| Trident Limited | ||||||
| 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 ratings on the bank facilities and commercial paper programme of Trident Limited (Trident) continue to reflect Trident's diversified revenue profile with leading market position in the home textiles segment, strong operating efficiency in the paper and home textiles segments driven by high integration, and adequate and improving financial risk profile. These strengths are partially offset by exposure to volatility in cotton prices and fluctuations in forex rates, working capital-intensive operations, susceptibility to slowdown in the end-user market and competition in the home textiles industry. |
| 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 associate, 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 32% coming from yarn and 68% from bed linen and bath linen (terry towels) in fiscal 2020. The diversity is expected to improve in fiscal 2021 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 2020, the capacity utilisation in the bed linen and bath linen segments stood at 60% and 48% respectively. 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 50%. 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 in the vicinity of 35-40% in the WPP business, among the highest in the industry. * Adequate and improving financial risk profile Financial risk profile has improved steadily over the last few fiscals, supported by healthy cash flow generation, and better credit metrics. Gross Debt reduced to Rs 1952 crore at March 31, 2020 from Rs 2436 crore at March 31, 2019. Additionally the cash equivalents also improved sharply to Rs 338 crore as on 31.03.2020 from Rs 27 crore. Debt protection metrics such as debt to EBITDA and interest cover have improved year on year. The debt levels might see increase when the company decides to go ahead with capex plan and drawdown the debt tied up for the same, however debt metrics is expected to remain adequate nevertheless The company's liquidity is adequate and supported by strong cash generating ability, unutilised bank line of around Rs 275 crore and cash & equivalents of Rs 200 crore as on July 2020. 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 55-60% 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. * 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 overall revenue). Debtor days reduced from 49 in fiscal 2019 to 23 in fiscal 2020 owing to management's initiatives for better terms on credit period and financing arrangements. Nevertheless overall working capital requirement remains moderate reflected in gross current assets (net of cash) of 100-120 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 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. 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 |
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Liquidity remains strong. Cash accrual is expected to be ~Rs 600-700 crore per annum over medium term, against maturing debt of ~Rs 300-350 crore per annum. Liquidity is further aided by cash and equivalents of Rs 200 crore and unutilized bank limits of Rs 275 crore as on July 2020. The company has utilized its fund based working capital limits of Rs 1500 crore at ~50%. The company is re-evaluating its earlier capex plan of over Rs 1400 crore which involved capacity expansion of Cotton yarn and Paper debottlenecking projects and the same will be reconsidered only after a recovery is seen. |
| Outlook: Stable |
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CRISIL believes despite challenging business environment, Trident's business risk profile to remain healthy over the medium term, driven by diversified revenue streams and healthy profitability levels. Financial risk profile is expected to remain healthy with reduction in debt and moderate capex in the near future. |
| Rating Sensitivity factors |
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Upward Factors * Sustained increase in scale of operations driven by better capacity utilisation across product segments and sustenance of healthy operating margin at 19-20% resulting in cash profit of Rs 700-800 crore and RoCE of over 15% and * Improvement in debt metrics driven by better than expected cash accrual and debt reduction; for instance sustenance of Gross debt: EBITDA below 1.8-2.0 times and * Substantial improvement in liquidity with sustained increase in unencumbered cash surplus Downward Factors * Material decline in profitability due to less-than-envisaged ramp-up in utilisation of bed-linen and towels capacity, or significant volatility in raw material prices or appreciation in rupee value * Material increase in debt to EBITDA ratio to 3.0 times, due to sizeable debt-funded capex or acquisition, or significant stretch in working capital cycle * Sizeable reduction in liquidity, due to stretched working capital cycle or larger-than-anticipated capex. |
| 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 | ||||||||||||||||||||||||
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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 and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| 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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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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