Rating Rationale
September 30, 2020 | Mumbai
Technova Imaging Systems Private Limited
Ratings reaffirmed at 'CRISIL BBB+ / Negative / CRISIL A2 '
 
Rating Action
Total Bank Loan Facilities RatedRs.375 Crore
Long Term RatingCRISIL BBB+/Negative (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB+/Negative/CRISIL A2' ratings on the bank facilities of Technova Imaging Systems Private Limited (TISPL; a part of the Technova group).

The ratings factors in the re-imposition of anti-dumping duty (ADD) on the imports of digital offset printing plates, cost rationalisation measures being adopted by the group partly offsetting the likely impact of lower sales over the near term.
 
The group primarily caters to the print media and printing consumables industry, which has been impacted due to the Covid-19 pandemic. CRISIL expects a revenue decline of 20-25% in fiscal 2021, for the print media industry. The sharp cut in the end-user industry's revenue is likely to have a cascading impact on the group's revenue. The Government of India had re-imposed ADD for 5 years from January 2020 on the imports of digital offset printing plates. CRISIL believes that the re-imposition of ADD will support Technova's operating profitability, enhance its market position and pricing flexibility and partly offset the impact of lower volumes on net cash accrual. Furthermore, cost rationalisation measures being taken by the group should also support profitability.
 
Lower sales during the quarter ended June 30, 2020 resulted in operating losses. Though sales and profitability are likely to improve during the quarter ended September 30, 2020, these are still lower than pre-Covid levels. The group's revenue and profitability are likely to improve during the second half of fiscal 2021 supported by the gradual unlocking of the economy and the resulting revival in demand from end-user industries, rebound in operating profitability on account of the full benefit of ADD and the group's cost rationalisation initiatives accruing in the current fiscal. The group continues to have a healthy financial risk profile marked by prudent capital structure while improvement in working capital management further supports liquidity.
 
The ratings continue to reflect the Technova group's strong market position in the domestic printing consumables industry, and comfortable financial risk profile. These strengths are partially offset by the group's susceptibility to volatility in raw material prices, fluctuations in foreign exchange rates and dependence on ADD amid threat from cheaper imports.
Analytical Approach

CRISIL has combined the business and financial risk profiles of TISPL and its associate company Lastra Niraj Pvt Ltd (LNPL) as they are in similar businesses and have strong operational and financial linkages. The two companies, collectively referred to as the Technova group, have common promoters and marketing network, and operate in the same line of business.
 
Annexure - List of entities consolidated for details of entities consolidated and their analytical treatment of consolidation.
Key Rating Drivers & Detailed Description
Strengths
* Strong market position in domestic printing consumables industry and varied product portfolio: The TechNova group is the market leader in most of its product segments, with a significant market share in the offset printing plates segment. The group has a diversified product portfolio and is establishing its presence in the niche segment as well. Its varied product portfolio includes digital offset plates, printing chemicals and digital print media (DPM). DPM operates in niche markets with lesser competition and healthy margin and digital imaging solution products have also demonstrated steady growth in the recent past. Besides its main product offset plates, the group also trades equipment/consumables for graphic arts industry to offer one-stop solution. 

* Comfortable financial risk profile: Networth has seen progressive improvement in the past few years and is expected to be at Rs 330-340 crore in fiscal 2021.The group has healthy capital structure and comfortable debt protection metrics. Gearing and total outside liabilities to tangible networth ratios were 0.33 time, and 1.07 times, respectively, as on March 31, 2020 and is expected to remain at similar levels in the near-to-medium term. Capital structure is expected to remain comfortable in the absence of any large debt-funded capital expenditure plan.

Weaknesses
*Susceptibility to volatility in raw material prices and foreign exchange (forex) rates: The group imports a substantial portion of its key raw materials to ensure its requirement is not impacted by their unavailability in the domestic market, and maintains adequate inventory, which exposes the group to volatility in raw material prices. Furthermore, the group has significant forex exposure, on account of its imports as well as exports of offset plates and chemicals. Also, the group had been exposed to regulatory risk in the past in the form of non-extension of ADD, which was re-imposed from January-2020.

