Rating Rationale
December 26, 2018 | Mumbai
Technocraft Industries India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.906 Crore
Long Term Rating CRISIL A+/Positive (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank loan facilities of Technocraft Industries India Limited (Technocraft) at 'CRISIL A+/Positive/CRISIL A1+'.

The ratings continue to reflect the strong financial risk profile, driven by healthy capital structure, ample liquidity, and strong debt protection metrics. The ratings also factors in diverse product profile, established market position in the drum closure industry and increasing market share in the scaffolding industry. These rating strengths are partially offset by weaker operating performance of the yarn & fabric division.

CRISIL's believes that the company's credit risk profile will benefit from higher expected cash accrual in fiscal 2019.  However, profitability of the existing yarn & fabric facility and implementation of the capital expenditure (capex) plans in the yarn & fabric division will be a key monitorable.

In fiscal 2018, operating income increased by 26% and operating profit before depreciation interest and taxes (OPBDIT) margin increased to 16.4% from 15.7% in fiscal 2017, due to various cost improvement measures adopted the company, despite increase in the steel prices during that period. Debt protection metrics have remained stable with interest coverage and net cash accrual to total debt of 8.6 times and 0.29 time, respectively, despite increase in the working capital debt in that period.

Furthermore, liquidity also remained comfortable with cash and cash equivalents of Rs 298 crore as on March 31, 2018 (compared to Rs 345 crore as of March 2017). Working capital intensity has increased with higher inventory levels and increase in the receivables during the period.

Analytical Approach

For arriving at the ratings, CRISIL has consolidated the business and financial risk profiles of Technocraft, its domestic & foreign subsidiaries, step-down subsidiaries, Limited Liability Partnership and joint ventures namely Technosoft Engineering Projects Ltd, Shreyan Infra & Power LLP, Technocraft Closures Private Limited, TIL Marketing Pvt Ltd (Erstwhile TIL Packaging Pvt Ltd), Techno Defence Private Ltd, Technocraft Tabla Formwork Systems Pvt Ltd, Technosoft Engineering, Inc, Technosoft Engineering UK Ltd, Technosoft GMBH, Highmark International Trading FZE, Swift Engineering Inc., AAIT / Technocraft Scaffold Distribution LLC, Crosswall International Trading Ltd., Technosoft Innovations INC, Step Engineering Inc., Technosoft Services, INC., and Swift Projects Inc. because of strong financial and operational linkages between these entities.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in the international drum closure industry and increasing market share in the scaffolding industry: Technocraft is one of the leading manufacturers of drum closures with a worldwide market share of around 35%, excluding china, and caters to major drum manufacturers. It is reputed globally for the quality and wide range of its products. The company supplies drum closures to most leading drum and drum part manufacturers in the world including Con-tech International Inc, Berenfield Containers Inc, August Berger Metallwarent Gmbh and Mauser Houston Metal. The ultimate end-user industries predominantly include oil and gas, packaging, chemicals, and food and beverages.
 
Scaffolding segment comprises of scaffolding, formwork and tower business with around 80% of revenue accruing from overseas markets. The company has entered into manufacturing of sophisticated engineered formwork systems for building, construction and infrastructure projects as well. The company supplies its products to a diversified set of end markets including oil & gas, power, refineries, petrochemical, infrastructure and commercial construction.
 
* Strong financial risk profile: The financial risk profile is strong, marked by healthy networth, and robust debt protection metrics. Over the years the networth has grown to Rs 683 crore as on March 31, 2018 from Rs 382 crore as on March 31, 2010, driven by steady accretion to reserves. Debt protection metrics have remained stable with net cash accrual to total debt and interest coverage at 0.29 time and 8.6 times, respectively, in fiscal 2018.
 
Weakness
* Weaker yarn & fabric division: The yarn and fabric industry in India is highly competitive and dependent on exports to neighboring countries, such as China and Bangladesh. With low value added products in the portfolio, the company is susceptible to the volatility in demand and spreads affecting the profitability. This can be seen with over the last 4-5 years despite capex of around Rs. 80-90 crore. With further capex planned in this division over medium term, overall profitability may be impacted.
 
* Exposure to volatility in raw material prices and foreign exchange (forex) rates: Key raw materials, steel and cotton account for over 70% of consumption. Consequently, profitability is exposed to risks relating to fluctuations in steel, and cotton and yarn prices. While the drum closure business is more resilient, owing to the value added nature of the product, and strong cost and technology competitiveness, the scaffoldings and yarn business, which use steel and cotton, respectively, as key raw materials are likely to be impacted more, owing to volatility in these commodities.
Outlook: Positive

CRISIL believes Technocraft will continue to benefit from its strong overall financial risk profile, established market position in the drum closure segment and growing scaffolding division. The ratings may be upgraded if improvement in profitability and cash accrual, driven by increasing demand across its businesses persists, along with a stable financial risk profile. The outlook may be revised to 'Stable' if cash accrual is hit by a volatile operating margin, or if cost and time overruns impact the progress of the planned capital expenditure, or if any sizeable debt-funded acquisition, weakens the financial risk profile.
 
