| Trident Limited | ||||||
| Ratings 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 reaffirmed its ratings on the bank facilities and Commercial Paper of Trident Limited (Trident) at 'CRISIL AA/Stable/CRISIL A1+'.
The ratings continue to reflect Trident’s diversified revenue profile with leading market position in the home textiles segment and established position in WPP, strong operating efficiency driven by integrated operations, and strong financial risk profile. These strengths are partially offset by exposure to volatility in cotton prices and fluctuations in foreign exchange (forex) rates, working capital-intensive operations, and susceptibility to slowdown in the end-user market and competition in the home textiles segment.
Operating performance is expected to moderate year-on-year basis in fiscal 2023 due to heightened raw material inflation and subdued export demand because of inventory correction at retailers and inflationary impact on consumer demand. Revenues are expected to be flattish in this fiscal as the industry in the first half of the fiscal is expected to face short term headwinds on account of lower export demand while operating margin is expected to moderate to 18-19% this fiscal compared to 21.7% in fiscal 2022. This is also reflected in decline of 10% in revenues quarter-on-quarter in first quarter of fiscal 2023 and moderation in operating margin to 15.6% from 17.5% last quarter. The second half of the fiscal is expected to see improvement in performance with expectations of normalization of EBITDA margins on account of lower cotton prices and revival of demand. Increasing proportion of captive power and captive yarn consumption to support operating margins at 18-20% range in the medium term despite raw material headwinds. Substantially high integrated operations in the industry has resulted in less variability and best in class operating margins among peers.
The capacity utilisation in the cotton yarn segment also reached 88% in fiscal 2022 compared to 80% in fiscal 2021, partially owing to increased captive consumption for production of home textile products as well as strong rebound in the cotton yarn demand and realisations in the industry. Paper segment has also seen ramp up, albeit gradually, with utilisation levels improving to 90% in fiscal 2022. In fiscal 2022, the aggregate revenues grew by over 50%, led by low revenue base of last year, continued traction in home textiles and cotton yarn, recovery in the paper segment, as well as commissioning of planned capacity addition. Furthermore, operating profitability is expected to sustain to over 19%, also supported by implementation of Rebate of State and Central Taxes and levies (RoSCTL) incentives and due to benefit of higher scale.
Financial risk profile remains strong with robust accruals and phased capital expenditure (capex) plan. Net Cash Accrual increased from Rs. 646 crore in fiscal 2021 to Rs. 807 crore in fiscal 2022 however it is expected to moderate to Rs. 550-600 crore this fiscal. The company has reduced its debt from Rs 1952 crore as on March 31, 2020 to Rs 1571 crore as on March 31, 2022 through prepayments from internal accrual, controlled capex as well as non-recourse factoring initiatives. Company plans to undertake capex of Rs 1200-1300 crore over the medium term which will be funded by debt of around Rs 900 crore. The repayment obligations for these loans are back ended which will support the overall financial risk profile and liquidity. Total debt/earnings before interest, depreciation, tax and amortisation (EBIDTA) is expected to remain below 1.5 time for fiscal 2023. Liquidity profile remains healthy, supported by cash and equivalents of over Rs 293 crore as on 31 March, 2022 and average unutilised bank limit of Rs 710 crore for 12 months ending 30, June 2022. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Trident and its two wholly owned subsidiaries, Trident Global Corp Ltd and Trident Europe Ltd due to business and financial linkages. In line with its analytical treatment, CRISIL Ratings 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.
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:
Trident has an established presence in the textiles and WPP businesses. In the textile business too, revenue is diversified, with 28% coming from yarn, 17% from bed linen and 40% from bath linen (terry towels) in fiscal 2022. The diversity is expected to remain healthy 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. The capacity utilisation in the bed linen and bath linen segments improved to 88% and 61%, respectively, in fiscal 2022 from 80% and 53%, respectively, in fiscal 2021. Though there are near term headwinds, long term potential of the company remains strong.
Business profile remains healthy marked by Trident being the second largest player in home textiles and yarn manufacturing segments in India. Additionally, India is expected to sign FTA with UK this year while it has already signed FTA with Australia, providing India a level playing field in the home textile export market. This, coupled with the China+1 strategy will help garner higher export sales for Trident. Substantial increase in scale of operations leading to market share gain and sustenance of profitability will remain key rating drivers.
