Rating Rationale
August 14, 2018 | Mumbai
Century Textiles and Industries Limited
Long-term rating continues on 'Watch developing'; short-term rating reaffirmed  
 
Rating Action
Total Bank Loan Facilities Rated Rs.6148.3 Crore
Long Term Rating CRISIL AA (Continues on 'Rating Watch with Developing Implications') 
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Non-Convertible Debentures Aggregating to Rs.900 Crore  CRISIL AA (Continues on 'Rating Watch with Developing Implications')
Rs.2200 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's ratings on the long-term bank facilities and non-convertible debenture programmes of Century Textiles and Industries Limited (Century) remain on 'Rating Watch with Developing Implications', while the ratings on the company's short-term facilities and commercial paper programme has been reaffirmed at 'CRISIL A1+'.
 
CRISIL had placed the ratings on watch on May 23, 2018, following announcement by Century that its board has approved a scheme of arrangement between itself, Ultratech Cement Ltd (Ultratech; 'CRISIL AAA/Stable/CRISIL A1+'), and their respective shareholders and creditors for demerger of Century's cement division into Ultratech. As part of the deal, UltraTech shall issue one equity share for every eight equity shares held by shareholders of Century. Also, around Rs 3000 crore of Century's debt will be taken over by Ultratech. The deal is expected to be completed over the next 6-9 months, subject to necessary statutory and regulatory approvals such as approvals from Competition Commission of India (CCI), and the respective shareholders and lenders, and creditors of each of the companies.
 
CRISIL notes that demerger of Century's cement business, its largest revenue (53% of turnover in fiscal 2018) and EBITDA (earnings before interest, tax, depreciation, and amortisation) contributor, will moderate revenue diversity and business risk profile. However, the deal will help Century de-leverage its balance sheet significantly and will offset the moderation in business risk profile.
 
CRISIL is in discussion with Century's management to understand future plans, including growth strategy for residual businesses, capital expenditure (capex), and debt instruments to be transferred to Ultratech. CRISIL is also in discussion with the Aditya Vikram Birla group (AB group) to reassess expectation of support from the group. CRISIL will remove the ratings from watch and take a final rating action once there is sufficient clarity on the aforesaid factors and after key relevant approvals for the deal are in place.
 
The ratings continue to reflect Century's diversified business risk profile supported by established market position in the cement, paper, and textile businesses. The ratings also factor in steady cash flow from the commercial real estate assets. Further, the ratings benefit by the strong and need-based, timely financial support received from the AB group, the major stakeholder. These strengths are partially offset by an average, albeit improving, financial risk profile because of a leveraged capital structure, average return on capital employed (RoCE) and debt protection metrics. The ratings also factor in the commoditised nature of businesses, and susceptibility to intense competition and cyclical business conditions.

Analytical Approach

* For arriving at its ratings, CRISIL has applied its criteria for notching up ratings based on group support.
* CRISIL has consolidated Century's newly established wholly owned real estate subsidiary for its analysis.

Key Rating Drivers & Detailed Description
Strengths
* Diversified business risk profile, supported by established presence in the cement, textile and paper segments: Century has a sizeable market position across the cement; textiles; and pulp, paper, and paper board segments. The cement division is the largest revenue contributor (53% in fiscal 2018), followed by pulp and paper and textiles, with 27% and 18% contribution, respectively. With the suspension of viscose filament yarn (VFY) business becoming effective from February 2018 (following its transfer to AB group company, Grasim Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'), cement; and pulp and paper divisions' contribution will increase to around 60% and 30% respectively, in fiscal 2019. Revenue grew at 6% in fiscal 2018 backed by strong recovery in growth of cement division to around 12%. Muted demand, pricing pressures pan-India and demonetization in second half of fiscal 2017 dampened revenue growth for the cement business over the last two years. Revenue of pulp and paper business grew at 3% year-on-year driven by increase in capacity utilization of the multi-layer packaging board facility, while the textile segment has degrown by 17% due to sale of loss-making denim business in September 2017.
 
