Rating Rationale
January 29, 2020 | Mumbai
Century Textiles and Industries Limited
'CRISIL AA/Stable' assigned to NCD
 
Rating Action
Total Bank Loan Facilities Rated Rs.1617.23 Crore (Reduced from Rs.6148.3 Crore)
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.400 Crore Non Convertible Debentures CRISIL AA/Stable (Assigned)
Rs.700 Crore Non Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.1000 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AA/Stable' rating on the Rs 400 crore non-convertible debentures of Century Textiles and Industries Limited (Century) and reaffirmed its ratings on the other bank facilities and debt instrument at 'CRISIL AA/Stable/CRISIL A1+' CRISIL has also withdrawn ratings on Rs 4,531.07 crore bank loan facilities, following the transfer of loans pertaining to the cement business to UltraTech Cement Ltd (Ultratech, rated CRISIL AAA/Stable/CRISIL A1+). The rating withdrawal is in line with CRISIL's policy on withdrawal of ratings.
 
The rating factors in improvement in Century's financial risk profile, with transfer of debt of Rs 2,824.77 crore (compared to earlier estimate of Rs 3,000 crore) from the balance sheet as on October 1, 2019, following the demerger of the cement business. With the National Company Law Tribunal order for transfer of the cement business to be effective from October 1, 2019, and it being a non-cash transaction, cash profit generated from the appointed date of May 20, 2018, until the effective date resulted in lower debt transfer.
 
Consequently, due to higher debt, gearing and debt to earnings before interest, tax, depreciation, and amortisation (debt/EBITDA) are expected to be marginally higher at 0.33 time and 1.79 times, respectively, as on March 31, 2020, compared to earlier estimates; however, this is a significant improvement from 1.58 and 4.07 times, respectively, as on March 31, 2018. Century's financial risk profile is expected to remain strong, supported by healthy annual accrual of Rs 550-600 crore, limited debt addition, and absence of sizeable capital spending.
 
Century has announced plans to enter the residential real estate business and incorporated Birla Estate Pvt Ltd (BEPL) in fiscal 2019. It launched Phase 1 of a residential project on its own land in Kalyan (Mumbai) in April 2019. Customer response for the project has been strong, with 87% of launched inventory sold by September 30, 2019. BEPL has also launched its project in Whitefield, Bangalore, besides announcing a joint development agreements (JDA) for projects in Magadi Road, Bangalore and Gurugram.
 
The investment required in residential real estate development is expected to be around Rs 400 crore per annum, given the asset-light model adopted, with projects launched on owned land bank or as JDA. Cashflows from the existing business are expected to be largely sufficient to meet the investment requirements over the near to medium term.
 
The company continues to benefit from business diversity, with increased share of higher-margin paper business, along with steady cash flows from textile and commercial real estate business. The ratings are also supported by Century's strengthening financial risk profile, with the transfer of sizeable debt to UltraTech. Further, the ratings benefit from the strong and need-based, timely financial support received from the Aditya Birla (AB) group, the major stakeholder.
 
These strengths are partially offset by exposure of the residential real estate development business to demand and implementation risk, though mitigated by the group's development track record in commercial real estate, and focus on quality and timely project completion. Also, the commoditised nature of businesses, and susceptibility to intense competition and cyclical business conditions, renders some volatility to its paper and textile businesses.

Analytical Approach

* CRISIL has applied its criteria for notch-up of ratings based on the group support.
* Century's new, wholly owned, real estate subsidiary, BEPL has been consolidated as part of this analysis.

Key Rating Drivers & Detailed Description
Strengths:
* Substantial improvement in financial risk profile, post demerger of cement business: Century's capital structure has improved substantially, with significant debt reduction post demerger of the cement business. Gearing and debt/EBITDA are expected to be marginally higher at 0.33 time and 1.79 times, respectively, as on March 31, 2020, compared to earlier estimates; however, this is a significant improvement from 1.58 and 4.07 times, respectively, as on March 31, 2018. The financial risk profile is expected to sustain at these levels, backed by healthy revenue growth and profitability in the paper, textile and commercial real estate businesses. Investments in residential real estate development is expected to be in a phased manner, with initial funding from Century, and a large portion of project cost being funded from customer advances, with low reliance on external debt.
 
* Diversified business risk profile, supported by established presence in paper, textile segments: Century benefits from its established market position in the pulp, paper, paper board and textile segments. Paper segment's revenue and profitability have consistently improved, backed by increased capacity utilisation and realisation over the last three fiscals. This is expected to continue over the medium term, with completion of capex in high margin tissue segment and de-bottlenecking, despite some headwinds in realisations. The textile business is also expected to generate steady cashflows with growing share of exports over the medium term.
 