Liquidity
Technocraft enjoys healthy liquidity, driven by cash accrual of around Rs 150 crore and cash & cash equivalents of Rs 298 crore in fiscal2018, despite fund-based bank limit utilisation of over 90% for the last 12 months through March 2018. Debt obligation of around Rs 7-8 crore is expected in fiscal 2019, which may further increase over medium term, due to the planned capex. CRISIL expects the internal accrual, cash & cash equivalents and unutilized bank lines should meet its repayment obligations as well as incremental working capital requirement in the near term.

About the Company

Technocraft was set up as a partnership firm in 1972 and was reconstituted as a private limited company in 1991. It has three major manufacturing divisions: drum closures, scaffoldings, and garments and cotton yarn. It is the leading drum closure manufacturer in the international market, with a sizeable market share and annual capacity of 40 million sets. It has capacity of 40,000 metric tonne (MT) and 25,000 MT in India and China, respectively, for scaffoldings, and 63,984 spindles in its yarn division. Technocraft has several marketing subsidiaries in the US, Europe, and Australia. The company has a 15-megawatt power plant, used primarily for captive consumption.

Technocraft, on a standalone basis, reported profit after tax (PAT) of Rs 62 crore on total revenue of Rs 579 crore for half year ended September 30,  2018, against PAT of Rs 56 crore on total revenue of Rs 499 crore for the corresponding period in the previous year.

Key Financial Indicators
Particulars Unit 2018 2017
Operating Income Rs. Cr. 1,184 936
Profit After Tax Rs. Cr. 119 101
PAT Margin % 10.1 10.8
Adjusted Debt/Adjusted Net worth Times 0.75 0.52
Interest coverage Times 8.6 7.4

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 the Instrument Date of Allotment Coupon
Rate (%)
Maturity Date Issue Size
(Rs Crore)
Rating Assigned
with Outlook
NA Term Loan NA NA Sep-20 25.24 CRISIL A+/Positive
NA Term Loan NA NA Sep-24 59.80 CRISIL A+/Positive
NA Term Loan NA NA Mar-25 38.50 CRISIL A+/Positive
NA Term Loan NA NA NA** 20.00 CRISIL A+/Positive
NA Term Loan NA NA NA** 84.68 CRISIL A+/Positive
NA Working Capital Facility@ NA NA NA 40.00 CRISIL A+/Positive
NA Working Capital Facility* NA NA NA 41.00 CRISIL A+/Positive
NA Working Capital Facility NA NA NA 100.00 CRISIL A+/Positive
NA Working Capital Facility NA NA NA 40.00 CRISIL A+/Positive
NA Working Capital Facility# NA NA NA 80.00 CRISIL A+/Positive
NA Working Capital Facility % NA NA NA 55.00 CRISIL A+/Positive
NA Working Capital Facility NA NA NA 73.00 CRISIL A+/Positive
NA Working Capital Facility NA NA NA 40.00 CRISIL A+/Positive
NA Post Shipment Credit$ NA NA NA 45.00 CRISIL A+/Positive
NA Bank Guarantee NA NA NA 50.53 CRISIL A1+
NA Foreign Exchange Forward NA NA NA 1.25 CRISIL A1+
NA Letter of credit & Bank Guarantee NA NA NA 10.00 CRISIL A1+
NA Overdraft NA NA NA 25.00 CRISIL A1+
NA Packing Credit in Foreign Currency NA NA NA 22.00 CRISIL A1+
NA Post Shipment Credit NA NA NA 55.00 CRISIL A1+
$ Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Cash Credit.
* Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Buyers Credit, Overdraft and Cash Credit
@ Fully Interchangeable with Pre shipment/Post Shipment finance, Letter of credit, Bank Guarantee (Financial/Performance), Cash Credit
# Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Buyers Credit, Cash Credit
% Fully Interchangeable with Pre shipment/Post Shipment finance, Letter of credit, Bank Guarantee (Financial/Performance)
** Rated but not availed
 
