Rating Rationale
August 30, 2022 | Mumbai
T C Terrytex Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.250 Crore
Long Term RatingCRISIL BBB-/Stable (Reaffirmed)
Short Term RatingCRISIL A3 (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 reaffirmed its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings on the bank facilities of T C Terrytex Limited (TCTL).

 

The ratings continue to reflect the established market position of TCTL in the terry towels and dyed yarn segment, increase in scale of operations and healthy profitability. Operating income grew by more than 22% to Rs 545.8 crore in fiscal 2022 on account of improved demand in the export market, with the operating margin remaining stable at above 9%, and is expected at more than Rs 580 crore in fiscal 2023.Supported by healthy accretion to reserve, networth remained strong at more than Rs 155 crore as on March 31, 2022, with gearing at 1.34 times.

 

These strengths are partially offset by high dependence on bank lines resulting in an average capital structure and subdued debt protection metrics and moderately large working capital requirement.

Key Rating Drivers & Detailed Description

Strengths

Established market position

The 15-year-long experience of the promoters, their strong understanding of the market dynamics and healthy relationships with customers in the domestic as well as export markets should continue to support the business. TCTL will also benefit from the additional revenue stream of dyed yarn, which is predominantly sold in the domestic market and used for captive consumption.

 

Increase in scale of operations

Operating income grew by more than 22% to Rs 545.8 crore in fiscal 2022. Healthy demand from the export market should result in operating income of more than Rs 580 crore in fiscal 2023. Revenue of Rs 138.25 in the first quarter of fiscal 2022 (as of June 2022) provides healthy near-term revenue visibility. Introduction of designs and products would aid growth momentum over the medium term.

 

Healthy profitability margin

Operating margin of TCTL remained healthy at 9.1% in fiscal 2022 and is expected to remain above 9% over the medium term. The company’s margin has sustained at above 9% in the previous three fiscals given its ability to pass on increase in cost. Also, TCTL plans to install a turbine system at its plant for efficient power and fuel cost management; this will help further sustain the margin.   

 

Weaknesses

Average capital structure with high dependence on bank lines

Capital structure is likely to remain average because of high dependence on external debt to meet the working capital and capital expenditure (capex) requirement. Consequently, total outside liabilities to tangible networth ratio was high at 1.89 times over the three fiscals ended March 31, 2022, and is expected at 1.32 times as on March 31, 2023. Networth was strong at Rs 155.4 crore as on March 31, 2022. Debt protection metrics were above average, indicated by interest coverage ratio of 1.98 times in fiscal 2022.

 

Moderately large working capital requirement

Gross current assets were sizeable at 203 days as on March 31, 2022, driven by receivables and inventory of more than 70 and 125 days, respectively. Operations will remain working capital intensive over the medium term; weakening of liquidity because of further stretch in the working capital cycle will be a key monitorable.

Liquidity: Adequate

Net  cash accrual, expected at more than Rs 23 crore and Rs 27 crore in fiscals 2023 and 2024, respectively, will sufficiently cover yearly debt obligation of Rs 16.6 crore and Rs 17.2 crore, respectively; the surplus cash will aid financial flexibility. Bank limit was utilised at 92.4% on average over the 12 months through June 2022.

Outlook: Stable

TCTL will continue to benefit from its established market position, steady scale of operations and healthy profitability.

Rating Sensitivity Factors

Upward factors

  • Interest coverage ratio of above 2.7 times strengthening the financial risk profile
  • Significant improvement in working capital management leading to better liquidity and low dependence on bank lines, with average utilisation below 85%
  • Substantial and sustained increase in revenue and profitability resulting in cash accrual more than Rs 28 crore

 

Downward factors

  • Revenue declining by over 20% or operating margin of below 8% leading to lower-than-expected cash accrual
  • Interest coverage ratio of below 1.8 times and further increase in bank limit utilisation reducing cushion in liquidity and weakening the financial risk profile

About the company

TCTL, incorporated in 2005 and based in Dera Bassi, Punjab, commenced commercial operations in April 2008. The company manufactures terry towels and dyed yarn. Mr Anil Satia and Mr Akhil Satia are the promoters of the company.

