Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on bank loan facilities of Triton Valves Limited (TVL) at ‘CRISIL BBB/Stable/CRISIL A3+’.

 

TVL’s consolidated revenues has grown by 18% on-year to Rs.428 crore in fiscal 2024, on the back of scale up of operations in one of the subsidiaries - TritonValves FutureTech Private Limited (TFT) coupled with new patented product launches in TVL. Volumes of TVL in fiscal 2024 continue to be at similar levels as that of fiscal 2023. Triton’s subsidiaries, TFT and TritonValves Climatech Private Limited (TCT) started operations from the last quarter of fiscal 2021 and fiscal 2022 respectively. Revenue is expected to increase by 8%-10% per annum supported by an increase in realizations, change in product mix and rising share of subsidiaries in the overall turnover.

 

Operating profitability doubled to Rs.31 crore in fiscal 2024 from a low base of Rs.14 crore in fiscal 2023. Gross margins expanded by ~500 bps on a y-o-y basis to 29% in fiscal 2024 driven by the softening input prices (mainly brass) and improved bargaining power with vendors on procurement prices. However, this expansion in gross margins was partly offset by the rise in freight charges, one-time consultation fees and expenses towards outsourcing of non-core manufacturing works. Hence operating margins increased by ~330 bps to 7.3% in fiscal 2024 from 4% in fiscal 2023. The operating profit levels will increase with reduced expenses towards power procurement with execution of power purchase agreement (PPA) by one of the subsidiaries and increased automation leading to rationalization of contractual manpower cost.

 

Financial risk profile improved owing to equity infusion of Rs.29 crore from investors through issuance of preferential equity shares and compulsorily convertible share warrants. Net worth shored up to Rs.103 crore as on March 31, 2024 as against Rs.71 crore as on March 31, 2023. This coupled with overall debt levels to Rs.120 crore as on March 31, 2024 (previous fiscal: Rs.131 crore) led to improvement in gearing to 1.16 times as on March 31, 2024 (PY:1.83 times). Debt protection metrics also improved with rise in profitability with interest cover and NCA/AD at 2.43 times and 0.13 times as on March 31, 2024 as against 1.27 times and 0.03 times respectively in previous fiscal. Going forward, debt protection metrics is expected to improve with interest cover around 2.8-3.6 times.

 

Liquidity profile of the company will  remain adequate with net cash accruals expected at around Rs. 16-19 crore per annum as against annual repayment obligations of Rs. 3-11 crore. Annual capex requirement is expected to be Rs. 9-14 crore which will funded mainly through internal accruals and cash surplus of Rs.31 crore as on March 31, 2024. Further, the company has working capital lines of ~Rs. 120 crore which remained utilized at an average of ~70% providing additional cushion.

 

The ratings continue to reflect TVL’s established market position in the domestic automobile tube valves and cores segment alongwith increase in patented products and better design capabilities . These strengths are partially offset by the company’s moderate scale of operation, limited bargaining power with OEMs and slower ramp up in operations of its subsidiaries.

Analytical Approach

CRISIL Ratings has consolidated the business and financial risk profiles of TVL and its subsidiaries - Triton Valves Hongkong Ltd (incorporated in November 2018) and two wholly owned subsidiaries set up in fiscal 2020 (TritonValves FutureTech Private Limited and TritonValves Climatech Private Limited) as these entities have considerable business and financial linkages. 

 

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:

• Established market position in valves and cores used for automotive tyre tubes: Triton is the leader in the domestic automotive tube and tube valves, tubeless valves, and cores segment with ~70% market share. It supplies to almost all key tyre manufacturers in India, including MRF Ltd, Apollo Tyres Ltd, JK Tyre and Industries Ltd, and Ceat Ltd. The key customers account for more than 65% of the organised segment of the domestic tyres and tubes market, and TVL caters to tube types across vehicle categories manufactured in India.

 

The subsidiaries namely, TFT is engaged in manufacture of extruded brass rods and coils, special copper alloys – (non-ferrous industry and as backward integration of TVL) and TCT is engaged in manufacture of service valves/ ball valves, evaporator valves, and access valves for Heating, ventilation, and air conditioning (HVAC) industry.

 

• Extensive experience of the promoters: The promoters have experience of more than 48 years in the auto ancillary business with TVL established in 1976. The company was founded by (Late) Mr. M V Gokarn, and is currently managed by his son, Mr. Aditya Gokarn. Mrs Anuradha Gokarn, wife of Mr. M V Gokarn, continues to lead the promoter group. The promoters have infused funds to support growth and sustainability in tough times.. Continued need based support from the promoters will remain a key monitorable.