* Expected steady cash flow from the commercial real estate assets, albeit offset by investment risk for the recent residential segment foray: Century ventured into real estate development in 2010. Its 22-storey (15 floors for lease and the rest for car parking) commercial building, Birla Aurora, at Worli in Mumbai, has been nearly fully leased out and generates steady rentals. Century's second commercial building, Birla Centurion, located at its Worli mill compound, is also witnessing increased occupancy. Of the 12 floors, 10 have been leased out as of February 2018, while the remaining are expected to be leased out in the near term. Steady annual gross lease rental of Rs. 140-150 crore from the commercial real estate assets is expected to support cash flows over the medium term.
 
Century now also plans to develop residential projects in a mix of own and joint development agreements through its real estate subsidiary, Birla Estates Pvt Ltd (BEPL). Project funding will be through advances from Century to the subsidiary and initial investment is expected to be about Rs 100 crore during fiscal 2019; there are no plans to avail material external debt in the subsidiary. Amount of investment, ramp up of projects, and the resultant cash flow will be key monitorables over the medium term. 
 
* Strong and need-based timely financial support from the AB group: Century benefits from the strong and need-based timely financial support of the AB group, which owns a substantial stake in the company. Furthermore, it is strategically important to the group given its wide geographical presence in the cement business. It is also the only group company with a strong market position in the niche, but fast-growing multi-layer packaging board business. CRISIL believes the AB group will continue to provide timely financial support in future, in case of exigencies.
 
Weakness
* Average, albeit improving, financial risk profile: The financial risk profile is average because of mainly debt funded capital expenditure (capex; Rs 5,000 crore) incurred at its cement, paper and real estate verticals between fiscals 2012 and fiscal 2016. This, along with cyclical demand in some segments and only gradual ramp-up of utilisation levels, have resulted in high leverage, and sub-par debt protection metrics, besides modest RoCE. Better operating performance and moderate capital spending over the last two years led to gradual improvement in key credit metrics. Further, the recent VFY transaction with Grasim accelerated this improvement because of significant debt reduction and proposed deal is expected to further deleverage Century's financial profile. With the likely sustenance in improvement in business performance and moderate capital spending, debt protection metrics as well as gearing are expected to improve over the medium term.
 
* Commoditized nature of business, intensifying competition and cyclicality: Century's key businesses, are commoditized in nature. Furthermore, the businesses are cyclical, exposing the company's performance to volatile demand conditions in addition to variations in input and freight costs. The domestic cement and paper businesses are also highly competitive because of the presence of a large number of established players. Operating profitability is likely to remain partly susceptible to pricing pressures in both the segments because of slow offtake, excess capacities, and intensifying competition. 
About the Company

Incorporated in 1897, Century is promoted by Mr B K Birla and remains the flagship company of the BK Birla group. Post equity infusion in March and December 2015, the AB group is a significant stakeholder in the company; as on March 31, 2018, promoters held 50.21% stake in the company. Century operated a cotton textile mill until 1951. Since then, it has progressively expanded to diverse fields by setting up manufacturing units in the rayon, cement, and pulp and paper segments. Recently, the company also ventured into the real estate business. In the cement business, Century has capacity of 13.1 tonne per annum (tpa) with six manufacturing units spread across Chhattisgarh, Madhya Pradesh, Maharashtra, and West Bengal. The company also a multi-layer packaging board facility with installed capacity of 180,000 tpa. During the third quarter of fiscal 2018, the company incorporated a wholly owned subsidiary, BEPL, to focus on the real estate business.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs. cr. 7754 7558
Profit after tax (PAT) Rs. cr. 372 105
PAT margin % 4.6 1.3
Adjusted debt/Adjusted net worth Times 1.58 2.28
Adjusted interest coverage Times 2.81 1.73
 