* Dependence on ADD amid threat from cheaper imports: The group has benefited over the years from the ADD on printing plates. Government of India has taken measures for reducing cheaper imports from countries such as China, South Korea and to cut down foreign competition by imposing ADD. However, non-extension of ADD, in the past, also attracted significant imports leading to high competition in the domestic market, which impacted the group's operating performance in fiscals 2019 and 2020. The group's operating performance should remain susceptible to non-extension of ADD in future.
Liquidity Adequate

Liquidity is adequate, driven by expected cash accrual of more than Rs 30 crore and Rs 60 crore in fiscals 2021 and 2022, respectively, and cash and bank balance of Rs 2.0 crore as on March 31, 2020. Fund-based limit of Rs 125 crore was utilised 40% on average over the 12 months through August 2020. With no long-term debt repayment and no major capex planned in fiscals 2021 and 2022, the company has sufficient cash accrual and cash and equivalents to meet its working capital requirement and yearly maintenance capex. With an expected gearing of about 0.2 time as on March 31, 2021, there is sufficient headroom for leveraging.
Outlook: Negative

CRISIL believes that the Technova group's operating performance may remain subdued on account of continued lower demand from the end-user industry. The operating profitability is expected to be supported by the re-imposition of ADD and cost rationalisation measures being taken by the group, over the near-to-medium term.
 
Rating Sensitivity Factors
Upward Factors
* Rebound in revenue to fiscal 2020 levels while operating margin improving to over 7%
* Sustenance of financial risk profile supported by healthy working capital cycle and adequate liquidity
 
Downward Factors
* Annual cash accrual and operating margin sustain below Rs 30 crore and 3%, respectively, on account of slower-than-expected ramp-up in sales volumes and profitability
* Weakening of the financial risk profile due to large debt-funded capex or higher working capital debt owing to increased working capital requirements.
About the Group

TISPL was founded by Mr Pranav Parikh in 1971. The company is a prominent manufacturer of printing consumables. Its products include offset printing plates, printing chemicals, digital print media, and related items. LNPL manufactures analogue offset printing plates on job-work basis for TISPL.
Key Financial Indicators - Consolidated
Particulars Unit 2020 2019
Revenue Rs.Crore 1,508 1,584
Profit After Tax (PAT) Rs.Crore 17 23
PAT Margin % 1.1 1.4
Adjusted debt/adjusted networth Times 0.33 0.64
Adjusted Interest coverage Times 3.51 3.61

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 levels Rating assigned  with outlook
NA Non-Fund Based Limit NA NA NA 250 NA CRISIL A2
NA Fund-Based Facilities NA NA NA 125 NA CRISIL BBB+/Negative
 
Annexure - List of Entities Consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
Lastra Niraj Pvt Ltd Full Strong operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  125.00  CRISIL BBB+/Negative      26-06-19  CRISIL BBB+/Negative  31-07-18  CRISIL BBB+/Stable  25-04-17  CRISIL BBB+/Stable  CRISIL BBB/Stable 
                    17-03-17  CRISIL BBB+/Stable   
Non Fund-based Bank Facilities  LT/ST  250.00  CRISIL A2      26-06-19  CRISIL A2  31-07-18  CRISIL A2  25-04-17  CRISIL A2  CRISIL A3+ 
                    17-03-17  CRISIL A2   
All amounts are in Rs.Cr.
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Fund-Based Facilities Corporation Bank 5 CRISIL BBB+/Negative
Fund-Based Facilities HDFC Bank Limited 28 CRISIL BBB+/Negative
Fund-Based Facilities ICICI Bank Limited 32 CRISIL BBB+/Negative
Fund-Based Facilities Standard Chartered Bank Limited 10 CRISIL BBB+/Negative
Fund-Based Facilities The Saraswat Co-Operative Bank Limited 50 CRISIL BBB+/Negative
Non-Fund Based Limit Corporation Bank 15 CRISIL A2
Non-Fund Based Limit HDFC Bank Limited 65 CRISIL A2
Non-Fund Based Limit ICICI Bank Limited 35 CRISIL A2
Non-Fund Based Limit Standard Chartered Bank Limited 40 CRISIL A2
Non-Fund Based Limit The Saraswat Co-Operative Bank Limited 95 CRISIL A2

This Annexure has been updated on 8-Sep-2021 in line with the lender-wise facility details as on 2-Aug-2021 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
CRISILs Criteria for Consolidation

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