Rating Rationale
November 16, 2018 | Mumbai
Century Enka Limited
Ratings Reaffirmed; STD withdrawn
 
Rating Action
Total Bank Loan Facilities Rated Rs.545 Crore (Reduced from Rs.663 Crore)
Long Term Rating CRISIL A+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.50 Crore Short Term Debt CRISIL A1+ (Withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A+/Stable/CRISIL A1+' ratings on bank facilities of Century Enka Limited (CEL). CRISIL has also withdrawn its rating on Rs.50 crore short term debt and Rs.118 crore bank facilities on CEL's request. The withdrawal of the rating is in line with CRISIL's withdrawal policy.
 
The ratings continue to reflect CEL's healthy financial risk profile and established market position in the nylon tyre cord fabric (NTCF) division. These strengths are partially offset by increasing radialisation in the tyre industry, limited revenue diversity and susceptibility of operating margin to volatility in input prices, especially Caprolactum.

Key Rating Drivers & Detailed Description
Strengths
* Healthy financial risk profile
CEL has a healthy financial risk profile, marked by low gearing of 0.05 times as on March 31, 2018. Capital structure is supported by a strong networth of Rs.895 crore. Debt protection measures for fiscal 2018 were also healthy. The net cash accrual to adjusted debt ratio for fiscal 2018 stood at 1.99 times and the interest coverage ratio stood at 36.26 times. In addition, the company has ample liquidity. As on September 31, 2018, it had liquid investments (including cash and cash equivalents) of over Rs.150 crore. CEL is expected to maintain a healthy financial risk profile in the absence of any large debt-funded capex.
 
* Market leadership in the NTCF businesses
CEL is the second-largest player in the domestic NTCF industry, with a market share of around 24%. It has backward integrated into manufacturing nylon chips, which has helped the NTCF segment to maintain healthy operating margins. The company also enjoys strong relationships with its clients, including tyre manufacturers such as Apollo Tyres Ltd (rated 'CRISIL AA+/Stable/CRISIL A1+'), MRF Ltd, Ceat Ltd etc. 
 
The overall demand for NTCF is expected to remain stable, as pick-up of radialisation trend in LCV/MHCV segment would be partially offset by overall growth in India's tyre market. The business performance will be driven by stable growth prospects in the NTCF segment, and its established market position.
 
Weakness
* Susceptibility to volatility in input prices because of commodity nature of products 
Cost of production and profit margin hinge on crude oil prices as the company uses petrochemical-based raw material, mainly caprolactum. This is visible in the fluctuating operating margins of the company that ranged between 8-15% over the past 5 years through fiscal 2018. Due to sharp decline in caprolactum prices during first half of fiscal 2018, the company made inventory loss. This coupled with higher sales in the lower margin nylon filament yarn (NFY) business due to commodity nature of product led to a decline in the operating margin in fiscal 18.
 
Furthermore, in NTCF, with domestic prices following import price parity, large-scale dumping in the domestic market by Southeast Asian players have exerted pressure on margins. While imposition of anti-dumping duty on import of NTCF has helped domestic players increase prices, the business remains vulnerable to volatility in raw material prices as raw material costs account for 65-70% of net sales. Sustenance of anti-dumping duties will continue to be a key rating sensitivity factor.
 
* Increasing adoption of radial tyres
Adoption of radial tyres is expected to accelerate over the medium term in line with global trends. The radialisation in truck and bus tyres, the largest category for NTCF, is set to have increased to 38% in fiscal 2018 from 33% in fiscal 2015 and to reach 60-65% over the next five years through 2023. This warrants players to enter polyester tyre cord fabric (PTCF) segment (used in radial tyres). Market leader SRF Limited (rated 'CRISIL AA+/Stable/CRISIL A1+') is already catering to 20% of PTCF demand in India, while CEL is testing commercial samples and plans to commence producing a small quantity of 50-100 ton per month from Dec 2018 onwards.
 
Despite bias tyres being more suited to Indian roads, the increased adoption of radial tyres in the light commercial vehicle (LCV) & medium heavy commercial vehicle (MHCV) segments will moderately affect demand outlook for NTCF. However, overall demand for NTCF is expected to remain stable, as pick-up of radialisation trend in LCV/MHCV segment would be offset by overall growth in India's tyre market (8.6% CAGR between 2001 and 2017).
Outlook: Stable

CRISIL believes that CEL will continue to benefit from its established market position in NTCF division over the medium term. Continued healthy cash generation, and funding of capex largely through accruals, is expected to result in key credit metrics remaining at comfortable levels.
 
Upside Scenario  
* Improvement in revenue diversity, successful diversification into PTCF
* Sustenance of strong operating performance   
* Maintenance of healthy financial risk profile.
 
Downside Scenario
* Lower-than-expected revenues or profitability on a sustained basis
* Sharp decrease in demand for NTCF, adversely affecting business risk profile
* Large debt-funded capex programme, weakening capital structure. 

About the Company

CEL was jointly promoted in 1965 by the BK Birla group and Enka International (Enka; part of the Netherlands-based Akzo Nobel group). CEL manufactures industrial and textile yarn and fabric. Its products include NTCF and NFY. Its NTCF plants in Pune (Maharashtra) and Bharuch have a combined capacity of 31,000 tonnes per annum (TPA), while its synthetic yarn plants in Pune, Bharuch, and Mahad (Maharashtra) have a combined capacity of 36,000 TPA. CEL suspended operations at its polyester unit in November 2013 as it was incurring losses on account of a weak industry environment.
 
