monitorable. * Working capital-intensive operations Cotton, the key raw material for the home textiles business, is a seasonal crop and good quality cotton is available only during the peak cotton season (October to March). Trident maintains inventory of 4-6 months at the year-end as cotton availability and quality is generally an issue during the off-season. Furthermore, Trident exports its home textile products (50% of revenue) to the US, and has a collection period of 45-60 days, leading to moderate working capital requirement, reflected in gross current assets of 120-150 days. Efficient working capital management is critical to Trident's operations as the company scales up business. * Susceptibility to slowdown in the end-user market and to competition in the home textiles segment Trident derives more than 65% of its revenue in the home textiles segment from the US, and hence, is susceptible to any major slowdown or changes in import policies in this market, and to fluctuations in forex rates. Also, as its leading customers account for a large share of its textile revenue, the company's fortunes are susceptible to sourcing policies of these customers. To mitigate this impact, Trident is trying to enhance its presence in Europe. Nevertheless, while export prospects for home textiles are healthy, competition has also increased. Any significant move by competing countries such as China, Pakistan, or Vietnam to push their exports by altering local policies or through bi-lateral relationship with importing countries, can affect the competitive position of Indian players, including Trident. |
| Liquidity |
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Trident has adequate liquidity. Accrual is expected at Rs 600-800 crore each between fiscals 2020 and 2022, against maturing debt of Rs 350-450 crore each. The company has utilised its fund-based working capital limit of Rs 1500 crore to the extent of 74% during last 12 months ended May 2019. Liquidity is further aided by cash and equivalents of Rs 93 crore as of March 2019. The company is planning to carry out capacity expansion for Rs 1140 crore in the yarn segment over the next two fiscals, funded by debt of Rs 855 crore and remaining through internal accrual. The company has already tied up the debt. |
| Outlook: Stable |
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CRISIL believes Trident's business risk profile will continue to improve over the medium term, driven by the expected increase in the company's customer base and healthy growth prospects in the home furnishings and WPP segments. Financial risk profile and liquidity are expected to improve gradually with higher cash generation and moderate capex in the near future. |
| About the Company |
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Trident was incorporated in 1990 as Abhishek Industries Ltd, promoted by Mr Rajinder Gupta, and got its present name in 2011. The company, headquartered in Ludhiana (Punjab), manufactures cotton yarn, terry towels, bed linen, and paper. It is one of the leading manufacturers and exporters of terry towels in India. It also manufactures WPP using wheat straw as primary fibre source and distributes copier paper under the Trident brand in the domestic market. Its manufacturing facilities are in Barnala and Budhni (Madhya Pradesh). In the textile business, it has 5.5 lakh spindles, 6464 rotors, 672 looms for terry towels, and 500 looms for bed linen. In paper, it has capacity to produce 175,000 TPA. |
| Key Financial Indicators - ' CRISIL Adjusted Figures | ||||||||||||||||||||||||
*Provisional |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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