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
INE055A07070 Debentures Aug-16 8.88% Apr-19 200 CRISIL AA/Watch Developing
INE055A07088 Debentures Nov-16 8.29% Apr-20 700 CRISIL AA/Watch Developing
NA Commercial Paper Programme NA NA 7 - 365 days 2200 CRISIL A1+
NA Rupee term loan NA NA Oct-18 99.71 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Dec-20 499.46 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Sep-27 500 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Mar-23 150 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Mar-20 125 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Mar-20 75 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Dec-18 350 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Jun-26 150 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Mar-20 1.40 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Feb-20 8.76 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Dec-20 6.61 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Dec-20 7.15 CRISIL AA/Watch Developing
NA Rupee term loan NA NA Mar-19 12.56 CRISIL AA/Watch Developing
NA Fund-based facilities NA NA NA 1500 CRISIL AA/Watch Developing
NA Non-fund based facilities NA NA NA 1100 CRISIL A1+
NA Proposed long-term
bank loan facility
NA NA NA 1562.65 CRISIL AA/Watch Developing
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
Commercial Paper  ST  2200.00  CRISIL A1+  23-05-18  CRISIL A1+  18-12-17  CRISIL A1+  14-11-16  CRISIL A1+  29-09-15  CRISIL A1+  -- 
        12-04-18  CRISIL A1+  31-10-17  CRISIL A1+  02-09-16  CRISIL A1+  26-02-15  CRISIL A1+   
        15-03-18  CRISIL A1+  11-05-17  CRISIL A1+  05-08-16  CRISIL A1+       
            31-03-17  CRISIL A1+           
Non Convertible Debentures  LT  900.00
31-07-18 
CRISIL AA/Watch Developing  23-05-18  CRISIL AA/Watch Developing  18-12-17  CRISIL AA-/Watch Positive  14-11-16  CRISIL AA-/Stable    --  -- 
        12-04-18  CRISIL AA/Stable  31-10-17  CRISIL AA-/Positive  02-09-16  CRISIL AA-/Stable       
        15-03-18  CRISIL AA-/Watch Positive  11-05-17  CRISIL AA-/Stable  05-08-16  CRISIL AA-/Stable       
            31-03-17  CRISIL AA-/Stable           
Fund-based Bank Facilities  LT/ST  5048.30  CRISIL AA/Watch Developing  23-05-18  CRISIL AA/Watch Developing  18-12-17  CRISIL AA-/Watch Positive  14-11-16  CRISIL AA-/Stable  29-09-15  CRISIL AA-/Stable  -- 
        12-04-18  CRISIL AA/Stable  31-10-17  CRISIL AA-/Positive  02-09-16  CRISIL AA-/Stable  26-02-15  CRISIL AA-/Stable/ CRISIL A1+   
        15-03-18  CRISIL AA-/Watch Positive  11-05-17  CRISIL AA-/Stable  05-08-16  CRISIL AA-/Stable       
            31-03-17  CRISIL AA-/Stable           
Non Fund-based Bank Facilities  LT/ST  1100.00  CRISIL A1+  23-05-18  CRISIL A1+  18-12-17  CRISIL A1+  14-11-16  CRISIL A1+  29-09-15  CRISIL A1+  -- 
        12-04-18  CRISIL A1+  31-10-17  CRISIL A1+  02-09-16  CRISIL A1+  26-02-15  CRISIL A1+   
        15-03-18  CRISIL A1+  11-05-17  CRISIL A1+  05-08-16  CRISIL A1+       
            31-03-17  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
Fund-Based Facilities 1500 CRISIL AA/Watch Developing Fund-Based Facilities 1500 CRISIL AA/Watch Developing
Non-Fund Based Limit 1100 CRISIL A1+ Non-Fund Based Limit 1100 CRISIL A1+
Proposed Long Term Bank Loan Facility 1562.65 CRISIL AA/Watch Developing Proposed Long Term Bank Loan Facility 1562.65 CRISIL AA/Watch Developing
Rupee Term Loan 1985.65 CRISIL AA/Watch Developing Rupee Term Loan 1985.65 CRISIL AA/Watch Developing
Total 6148.3 -- Total 6148.3 --
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
Rating Criteria for Cement Industry
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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