| Century Enka Limited | ||||||
| Ratings reaffirmed at 'Crisil A+/Stable/Crisil A1+'; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has reaffirmed its ‘Crisil A+/Stable/Crisil A1+’ ratings on the bank loan facilities of Century Enka Ltd (CEL), an Aditya Birla Group Company.
The ratings continue to reflect the healthy financial risk profile and significant market share of CEL in the nylon tyre cord fabric (NTCF) and nylon filament yarn (NFY) business. These strengths are partially offset by susceptibility of operating margin to volatility in input prices (especially caprolactam), increasing adoption of radial tyres, competition from the unorganised market and cheaper imports.
The revenue was 15% lower on-year at Rs 1,746 crore in fiscal 2024, led by industry wide demand sluggishness for both its NTCF and NFY segments. Operating margin came in at 4.9% (6.9% in fiscal 2023) due to subdued performance, especially of its higher margin NTCF segment. For the nine months ended December 31, 2024, the revenue stood 22% higher at Rs 1,557 crore (against Rs 1,276 crore for the same period last fiscal). Margin stood at 6.8% (3.9% in the first nine months of fiscal 2024) supported by sustained demand for two and three wheelers and pick up in the farm tyre segment for its NTCF segment, while better marriage and festive demand aided its NFY segment.
Over the medium term, Crisil Ratings expects mid-single digit growth in revenue backed by steady demand for both segments, while the operating margin is expected to gradually improve led by increased share of value-added products in the NFY segment and contribution from its polyester tyre cord fabric (PTCF) segment starting fiscal 2027.
The financial risk profile remains strong with healthy networth, strong gearing of 0.04 time and interest coverage ratio of ~21 times as on March 31, 2024. The company has superior liquidity with cash or investments of Rs 368 crore as of December 2024. |
Analytical Approach Crisil Ratings has evaluated the standalone business and financial risk profiles of CEL. |
Key Rating Drivers & Detailed Description Strengths:
The gearing was less than 0.1 time and networth was Rs 1,401 crore, as on September 30, 2024. Liquidity is strong, backed by cash and equivalents of Rs 368 crore as on December 31, 2024.
The overall demand for NTCF is expected to remain stable in the long term as the radialisation trend in light commercial vehicles (CVs) and medium heavy CV segments would be partially offset by overall growth in the tyre market in India. Additionally, CEL has recently commissioned its PTCF units and expects revenue from this segment starting fiscal 2027 estimated to be supported by longstanding relationships with reputed players.
Weaknesses:
Furthermore, in NFY, with domestic prices following import price parity, large-scale dumping by China has exerted pressure on its operating margin. While restrictions on tyre imports have helped domestic players to maintain prices, sustenance of the custom duties and the ability of CEL to maintain healthy operating profitability by passing on any rise in input prices to clients will remain monitorable.
Also, with increasing adoption of radial tyres in trucks and bus segments, the demand for NTCF has been affected and has led to pricing pressure as observed in moderation of operating margins across industry. That said, demand for the replacement market is expected to be stable over the medium term. This risk is expected to be partially mitigated by the recent commissioning of its PTCF facility (revenue contribution expected starting fiscal 2027). Ramp up in the scale of PTCF segment will remain monitorable. |
Liquidity: Strong CEL's liquidity is supported by healthy annual cash accrual, cash and equivalents of Rs 368 crore as on December 31, 2024, and will support long-term debt obligation of ~Rs 15 crore per annum for the medium term. Capex of Rs 30-35 crore for value-added products under its NFY segment is expected to be funded through internal accrual and available liquidity. Financial flexibility is further supported by low to moderate utilisation of the bank limit. |
Outlook: Stable The company will continue to benefit from its established market position and healthy financial risk profile over the medium term. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the Company Set up in 1965 by the BK Birla group and Enka International (part of the Netherlands-based Akzo Nobel group), CEL manufactures industrial and textile yarn and fabric such as NTCF and NFY. CEL is part of the Aditya Birla Group. The NTCF is used as a reinforcement material in bias/cross ply tyres that are primarily used in trucks, buses, 2/3-wheelers, and off-the-road (OTR) vehicles used in mining, forestry, farming and heavy earthmoving. NFY is mainly used in sarees, dupattas, dress material and ethnic dresses. Additionally, CEL has entered PTCF segment with commissioning of its PTCF plant in the last quarter of fiscal 2024. |
Key Financial Indicators- Crisil Ratings-adjusted numbers
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Interchangeable with working capital demand loan and other non-fund-based facilities |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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