Annexure - Details of Consolidation
Entity Consolidated Extent of Consolidation
Technosoft Engineering Projects Limited ('TEPL') Full consolidation
Technocraft Tabla Formwork Systems Private Limited Full consolidation
TIL Marketing Private Limited (Erstwhile TIL Packaging Private Limited) Full consolidation
Technocraft Closures Private Limited Full consolidation
Techno Defence Private Limited Full consolidation
Shreyan Infra & Power LLP Full consolidation
Technocraft International Limited, UK (WOS of the Company) ('TIL-UK') Full consolidation
Technocraft Spolka Zoo, Poland (WOS of the Company) Full consolidation
Technocraft Australia Pty Ltd., Australia) (WOS of the Company) Full consolidation
Anhui Reliable Steel Technology Co Ltd, China (WOS of the Company) Full consolidation
Technosoft Engineering, Inc, USA (WOS of TEPL) ('TEI-USA') Full consolidation
Technosoft Engineering UK Ltd (WOS of TEPL) Full consolidation
Technosoft GMBH, Germany, (Subsidiary of TEPL) Full consolidation
Highmark International Trading FZE, UAE (WOS of TIL-UK) ('HITF-UAE') Full consolidation
Swift Engineering Inc., Canada, (WOS Subsidiary of HITF-UAE) Full consolidation
AAIT / Technocraft Scaffold Distribution LLC, USA (Subsidiary of TIL-UK) Full consolidation
Crosswall International Trading Ltd., UAE (Subsidiary of HITF-UAE) Full consolidation
Technosoft Innovations INC, USA (WOS of TEI-USA) Full consolidation
2045690 Alberta Ltd, CANADA [Step Engineering] (Subsidiary of TEI-USA) Full consolidation
Technosoft Services, INC.,USA (WOS of TEI-USA) Full consolidation
Swift Projects Inc., USA (WOS of 2045690 Alberta Ltd, CANADA [Step Engineering]) Full consolidation
 
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
Fund-based Bank Facilities  LT/ST  845.47  CRISIL A+/Positive/ CRISIL A1+      20-11-17  CRISIL A+/Positive/ CRISIL A1+  26-10-16  CRISIL A+/Positive/ CRISIL A1+  28-12-15  CRISIL A+/Stable/ CRISIL A1+  CRISIL A+/Stable 
            15-09-17  CRISIL A+/Positive/ CRISIL A1+      13-10-15  CRISIL A+/Stable/ CRISIL A1+   
            23-08-17  CRISIL A+/Positive/ CRISIL A1+           
            28-07-17  CRISIL A+/Positive/ CRISIL A1+           
Non Fund-based Bank Facilities  LT/ST  60.53  CRISIL A1+      20-11-17  CRISIL A1+          CRISIL A+/Stable/ CRISIL A1+ 
            15-09-17  CRISIL A1+           
            23-08-17  CRISIL A1+           
            28-07-17  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
Bank Guarantee 50.53 CRISIL A1+ Bank Guarantee 43.83 CRISIL A1+
Foreign Exchange Forward 1.25 CRISIL A1+ Foreign Exchange Forward 1.25 CRISIL A1+
Letter of credit & Bank Guarantee 10 CRISIL A1+ Letter of credit & Bank Guarantee 10 CRISIL A1+
Overdraft 25 CRISIL A1+ Overdraft 10 CRISIL A1+
Packing Credit in Foreign Currency 22 CRISIL A1+ Packing Credit in Foreign Currency 50 CRISIL A1+
Post Shipment Credit$ 45 CRISIL A+/Positive Post Shipment Credit$$ 45 CRISIL A+/Positive
Post Shipment Credit 55 CRISIL A1+ Post Shipment Credit 55 CRISIL A1+
Term Loan 228.22 CRISIL A+/Positive Proposed Long Term Bank Loan Facility 25.92 CRISIL A+/Positive
Working Capital Facility 253 CRISIL A+/Positive Term Loan 176 CRISIL A+/Positive
Working Capital Facility@ 40 CRISIL A+/Positive Working Capital Facility 253 CRISIL A+/Positive
Working Capital Facility* 41 CRISIL A+/Positive Working Capital Facility%% 55 CRISIL A+/Positive
Working Capital Facility# 80 CRISIL A+/Positive Working Capital Facility** 41 CRISIL A+/Positive
Working Capital Facility% 55 CRISIL A+/Positive Working Capital Facility@@ 50 CRISIL A+/Positive
-- 0 -- Working Capital Facility@@ 40 CRISIL A+/Positive
-- 0 -- Working Capital Facility## 50 CRISIL A+/Positive
Total 906 -- Total 906 --
$ Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Cash Credit.
* Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Buyers Credit, Overdraft and Cash Credit
@ Fully Interchangeable with Pre shipment/Post Shipment finance, Letter of credit, Bank Guarantee (Financial/Performance), Cash Credit
# Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Buyers Credit, Cash Credit
% Fully Interchangeable with Pre shipment/Post Shipment finance, Letter of credit, Bank Guarantee (Financial/Performance)
** Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Buyers Credit, Overdraft and Cash Credit
@@ Fully Interchangeable with Pre shipment/Post Shipment finance, Letter of credit, Bank Guarantee (Financial/Performance), Cash Credit.
## Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Buyers Credit, Cash Credit
$$ Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Cash Credit.
%% Fully Interchangeable with Pre shipment/Post Shipment finance, Letter of credit, Bank Guarantee (Financial/Performance).
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
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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