Key financial indicators

As on/for the period ended March 31

Unit

2022*

2021

Operating income

Rs crore

545.82

446.53

Reported profit after tax (PAT)

Rs crore

11.06

6.89

PAT margin

%

2.03

1.54

Adjusted debt/adjusted networth

Times

1.34

1.45

Interest coverage

Times

1.98

1.67

*Provisional

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.crisil.com/complexity-levels. 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

134

NA

CRISIL BBB-/Stable

NA

Letter of Credit

NA

NA

NA

28

NA

CRISIL A3

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

8.69

NA

CRISIL BBB-/Stable

NA

Rupee Term Loan

NA

NA

Mar-2027

32.53

NA

CRISIL BBB-/Stable

NA

Term Loan

NA

NA

Mar-2027

12.61

NA

CRISIL BBB-/Stable

NA

Working Capital Term Loan

NA

NA

Mar-2025

33.17

NA

CRISIL BBB-/Stable

NA

Bank Guarantee

NA

NA

NA

1

NA

CRISIL A3

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 221.0 CRISIL BBB-/Stable   -- 29-07-21 CRISIL BBB-/Stable 07-08-20 CRISIL BBB-/Negative 28-08-19 CRISIL BBB-/Negative CRISIL BBB-/Stable
      --   --   --   -- 07-03-19 CRISIL BBB-/Negative --
Non-Fund Based Facilities ST 29.0 CRISIL A3   -- 29-07-21 CRISIL A3 07-08-20 CRISIL A3 28-08-19 CRISIL A3 CRISIL A3
      --   --   --   -- 07-03-19 CRISIL A3 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Rupee Term Loan 12.73 Union Bank of India CRISIL BBB-/Stable
Proposed Long Term Bank Loan Facility 8.69 Not Applicable CRISIL BBB-/Stable
Letter of Credit 8.5 Union Bank of India CRISIL A3
Cash Credit 60.75 State Bank of India CRISIL BBB-/Stable
Letter of Credit 10.75 State Bank of India CRISIL A3
Cash Credit 19.75 Indian Overseas Bank CRISIL BBB-/Stable
Cash Credit 28 Union Bank of India CRISIL BBB-/Stable
Cash Credit 4.5 Punjab National Bank CRISIL BBB-/Stable
Rupee Term Loan 14.37 Punjab National Bank CRISIL BBB-/Stable
Cash Credit 14 The South Indian Bank Limited CRISIL BBB-/Stable
Rupee Term Loan 5.43 The South Indian Bank Limited CRISIL BBB-/Stable
Letter of Credit 5.25 Indian Overseas Bank CRISIL A3
Cash Credit 7 Indian Bank CRISIL BBB-/Stable
Term Loan 12.61 Indian Bank CRISIL BBB-/Stable
Letter of Credit 1.5 Indian Bank CRISIL A3
Working Capital Term Loan 11 State Bank of India CRISIL BBB-/Stable
Working Capital Term Loan 3.87 Indian Overseas Bank CRISIL BBB-/Stable
Working Capital Term Loan 7.19 Union Bank of India CRISIL BBB-/Stable
Bank Guarantee 1 Union Bank of India CRISIL A3
Working Capital Term Loan 0.15 Indian Bank CRISIL BBB-/Stable
Working Capital Term Loan 7.04 Punjab National Bank CRISIL BBB-/Stable
Letter of Credit 1 The South Indian Bank Limited CRISIL A3
Working Capital Term Loan 3.92 The South Indian Bank Limited CRISIL BBB-/Stable
Letter of Credit 1 Punjab National Bank CRISIL A3

This Annexure has been updated on 10-Nov-22 in line with the lender-wise facility details as on 07-Nov-22 received from the rated entity

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
Understanding CRISILs Ratings and Rating Scales

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