Rating Rationale
November 25, 2022 | Mumbai
TCPL Packaging Limited
Rating outlook revised to 'Positive'; Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.350 Crore
Long Term RatingCRISIL A-/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
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 revised its outlook on the long-term bank facilities of TCPL Packaging Limited (TCPL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A-‘.

 

The outlook revision reflects expected improvement in TCPL’s overall credit profile. Revenues have grown year-on-year and is expected to grow further in fiscal 2023, reflected in revenue growth of 47% reported in first half of fiscal 2023, compared to same period of fiscal 2022. This on account of capacity expansion, healthy demand and increased orders from existing customers. Operating profitability continues to remain stable and expected to improve slightly over the medium term. Sustenance of revenue growth and operating margin for fiscal 2023, will be a monitorable. This is expected to further strengthen financial risk and liquidity with higher cash accruals against repayment obligations.

 

The ratings continue to reflect TCPL’s established market position in the domestic packaging industry, diversified end-user industry base, moderate working capital cycle and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition, large investment requirement and vulnerability to fluctuations in raw material prices.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has consolidated the business and financial risk profiles of TCPL Packaging Ltd,, its 3 subsidiaries- TCPL Innofilms Pvt Ltd, TCPL Middle East FZE and Creative Offset Printers Pvt Ltd, which are strategically important to, and have a significant degree of operational integration with TCPL Packaging Ltd. CRISIL Ratings considers these entities as being strategic to TCPL Packaging Ltd in view of their strong integration with TCPL’s operations.

 

Unsecured Loans: Unsecured loans of Rs 3.04 crores has been considered as debt.

 

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 position in the packaging industry: Presence of three decades in the folding cartons business has enabled the promoters to gain strong understanding of market dynamics and build healthy relationships with customers and suppliers. Healthy growth in revenue to Rs.1084 crore in fiscal 2022 from Rs.698 crore in fiscal 2018 is supported by consistent order flow and capacity expansion, growing distribution network and stable client relationships. The company has pan-India presence with multi-location manufacturing units, and exports to various countries. It also diversified into flexible packaging and has recently set up unit for recyclable flexible packaging under its subsidiary -TIPL.

 

  • Diversified end-user industry base: The company’s products are used in packaging in various end-user industries, including pharmaceuticals, food and beverages, cosmetics, toiletries, cigarettes, liquor and fast-moving consumer goods (FMCG), allowing it to overcome the risk of slowdown in any particular industry and achieve higher sales growth.

 

  • Moderate working capital cycle: TCPL has moderate working capital cycle as reflected in Gross Current Asset days of 153 days as on March 31, 2022. It is driven by moderate debtor days of 75-80 days and inventory days of 65-72 days . Working capital cycle is partially supported by credit from suppliers of around 70-80 days and partially through working capital debt. Going forward, with no change in debtor , inventory or creditor policy , working capital cycle is expected to remain moderate with expected Gross current asset days in the range of 145-150 days.

 

  • Strong financial risk profile: Networth was strong at Rs 335 crore while gearing and total outside liabilities to adjusted networth (TOLANW) ratio were moderate at 1.34 and 2.17 times, respectively, as on March 31, 2022. In spite of the debt funded capex, the gearing and TOLANW ratio is expected to gradually improve over the medium term backed by healthy accretion to reserves. Debt protection metrics were adequate, reflected in interest coverage and net cash accrual to total debt ratios of 4.57 times and 0.21 time, respectively, in fiscal 2022. The metrics will remain stable over the medium term owing to moderate profitability.

 

Weaknesses:

  • Exposure to intense competition: The industry is marked by presence of a large number of players on account of the low entry barriers. Large organized players offer products at more competitive prices, because of economies of scale and access to advanced technology, the market has numerous small players that cater to local price-sensitive customers. Although high customization levels partially limit threat from imports, intense competition may continue to constrain scalability, pricing power, and profitability.

 

  • Large investment requirement: Players in the packaging industry require continuous large capital expenditure (capex) to increase capacities. Also, the preference for packaging players to be in proximity to clients' location leads to investments in multiple locations. TCPL group  incurs  capex of Rs. 90-100 crores annually towards capacity enhancement and maintenance and will continue to incur similar kind of capex. Any significant delay in stabilization of new capacities may impact the overall profitability.