* Expected steady cashflow from the paper, textile and commercial real estate assets, albeit offset by investment risk from foray into residential segment:  Cashflow generation is expected to remain strong, with net cash accrual of over Rs 550-600 crore (net of capex) annually, which will be adequate to meet repayment obligations of Rs 100 crore in fiscal 2020. 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 fully leased out, and generate steady rentals. Century's second commercial building, Birla Centurion, located at its Worli mill compound, was also fully leased out in fiscal 2019. Both these properties benefit from the diversified clientele, and long-term lease contracts with in-built escalation of 9-15% every three years.  Steady annual gross lease rental of Rs 140-150 crore from the commercial real estate assets is expected to support cashflows over the medium term.
 
Century is entering development of residential projects through a mix of owned land and JDA, through BEPL. The initial project funding will be done by Century, while a large portion of funding will be from customer advances and only 15-20% from construction loan. BEPL is expected to follow a phase-wise development model with asset-light strategy to capitalise on owned land bank. The investment requirement in the residential real estate development is expected to be upto 400 crs per annum, which could be comfortably met with Century's cash accruals  Nevertheless, the extent of investment in real estate business, ramp-up of projects and the resultant cashflows 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. CRISIL believes the promoter group will continue to provide timely financial support in future, in case of exigencies, as has been demonstrated in the past.
 
Weaknesses:
* Exposed to demand and implementation risk in the residential real estate business:
BEPL plans to expand substantially in the residential real estate business. In April 2019, it launched a project in Kalyan (Birla Vanya) on owned land, entailing a development plan of about 13 lakh square feet area, in a phased manner over five years. It also launched its project on owned land in Whitefield, Bengaluru in September 2019. In July 2019, BEPL announced a JDA with Anant Raj Ltd to develop about 33 lakh square feet of area over the next 7-8 years in Gurugram. Recently, BEPL has entered into a JDA project located at Magadi Road, Bangalore, and plans to enter launch one or two JDA's every year.
 
The residential projects launched and planned are at an early stage of development, thus exposing BEPL to demand and implementation risks. The subdued residential real estate environment also exposes the company to demand risk, which in turn could impact the overall business profile of the company.
 
Nevertheless, BEPL is expected to benefit from the established Birla brand name, as demonstrated in sales booking of close to 85% for Phase 1 of the Birla Vanya project, Kalyan. Furthermore, Century's development track record of completing 6.6 lakh sq ft of Grade A commercial projects in Mumbai, the phased growth strategy, and tie-ups with reputed contractors mitigate project implementation risks. Progress on the projects and ramp-up in scale will, nevertheless, be closely monitored.
 
* Commoditised nature of business, intense competition, and cyclicality: Century's key businesses of paper and textiles are commoditised in nature, besides being vulnerable to cycles. This exposes the company's performance to volatile demand conditions in addition to variations in input cost. Also, its businesses are highly competitive because of the presence of a large number of established and unorganised players. Operating profitability is likely to remain partly susceptible to pricing pressures in both the segments because of intensifying competition, though direct correlation exists between raw material price and finished product.
Liquidity Strong

Liquidity is strong, backed by healthy net cash accrual and prudent working capital management. Liquid surplus was Rs 201 crore as on December 31, 2019 including Rs 101 crore in liquid mutual funds. Low gearing and large networth provide strong financial flexibility. Bank limit utilisation was low, averaging about 13% over the four months through December 2019. Cash flow generation is expected to be strong, with average net cash accrual of over Rs 550-600 crore annually, which will be adequate to meet repayment obligations-of Rs 100 crore in fiscal 2020 as well as meet the investment requirement of about Rs 400 crs per annum in the residential real estate development business. Century is expected to maintain adequate liquidity in the near to medium term.

Outlook: Stable

CRISIL believes Century will sustain its strong financial risk profile and business diversity over the medium term. 

Rating Sensitivity factors
Upward factors
* Sustained revenue growth of 15% and operating profitability over 25%
* Steady contribution from the residential real estate business backed by continued healthy sales momentum and early project implementation
 
Downward factors
* Moderation in business risk profile with sustained de-growth in revenues and operating profitability declining below 18%
* Large debt raised for manufacturing businesses, or funding residential real estate business, materially impacting credit metrics
* Slower than expected sales and cashflows in the ongoing real estate projects
About the Company

Incorporated in 1897, Century is promoted by Mr BK Birla, and remains the flagship company of the BK Birla group. Following equity infusion in March and December 2015, the AB group is a significant stakeholder in the company; as on March 31, 2019, the promoters held a 50.21% stake in the company. Mr Kumar Mangalam Birla was appointed as Chairman of the company effective July 20, 2019, following the demise of Mr BK Birla. 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. The company manufactures a variety of paper products (including multi-layer packaging board and tissue paper) with total installed capacity of 4.5 lakh tonne per annum. In the third quarter of fiscal 2018, the company incorporated a wholly owned subsidiary, BEPL, to focus on the residential real estate business.
 