 

Weaknesses:

• Susceptibility of operating margin to volatility in commodity prices, and fluctuations in forex rates: The price of key raw material (brass, which accounts for 75-80% of input costs) is prone to fluctuations, as it is inherently linked to the international demand and supply scenario. Besides, the company imports 50% of its brass requirement, which exposes it to risks associated with adverse forex movements. Company has limited bargaining power with the OEMs thereby exposing it to fluctuations in raw material prices. The operating margins witnessed compression in fiscal 2022 and fiscal 2023, given the rise and volatility in commodity prices, which the company was unable to pass on to the customers in its entirety. However, with lower volatility of input prices and better negotiation with vendors, profitability improved in fiscal 2024. Though correction and stability in commodity prices is expected to lead to a recovery in operating margins, it will remain susceptible to any further adverse movements on the input side.

 

• Moderate scale of operations: Despite being the market leader and operating for over three decades, scale of operation remains moderate. The key limitations being a single product company and the moderate size of the organised segment of the market for valves and cores. Manufacturers of these products remain exposed to the threat of new entrants or the possibility of large tyre manufacturers catering to all or a portion of their valve requirements in-house. Besides, a moderate scale of operations and net worth constrain the ability to withstand business or cyclical pressures. Company has now been diversifying its product basket through its subsidiaries- TFT and TCT.

 

• Limited progress in subsidiary TCT's operational performance: Triton's subsidiaries, TFT and TCT, commenced operations in the last quarter of fiscal 2021 and fiscal 2022, respectively. TFT has achieved breakeven and in fiscal 2024, achieved operating margins and PAT margin of 4.2% and 0.7% respectively. However, TCT is yet to pickup, incurring losses of Rs.2 crore, weighing down consolidated profitability. TCT is engaged in manufacture of service valves for heating, ventilation, and air conditioning (HVAC) industry which is an import substitute product.

 

TCT is expected to achieve operational breakeven by fiscal 2025. It experiences its peak season from October onwards, driven by heightened manufacturing activities to meet the upcoming summer season's demand and the subsequent surge in linked air-conditioner sales, and hence remains the period remains key for its performance. Operating performance and ramp up of TCT remains a key monitorable.

 

To enhance overall efficiency, board of TVL had approved the merger of TCT with the parent company TVL in September, 2023. The process is currently pending with NCLT and expected to be completed in fiscal 2025.

Liquidity: Adequate

Cash accrual of around Rs 16-19 crore per annum expected over the medium term will be adequate to meet annual debt repayment obligation of Rs 3-11 crores. Fund-based limits of ~Rs.120 crore have an average utilisation of 80%. The company is expected to undertake annual capex of about Rs 9-14 crore over the medium term which is expected to be funded through internal accruals. Liquidity also benefits from access to promoter support in the form of unsecured loans as demonstrated in the past.

Outlook: Stable

CRISIL Ratings believes that TVL shall continue to benefit from its established position in the domestic tube valve and cores segment. However, the operating performance of Triton can be materially impacted in case of sharp volatility in prices of key raw materials and slower than expected ramp up of subsidiary TCT.  Access to timely promoter support & unutilised bank lines in case of financial exigencies will continue to support the liquidity profile of the company.

Rating Sensitivity factors

Upward factors:

• Significant growth in revenues while sustaining the operating margins leading to higher cash accruals.
• Subsidiaries achieving profitability and contributing meaningfully towards revenue diversification
• Strengthening of capital structure and debt protection metrics, with NCA/AD sustaining at 0.2 times and above

 

Downward factors:

• Decline in scale of operations and sustained moderation in operating margins impacting overall cash generation.
• Larger than expected debt-funded capex, or stretch in working capital requirements, weakening the company’s financial risk profile, such as interest coverage sustaining below 2.2 times.
• Delay in stabilization of operations in service valves segment catering to HVAC industry (TritonValves Climatech )

About the Company

Triton, incorporated in 1976, manufactures valves and cores that are used in automobile tyre tubes. The company was set up by Mr M V Gokarn and is currently managed by his son, Mr Aditya Gokarn (managing director). The promoter group holds 46.44% equity in the company. Triton supplies to almost all major tyre manufacturers in India/ vehicle Manufacturers/EV manufacturers and has maintained its leadership position for over a sustained period of time .

 

The subsidiaries namely, TFT is engaged in manufacture of brass products - non-ferrous industry (as backward integration of TVL) and TCT is engaged in manufacture of service valves for Heating, ventilation, and air conditioning (HVAC) industry.

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs. Crore)	Complexity Level	Rating assigned with outlook
NA	Term Loan	NA	NA	Aug-2025	22.87	NA	CRISIL BBB/Stable
NA	Cash Credit	NA	NA	NA	59.5	NA	CRISIL BBB/Stable
NA	Letter of Credit	NA	NA	NA	18	NA	CRISIL A3+
NA	Letter of Credit*	NA	NA	NA	5	NA	CRISIL BBB/Stable
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	9.63	NA	CRISIL BBB/Stable

*Interchangeable with cash credit