In the WPP business, Trident is one of India’s leading players, with capacity of 175,000 tonne per annum (TPA). It has an established brand in sub-segments such as copier paper, which is also witnessing healthy growth. The diversity in business streams limits volatility in revenue and profit.
Manufacturing processes of both the home textile and paper businesses are highly integrated. Total captive consumption of yarn stands at around 60%. The bed sheet unit commissioned in fiscal 2016 has captive spinning, weaving, and processing capability, which meets all its requirement. Furthermore, the Company has commissioned 7.6 MW Solar Power Plant at Budhi, Madhya Pradesh for captive use. This Solar Power Project is expected to produce 33500 units per day to be consumed in manufacturing facilities located at Budhi, Madhya Pradesh resulting in considerable savings for the company.
Operating margin of Trident exhibits more stability compared to its peers due to integrated operations and strong focus on cost control. Also, improved capacity utilization and healthy operating margin resulted in RoCE improving from 11.4% three years back to 26.5% in fiscal 2022 and it is expected to remain healthy over 15% in near to medium term.
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 in the vicinity of more than 25-35% in the WPP business, among the highest in the industry.
Financial risk profile has improved steadily over the last few fiscals, supported by healthy cash flow generation, and better credit metrics. Gross debt remained stable at Rs 1571 crore at March 31, 2022 from Rs 1536 crore at March 31, 2021 which had reduced from Rs 1952 crore as on March 31, 2020. Debt protection metrics such as debt to EBITDA and interest cover have improved year on year. The gross debt/EBIDTA which improved to 1.04 times in fiscal 2022 from 1.86 in fiscal 2021 to remain below 1.5 times over the medium term.
NCA increased from Rs. 646 crore in fiscal 2021 to Rs. 807 crore in fiscal 2022 however it is expected to moderate to Rs. 550-600 crore this fiscal. The capex plan would be implemented in phased manner and debt will be taken for the same due to low cost of funding on account of capex related subsidies and interest subvention. NCA will be used to bring down short term debt and hence total debt will be in the range of Rs. 1,400-1,600 crore over the medium term. The capex and its funding will remain key rating sensitivity factor.
Weaknesses:
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. With cotton increasing over Rs 1lakh/candy and weak demand cycle, the operating margin have been moderating over the last 3 quarters. However, the margins are expected to improve in the second half of the fiscal with demand recovery in the industry.
Furthermore, Trident is a net exporter and derives nearly ~60% 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.
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 overall revenue) to the US, and has a collection period of 45-60 days. Nevertheless, overall working capital requirement remains moderate reflected in gross current assets of 130-140 days. Efficient working capital management is critical to Trident’s operations as the company scales up business.
Trident derives nearly 70% 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, Middle East, Australia and Asian countries. 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: Strong Liquidity remains strong. Cash accrual is expected to be Rs 550-800 crore per annum over medium term, against maturing debt of around Rs 50-100 crore per annum. Liquidity is further aided by cash and equivalents of over Rs 293 crore as on 31 March, 2022 and average unutilised bank limit of Rs 710 crore of 12 months ending 30, June 2022. |
Outlook: Stable CRISIL Ratings expects Trident's business risk profile to benefit from its diversified business streams, healthy demand prospects for home textiles and established business position across product segments. Its operating profitability is also expected to remain healthy due to increasing backward integration and strong operating efficiencies. Healthy cash generation and prudent funding of capex will ensure financial risk profile sustains at healthy levels. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company 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 5.9 lakh spindles, 7624 rotors, 672 looms for terry towels, and 500 looms for bed linen. In paper, it has capacity to produce 175,000 TPA.
In the first 3 months of fiscal 2022, the company posted revenue and profit after tax of Rs 1685 crore and Rs 129 crore respectively as against Rs 1483 crore and Rs 207 crore in similar period in fiscal 2021. |
Key Financial Indicators*
*CRISIL Ratings adjusted numbers |
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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 30-Aug-22 in line with the lender-wise facility details as on 29-Sep-21 received from the rated entity.
Criteria Details
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