Rating Rationale
September 15, 2017 | Mumbai
Technocraft Industries India Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.906 Crore
Long Term Rating CRISIL A+/Positive
Short Term Rating CRISIL A1+
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank facilities of Technocraft Industries India Limited (Technocraft)'s continue to reflect the strong financial risk profile driven by healthy capital structure, ample liquidity, and strong debt protection metrics. The ratings also factor in the company's established market position in the drum closure industry and increasing market share in the scaffolding industry. These strengths are partially offset by susceptibility of the company's operating margin to downturns in end-user industries, and to volatility in raw material prices like steel & cotton and in foreign exchange rates.
 
In October 2016, Technocraft's outlook was revised to 'Positive' based on CRISIL's expectation that Technocraft's diverse product profile and geographical reach in the drum closure and scaffolding businesses will continue to lead to steady cash accruals.
 
In fiscal 2017, operational performance has remained steady with operating income growth only at 1.6% and OPBDIT remained comfortable at 15.3% in fiscal 2017 (compared to 16.4% in fiscal 2016). Debt protection metrics have remained stable with interest coverage and net cash accruals to total debt of 9.9 times and 0.36 times, respectively, in fiscal 2017 (16.97 times and 0.31 times, respectively as on March 31, 2016). Further, liquidity also remained comfortable with cash and cash equivalents of Rs 343 crore as on March 31, 2017 (compared to Rs 294 crores as of March 2016). However, working capital intensity increased temporarily due to inventory issues at the customer's end, however, the same is expected to correct itself in the near-term.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Technocraft and its wholly owned subsidiaries Technosoft Engineering Projects Limited, Technocraft Tabla Formwork Systems (P) Limited, Shreyan Infra & Power LLP, Technocraft Trading Spolka Z.O.O., Technocraft International Limited, Technocraft Australia Pty Limited, Anhui Reliable Steel Technology Co. Ltd., Swift Engineering Inc., Technosoft Engineering Inc, Swift Projects Inc., Highmark International Trading -F.Z.E, Technocraft Scaffold Distribution LLc, Technosoft Gmbh, Technosoft Innovations Inc, Techno Defence Pvt Ltd, TIL Packaging Pvt Ltd, Technocraft Closures Pvt Ltd.because of strong financial and operational linkages between these entities.

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 a 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, chemicals, and food and beverages.
 
Scaffolding segment comprises of scaffolding, formwork and tower business with around 80% of revenues accruing from overseas markets. The company has entered into manufacturing of sophisticated engineered formwork systems for building, construction and infrastructure projects also. 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: Financial risk profile is strong, marked by healthy networth, and robust debt protection metrics. Over the years the networth has grown to Rs 678 crore in fiscal 2017 from Rs 382 crore in fiscal 2010 driven by steady accretion to reserves. Debt protection metrics have remained stable with net cash accruals to total debt and interest coverage at 0.36 time and 9.95 times respectively in fiscal 2017.
 
Weakness
* Susceptibility to downturns in end-user industries: The demand for drum closures and scaffoldings depends on the oil & gas, chemical and civil construction industries, and these end-user industries are cyclical in nature. Technocraft is an industry leader in the drum closure segment because of its focus on quality. However, in the event of slowdown in end-user industries, players may choose to migrate to low-quality drum closures manufactured by the unorganised sector, which may adversely impact Technocraft.
 
* 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 maintain its strong financial risk profile and established position in the drum closure segment. The ratings may be upgraded in case of continued improvement in profitability and cash accrual, driven by increasing demand across its businesses, along with a stable financial risk profile. The outlook may be revised to 'Stable' if cash accrual is hit by volatility in profitability, or if the company undertakes sizeable debt-funded capital expenditure or acquisition, weakening its financial risk profile. 

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 MT and 25,000 MT in India and China respectively for scaffoldings, and 61,000 spindles in its yarn division. Technocraft has several marketing subsidiaries in the US, Europe, and Australia. It has a 15-megawatt power plant, used primarily for captive consumption.
 