In the first nine months of fiscal 2020, operating income fell year-over-year to Rs 2,637 crore as the paper and textile business were marginally lower than last year, while EBITDA stood at Rs 490 crore, with margin of 18.6%, also impacted due to input prices. Profit after tax (PAT) during the first nine months of fiscal 2020 stood at Rs 283 crore and was lower than the corresponding period of the previous year due to lack of contribution from the cement business.

Key Financial Indicators
Particulars Unit 2019* 2018
Revenue Rs crore 3425 7754
PAT Rs crore 669 372
PAT margin % 17.9 4.7
Adjusted debt/Adjusted net worth Times 0.33 1.58
Adjusted interest coverage Times 10.01 2.98
*Cement business being shown as discontinued operations in fiscal 2019

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
INE055A07088 Debentures Nov-16 8.29% Apr-20 700 CRISIL AA/Stable
NA Debentures* NA NA NA 400 CRISIL AA/Stable
NA Commercial Paper NA NA 7-365 days 1000 CRISIL A1+
NA Rupee Term Loan NA NA Dec-20 2.6 CRISIL AA/Stable
NA Rupee Term Loan NA NA Mar-20 15.63 CRISIL AA/Stable
NA Rupee Term Loan NA NA Jun-23 700 CRISIL AA/Stable
NA Fund-Based Facilities NA NA NA 149 CRISIL AA/Stable
NA Non-Fund Based Limit NA NA NA 750 CRISIL A1+
*Yet to be issued
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  1000.00  CRISIL A1+      04-10-19  CRISIL A1+  09-11-18  CRISIL A1+  18-12-17  CRISIL A1+  CRISIL A1+ 
            30-07-19  CRISIL A1+  14-08-18  CRISIL A1+  31-10-17  CRISIL A1+   
            25-04-19  CRISIL A1+  23-05-18  CRISIL A1+  11-05-17  CRISIL A1+   
            05-02-19  CRISIL A1+  12-04-18  CRISIL A1+  31-03-17  CRISIL A1+   
                15-03-18  CRISIL A1+       
Non Convertible Debentures  LT  700.00
28-01-20 
CRISIL AA/Stable      04-10-19  CRISIL AA/Stable  09-11-18  CRISIL AA/Watch Developing  18-12-17  CRISIL AA-/Watch Positive  CRISIL AA-/Stable 
            30-07-19  CRISIL AA/Stable  14-08-18  CRISIL AA/Watch Developing  31-10-17  CRISIL AA-/Positive   
            25-04-19  CRISIL AA/Watch Developing  23-05-18  CRISIL AA/Watch Developing  11-05-17  CRISIL AA-/Stable   
            05-02-19  CRISIL AA/Watch Developing  12-04-18  CRISIL AA/Stable  31-03-17  CRISIL AA-/Stable   
                15-03-18  CRISIL AA-/Watch Positive       
Fund-based Bank Facilities  LT/ST  867.23  CRISIL AA/Stable      04-10-19  CRISIL AA/Stable  09-11-18  CRISIL AA/Watch Developing  18-12-17  CRISIL AA-/Watch Positive  CRISIL AA-/Stable 
            30-07-19  CRISIL AA/Stable  14-08-18  CRISIL AA/Watch Developing  31-10-17  CRISIL AA-/Positive   
            25-04-19  CRISIL AA/Watch Developing  23-05-18  CRISIL AA/Watch Developing  11-05-17  CRISIL AA-/Stable   
            05-02-19  CRISIL AA/Watch Developing  12-04-18  CRISIL AA/Stable  31-03-17  CRISIL AA-/Stable   
                15-03-18  CRISIL AA-/Watch Positive       
Non Fund-based Bank Facilities  LT/ST  750.00  CRISIL A1+      04-10-19  CRISIL A1+  09-11-18  CRISIL A1+  18-12-17  CRISIL A1+  CRISIL A1+ 
            30-07-19  CRISIL A1+  14-08-18  CRISIL A1+  31-10-17  CRISIL A1+   
            25-04-19  CRISIL A1+  23-05-18  CRISIL A1+  11-05-17  CRISIL A1+   
            05-02-19  CRISIL A1+  12-04-18  CRISIL A1+  31-03-17  CRISIL A1+   
                15-03-18  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 149 CRISIL AA/Stable Fund-Based Facilities 1500 CRISIL AA/Stable
Fund-Based Facilities 1351 Withdrawn Non-Fund Based Limit 1100 CRISIL A1+
Non-Fund Based Limit 750 CRISIL A1+ Proposed Long Term Bank Loan Facility 944.63 CRISIL AA/Stable
Non-Fund Based Limit 350 Withdrawn Rupee Term Loan 2603.67 CRISIL AA/Stable
Proposed Long Term Bank Loan Facility 244.63 Withdrawn -- 0 --
Rupee Term Loan 718.23 CRISIL AA/Stable -- 0 --
Rupee Term Loan 2585.44 Withdrawn -- 0 --
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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