 

  • Susceptibility to fluctuations in raw material prices: Because of volatility in the price of paper board and plastic films, the operating margin remain susceptible to these volatilities. The ability of players to pass on input cost increases or retain any benefit of lower input costs is constrained due to intense competition. While TCPL group is able to pass one price increase to customers, any significant movement in the price of raw material and a lag in passing on price fluctuations to customers can impact profitability.

Liquidity: Strong

TCPL has strong liquidity driven by expected cash accruals of Rs.135-150 Crores in fiscal 2023 and fiscal 2024, against repayment obligations of Rs.58 Crores and Rs.77 Crores, respectively. Fund based limits was utilized 73% on an average over the 12 months ended September 2022. The company has cash and bank balances of Rs.20.68 Crores as on March 31, 2021.  The company will be incurring capital expenditure of Rs.77 crores in fiscal 2023, for which Rs 58 crores is already sanctioned from bank. CRISIL Ratings expects internal accruals and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Outlook: Positive

CRISIL Ratings believe TCPL's business and financial profile will continue to improve backed by healthy demand and capacity enhancement.

Rating Sensitivity factors

Upward factors

  • Steady revenue growth and operating profit, leading to higher cash accrual above Rs. 150 crores
  • Sustenance of financial profile and liquidity

 

Downward factors

  • Decline in revenue or fall in operating margin below 14%, leading to lower-than-expected cash accruals
  • Stretched working capital cycle or large, debt-funded capex, weakening the liquidity

About the Company

TCPL was incorporated as Twenty First Century Printers Ltd in 1987 by the Kanoria family and was renamed as TCPL in 2008. It manufactures folding cartons, printed blanks and outers, litho lamination, blister packs and flexible packaging products used in the food, FMCG, cigarette, liquor, pharmaceutical, pesticide and stationery industries. It has four manufacturing units in Silvassa, two in Haridwar, and one each in Goa and Guwahati, Assam. The company is listed on Bombay Stock Exchange and National Stock Exchange.

 

TIPL was incorporated in February 2020 and is  a wholly owned subsidiary of TCPL. The company has up an integrated unit for manufacture of recyclable plastic blown film activities at Silvassa  which started production in fiscal 2023.

 

COPPL was incorporated in 2002 by Mr. Rohit Khanna and Mr  Gazal Dhillon. In December 2021, TCPL acquired majority stake in COPPL and currently owns 83% stake, while remaining is with erstwhile promoters. COPPL is engaged in the manufacturing of printed rigid boxes and leaflets, primarily for the mobile phone and consumer electronics industry, with manufacturing unit in Noida, Uttar Pradesh.

Key Financial Indicators - Consolidated

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

1084.48

902.57

Reported profit after tax (PAT)

Rs crore

45.62

32.22

PAT margin

%

4.21

3.60

Adjusted debt / adjusted networth

Times

1.34

1.11

Interest coverage

Times

4.57

3.63

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 crore)

Complexity

level

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

135.4

NA

CRISIL A-/Positive

NA

Term Loan

NA

NA

Mar-28

214.6

NA

CRISIL A-/Positive

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

TCPL Packaging Ltd

100%

Common management and significant operational linkages

Tcpl Innofilms Private Limited

100%

TCPL Middle East FZE

100%

Creative Offset Printers Pvt Ltd

100%
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 350.0 CRISIL A-/Positive   -- 28-12-21 CRISIL A-/Stable 08-12-20 CRISIL A-/Stable   -- --
      --   -- 06-09-21 CRISIL A-/Stable   --   -- --
Non-Fund Based Facilities ST   --   -- 28-12-21 CRISIL A2+ 08-12-20 CRISIL A2+   -- --
      --   -- 06-09-21 CRISIL A2+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 25 CRISIL A-/Positive
Cash Credit 4.89 CRISIL A-/Positive
Cash Credit 14 CRISIL A-/Positive
Cash Credit 10.01 CRISIL A-/Positive
Cash Credit 17.5 CRISIL A-/Positive
Cash Credit 30 CRISIL A-/Positive
Cash Credit 34 CRISIL A-/Positive
Term Loan 53.89 CRISIL A-/Positive
Term Loan 7.44 CRISIL A-/Positive
Term Loan 0.1 CRISIL A-/Positive
Term Loan 7.28 CRISIL A-/Positive
Term Loan 42.17 CRISIL A-/Positive
Term Loan 34.2 CRISIL A-/Positive
Term Loan 44.93 CRISIL A-/Positive
Term Loan 24.59 CRISIL A-/Positive
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for Consolidation

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