Technocraft, on a consolidated basis, reported profit after tax (PAT) of Rs.101 crore on net sales of Rs.936 crore for Fiscal 2017, against PAT of Rs. 88 crore on net sales of Rs 921 crore for the preceding year.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs. Cr. 936  921 
Profit After Tax Rs. Cr. 101  88 
PAT Margins % 10.8 9.6
Adjusted Debt/Adjusted Net worth Times 0.52  0.61 
Interest coverage Times 9.95  16.97 

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 Crore)		 Rating Assigned 
with Outlook
NA Post Shipment Credit$$ NA NA NA 45.00 CRISIL A+/Positive
NA Proposed long term bank loan facility NA NA NA 25.92 CRISIL A+/Positive
NA Term Loan NA NA Sep-2021 70.00 CRISIL A+/Positive
NA Term Loan NA NA Mar-2024 46.00 CRISIL A+/Positive
NA Term Loan NA NA Mar-2024 60.00 CRISIL A+/Positive
NA Working Capital Facility NA NA NA 253.00 CRISIL A+/Positive
NA Working Capital Facility%% NA NA NA 55.00 CRISIL A+/Positive
NA Working Capital Facility** NA NA NA 41.00 CRISIL A+/Positive
NA Working Capital Facility@ NA NA NA 50.00 CRISIL A+/Positive
NA Working Capital Facility@ NA NA NA 40.00 CRISIL A+/Positive
NA Working Capital Facility## NA NA NA 50.00 CRISIL A+/Positive
NA Bank Guarantee NA NA NA 43.83 CRISIL A1+
NA Foreign Exchange Forward NA NA NA 1.25 CRISIL A1+
NA Letter of credit and bank guarantee NA NA NA 10.00 CRISIL A1+
NA Overdraft NA NA NA 10.00 CRISIL A1+
NA Packing Credit in foreign currency NA NA NA 50.00 CRISIL A1+
NA Post Shipment Credit NA NA NA 55.00 CRISIL A1+
** Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Buyers Credit, Overdraft and Cash Credit
@ Fully Interchangeable with Pre shipment/Post Shipment finance, Letter of credit, Bank Guarantee (Financial/Performance), Cash Credit.
## Fully Interchangeable with Working Capital Demand Loan, Pre shipment/Post Shipment finance, Letter of credit, Buyers Credit, Cash Credit
$$ 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).
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  852.17  CRISIL A+/Positive/ CRISIL A1+    No Rating Change  26-10-16  CRISIL A+/Positive/ CRISIL A1+  13-10-15  CRISIL A+/Stable/ CRISIL A1+  22-05-14  CRISIL A+/Stable  CRISIL A+/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST  53.83  CRISIL A1+  28-07-17  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change  CRISIL A+/Stable/ CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 43.83 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 10 CRISIL A1+ Overdraft 10 CRISIL A1+
Packing Credit in Foreign Currency 50 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+
Proposed Long Term Bank Loan Facility 25.92 CRISIL A+/Positive Proposed Long Term Bank Loan Facility 30.92 CRISIL A+/Positive
Term Loan 176 CRISIL A+/Positive Term Loan 176 CRISIL A+/Positive
Working Capital Facility 253 CRISIL A+/Positive Working Capital Facility 253 CRISIL A+/Positive
Working Capital Facility%% 55 CRISIL A+/Positive Working Capital Facility%% 50 CRISIL A+/Positive
Working Capital Facility** 41 CRISIL A+/Positive Working Capital Facility** 41 CRISIL A+/Positive
Working Capital Facility@ 50 CRISIL A+/Positive Working Capital Facility@ 50 CRISIL A+/Positive
Working Capital Facility@ 40 CRISIL A+/Positive Working Capital Facility@ 40 CRISIL A+/Positive
Working Capital Facility## 50 CRISIL A+/Positive 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, 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
Criteria for rating Short-Term Debt (including Commercial Paper)

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