Rating Rationale
September 06, 2021 | Mumbai
TCPL Packaging Limited
Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.350 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A-/Stable/CRISIL A2+' ratings on the bank facilities of TCPL Packaging Ltd (TCPL).

 

The ratings continue to reflect the company’s established position in the domestic packaging industry, diversified end-user industry base 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 combined the business and financial risk profiles of TCPL and its subsidiaries, TCPL Innofilms Pvt Ltd and TCPL Middle East FZE, as the entities are strategically important to, and have significant operational linkages with, TCPL. CRISIL considers these entities as being strategic to TCPL in view of their strong integration with TCPL’s operations.

 

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.900 crore in fiscal 2021 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 is now setting up unit for recyclable flexible packaging under its subsidiary. .

 

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.

 

Strong financial risk profile: Networth was Rs 299.14 crore as on March 31, 2021, backed by healthy accretion to reserve. Gearing and total outside liabilities to adjusted networth (TOLANW) ratio were 1.11 and 1.8 times, respectively, as on March 31, 2021. With steady accretion to reserves and continuous debt funded capex, the gearing and TOLANW ratio will remain at similar levels over the medium term. Debt protection metrics were adequate, reflected in interest coverage and net cash accrual to total debt ratios of 3.63 times and 0.24 time, respectively, in fiscal 2021. 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 has been incurring capex of Rs 85-90 crore each year, which is debt funded. Any further large debt-funded capex will remain a key monitorable.

 

Susceptibility to fluctuations in raw material prices: Because of volatility in the price of paper board and plastic films, the operating margin fluctuated between 12.5% and 14% during the past three fiscals. The ability of players to pass on input cost increases, or retain any benefit of lower input costs is constrained. Any significant movement in the price of raw material can impact profitability because of a lag in passing on price fluctuations to customers.

Liquidity: Strong

TCPL has strong liquidity driven by expected cash accruals of Rs.90-110 Crores in fiscal 2022 and fiscal 2023, against repayment obligations of Rs.51 Crores and Rs.65 Crores, respectively. Fund based limits of Rs.123.5 crores was utilized 72% on an average over the 12 months ended July 2021. The company has cash and bank balances of Rs.5.54 Crores as on March 31, 2021.  The company will be incurring capital expenditure of Rs.100 crores for fiscal 2022, which will be funded through term loans of 70-75%.  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: Stable

TCPL will continue to benefit from its strong market position and comfortable financial risk profile.

Rating Sensitivity factors

Upward factors

  • Gearing declining below 1 time on a sustained basis
  • Steady revenue growth and operating profit, leading to higher cash accrual

 

Downward factors

  • Decline in revenue or fall in operating margin below 11%, leading to lower-than-expected cash accrual
  • 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. The company is listed on Bombay Stock Exchange and National Stock Exchange.

 

TIPL was incorporated in February 2020, and is now a wholly-owned subsidiary of TCPL Packaging Ltd (TCPL). The company is setting up an integrated unit for manufacture of recyclable plastic blown film activities at Silvassa.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

902.57

888.56

Reported profit after tax (PAT)

Rs crore

32.49

35.30

PAT margin

%

3.60

3.97

Adjusted debt / adjusted networth

Times

1.11

1.33

Interest coverage

Times

3.63

3.39

 

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 crore)

Complexity level

Rating assigned with outlook

NA

Term loan

NA

NA

Mar-2026

187.38

NA

CRISIL A-/Stable

NA

Working capital facility

NA

NA

NA

123.5

NA

CRISIL A-/Stable

NA

Letter of credit

NA

NA

NA

12

NA

CRISIL A2+

NA

Bank guarantee

NA

NA

NA

8

NA

CRISIL A2+

NA

Proposed working capital facility

NA

NA

NA

19.12

NA

CRISIL A-/Stable

 

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 Pvt Ltd

100%

TCPL Middle East FZE

100%

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 330.0 CRISIL A-/Stable   -- 08-12-20 CRISIL A-/Stable   --   -- --
Non-Fund Based Facilities ST 20.0 CRISIL A2+   -- 08-12-20 CRISIL A2+   --   -- --
All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility Amount (Rs.Crore) Rating
Bank Guarantee 8 CRISIL A2+
Letter of Credit 7 CRISIL A2+
Letter of Credit 1 CRISIL A2+
Letter of Credit 4 CRISIL A2+
Proposed Working Capital Facility 19.12 CRISIL A-/Stable
Term Loan 71.7 CRISIL A-/Stable
Term Loan 13.3 CRISIL A-/Stable
Term Loan 33.05 CRISIL A-/Stable
Term Loan 18.63 CRISIL A-/Stable
Term Loan 48 CRISIL A-/Stable
Term Loan 2.7 CRISIL A-/Stable
Working Capital Facility 35 CRISIL A-/Stable
Working Capital Facility 17.5 CRISIL A-/Stable
Working Capital Facility 30 CRISIL A-/Stable
Working Capital Facility 14 CRISIL A-/Stable
Working Capital Facility 27 CRISIL A-/Stable
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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