For the six months ended September 30, 2018, on a standalone basis, net profit was Rs 46 crore on operating income of Rs 885 crore, against Rs 24 crore on operating income of Rs 644 crore in the corresponding period of the previous fiscal.

Key Financial Indicators
As on / for the period ended March 31 Units 2018 2017
Operating income Rs crore 1,422 1,188
Profit after tax (PAT) Rs crore 70 91
PAT margin % 4.9 7.7
Adjusted debt/adjusted networth Times 0.05 0.06
Interest coverage Times 36.26 34.92

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs Cr)
Rating Assigned
with Outlook
NA Short Term Debt NA NA 7-365 days 50 Withdrawn
NA Cash Credit* NA NA NA 30 CRISIL A+/Stable
NA Cash Credit# NA NA NA 5 CRISIL A+/Stable
NA Cash Credit NA NA NA 6 CRISIL A+/Stable
NA Bill Discounting NA NA NA 20 CRISIL A+/Stable
NA Term Loan NA NA Dec-2020 16 CRISIL A+/Stable
NA Term Loan NA NA Oct-2020 17 CRISIL A+/Stable
NA Term Loan NA NA Apr-2023 10 CRISIL A+/Stable
NA Working Capital
Demand Loan%
NA NA NA 40 CRISIL A+/Stable
NA Proposed Fund-
Based Bank Limits
NA NA NA 110 CRISIL A+/Stable
NA Cash Credit NA NA NA 14 Withdrawn
NA Letter of credit &
Bank Guarantee
NA NA NA 105 CRISIL A1+
NA Letter of Credit$ NA NA NA 20 CRISIL A1+
NA Letter of Credit^ NA NA NA 75 CRISIL A1+
NA Letter of Credit@ NA NA NA 25 CRISIL A+/Stable
NA Proposed Non Fund
based limits
NA NA NA 66 CRISIL A1+
NA Letter of credit &
Bank Guarantee
NA NA NA 104 Withdrawn
*Interchangeable with WCDL and other non-fund based facilities
#Interchangeable with other fund based facilities
%Interchangeable with Overdraft to the extent of Rs.20 crore
$Interchangeable with Buyers credit
^Fully interchangeable with Buyers credit and interchangeable with BG to the extent of Rs.10 crore
@Fully interchangeable with Bank guarantee and interchangeable with Cash credit, WCDL and Bill discounting to the extent of Rs.15 crore
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Short Term Debt  ST  50.00  Withdrawn 23-08-18  CRISIL A1+  02-08-17  CRISIL A1+  12-09-16  CRISIL A1  23-12-15  CRISIL A1  CRISIL A1 
Fund-based Bank Facilities  LT/ST  254.00  CRISIL A+/Stable  23-08-18  CRISIL A+/Stable  02-08-17  CRISIL A+/Stable  12-09-16  CRISIL A+/Stable  23-12-15  CRISIL A+/Stable  CRISIL A+/Stable 
Non Fund-based Bank Facilities  LT/ST  291.00  CRISIL A+/Stable/ CRISIL A1+  23-08-18  CRISIL A1+  02-08-17  CRISIL A1+  12-09-16  CRISIL A1  23-12-15  CRISIL A1  CRISIL A1 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bill Discounting 20 CRISIL A+/Stable Cash Credit 111 CRISIL A+/Stable
Cash Credit* 30 CRISIL A+/Stable Letter of credit & Bank Guarantee 377 CRISIL A1+
Cash Credit# 5 CRISIL A+/Stable Term Loan 48 CRISIL A+/Stable
Cash Credit 6 CRISIL A+/Stable Proposed Long Term Bank Loan Facility 85 CRISIL A+/Stable
Cash Credit 14 Withdrawn Proposed Cash Credit Limit 12 CRISIL A+/Stable
Letter of Credit@ 25 CRISIL A+/Stable Proposed Letter of Credit & Bank Guarantee 30 CRISIL A1+
Letter of Credit$ 20 CRISIL A1+ -- 0 --
Letter of Credit^ 75 CRISIL A1+ -- 0 --
Letter of credit & Bank Guarantee 105 CRISIL A1+ -- 0 --
Proposed Fund-Based Bank Limits 110 CRISIL A+/Stable -- 0 --
Term Loan 43 CRISIL A+/Stable -- 0 --
Working Capital Demand Loan% 40 CRISIL A+/Stable -- 0 --
Letter of credit & Bank Guarantee 104 Withdrawn -- 0 --
Proposed Non Fund based limits 66 CRISIL A1+ -- 0 --
Total 663 -- Total 663 --
*Interchangeable with WCDL and other non-fund based facilities
#Interchangeable with other fund based facilities
%Interchangeable with Overdraft to the extent of Rs.20 crore
$Interchangeable with Buyers credit
^Fully interchangeable with Buyers credit and interchangeable with BG to the extent of Rs.10 crore
@Fully interchangeable with Bank guarantee and interchangeable with Cash credit, WCDL and Bill discounting to the extent of Rs.15 crore
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com


Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com


Gautam Shahi
Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
gautam.shahi@crisil.com


Digvijay Singh Rathore
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3256
Digvijay.Rathore@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL