Detailed Rationale

CRISIL Ratings has revised its outlook on long term bank facilities of Triton Valves Limited (TVL) to ‘Negative’ from ‘Stable’ while reaffirming the long-term rating at 'CRISIL BBB+’. The short-term rating has been reaffirmed at ‘CRISIL A2’.

 

The revision in outlook factors in the weakening of operating performance as operating margin remain under pressure due to sharp fluctuation in key raw material prices namely brass and copper. Triton’s consolidated revenues grew 40% on-year to Rs. 322 crores in fiscal 2022, mainly on account of increased realisations and contribution from newly setup subsidiary namely Future Tech Private Limited. However, operating margin fell sharply to around 5.9% in fiscal 2022 (from about 8-12% range earlier), due to sharp rise in raw material prices such as brass and copper as well as operating losses in subsidiaries. The operating performance remained subdued even in the first half of current fiscal due to continued volatility in commodity prices resulting in operating margin remaining at 5.2% even as revenue recorded a healthy year on year growth of 18% to reach Rs. 176 crores.

 

Triton’s subsidiaries, TritonValves Future Tech Pvt Ltd and TritonValves Climatech Pvt Ltd started operations from the last quarter of fiscal 2021 and fiscal 2022 respectively. The ramp-up in operations and expected healthy demand from auto sector is expected to support revenue growth over the medium term. However, improvement in operating margin, given moderation in key raw material prices and subsidiaries achieving break-even shall remain key monitorable.

 

Financial risk profile has witnessed some moderation over the previous fiscal owing to increase in debt levels and subdued cash generation. Overall borrowings of the company at a consolidated level increased to Rs. 122 crores as on March 31, 2022, compared to Rs. 98 crores in the previous fiscal. This impacted the debt protection metrices like interest coverage ratio and net cash accruals to total debt (NCATD) which moderated to 2.31x times and 0.06x times respectively in fiscal 2022 compared to 5.68 times and 0.19x times in the previous fiscal. Liquidity profile of the company remained adequate with net cash accruals expected at around Rs. 12-20 crore per annum as against annual repayment obligations of Rs. 9-10 crore. Further, company has working capital lines of Rs. 103.5 crore which remained utilized at an average of 86% for the past 12 months through September 2022 providing additional cushion. Further cash and bank balances of Rs. 6 crores as on March 31, 2022 and need based assistance from the promoters also support the liquidity profile.

 

The ratings continue to reflect Triton’s established market position in the domestic automobile tube valves and cores segment. These strengths are partially offset by the company’s moderate scale of operation, limited bargaining power with OEMs and moderation in operational efficiency & financial risk profile.

Analytical Approach

CRISIL Ratings has consolidated the business and financial risk profiles of Triton and its subsidiaries: Triton Valves Hongkong Ltd (incorporated in November 2018) and two wholly owned subsidiaries set up in fiscal 2020 namely, TritonValves Future Tech Pvt Ltd and TritonValves Climatech Pvt Ltd.

 

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 valves and cores segment with 75% 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 70% of the organised segment of the domestic tyres and tubes market, and Triton caters to tube types across vehicle categories manufactured in India.

 

The subsidiaries namely, TritonValves Future Tech Pvt Ltd is engaged in manufacture of brass products - non-ferrous industry (as backward integration of TVL) and TritonValves Climatech Pvt Ltd is engaged in manufacture of service valves for Heating, ventilation, and air conditioning (HVAC) industry.

 

• Extensive experience of the promoters: The promoters have experience of more than 45 years in the auto ancillary business with TVL established in 1976. The company was founded by 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. At March 31, 2022, loan from promoters stands at Rs. 4.8 Crs. 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 part 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 half year ended September 30, 2022, given the rise in commodity prices, which the company was unable to pass on to the customers in its entirety. Though correction 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. The recent diversification through its subsidiaries, FutureTech and ClimaTech are yet to stabilise and achieve breakeven, which remains a key monitorable.

 

TritonValves Climatech Pvt Ltd is engaged in manufacture of service valves for Heating, ventilation, and air conditioning (HVAC) industry which is an import substitute product, for which company shall be eligible for subsidy under PLI scheme, subject to fulfilment of the prescribed conditions.

Liquidity: Adequate

Cash accrual of around Rs 12-20 crore per annum expected over the medium term will be adequate to meet annual debt repayment obligation of Rs 9-10 crores. Fund-based limits has an average utilisation of 85% for past 12 months ending September 30, 2022. The company is expected to undertake capex of about Rs 15 crore in fiscal 2023 which will be funded through a prudent mix of debt and internal accruals. Liquidity also benefits from access to promoter support in the form of unsecured loans as demonstrated in the past.

Outlook: Negative

CRISIL Ratings believes that the operating performance of Triton can be materially impacted in case prices of key raw materials remain at elevated levels and subsidiaries continue making operational losses. This might have an adverse impact on the financial risk profile. However, 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

• Sustained growth in revenues with operating margins improving and sustaining at around 8% thereby benefitting cash generation
• Subsidiaries achieving profitability and contributing meaningfully towards revenue diversification
• Strengthening of capital structure and debt protection metrics with improving cash generation and steady accretion to reserves

 

Downward factors

• Operating margins remaining below 6-6.5% impacting overall cash generation
• Larger than expected debt-funded capex, or stretch in working capital requirements, weakening the company’s financial risk profile.
• Delay in stabilization of operations in subsidiaries

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 promoters hold 52.85% equity in the company. Triton supplies to almost all major tyre manufacturers in India and has maintained its leadership position for over a decade.

 

The subsidiaries namely, TritonValves Future Tech Pvt Ltd is engaged in manufacture of brass products - non-ferrous industry (as backward integration of TVL) and TritonValves Climatech Pvt Ltd is engaged in manufacture of service valves for Heating, ventilation, and air conditioning (HVAC) industry.

 

In the first half ended September 30, 2022, net profit was Rs - 1.45 crores on net sales of Rs 176.5 crore vis-à-vis Rs -4.6 crores and Rs 149.6 crores, respectively, in the previous corresponding period.

Key Financial Indicators

Particulars	Unit	H1-FY2023	2022	2021
Operating Revenue	Rs crore	176.50	322.01	229.92
Profit after tax (PAT)	Rs crore	(1.45)	(2.94)	7.80
PAT margin	%	(0.82)	(0.91)	3.39
Adjusted debt/ adjusted net worth	Times	1.70	1.52	1.14
OPBDIT / interest and finance charges	Times	1.97	2.31	5.68

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs. Crore)	Complexity levels	Rating assigned with outlook
NA	Term Loan	NA	NA	Aug-25	15	NA	CRISIL BBB+/Negative
NA	Cash Credit	NA	NA	NA	44.5	NA	CRISIL BBB+/Negative
NA	Working Capital Demand Loan	NA	NA	NA	15	NA	CRISIL BBB+/Negative
NA	Letter of Credit	NA	NA	NA	10	NA	CRISIL A2
NA	Letter of Credit*	NA	NA	NA	15	NA	CRISIL BBB+/Negative
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	0.5	NA	CRISIL BBB+/Negative
NA	Proposed Term Loan	NA	NA	NA	15	NA	CRISIL BBB+/Negative

*Interchangeable with of CC Rs 10 crore

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Triton Valves Hongkong Ltd	Full	Business and financial linkages
TritonValves Future Tech Pvt Ltd	Full	Business and financial linkages
TritonValves Climatech Pvt Ltd	Full	Business and financial linkages