Rating Rationale
June 30, 2021 | Mumbai
Threads India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.101 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (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 A1’ ratings on the bank facilities of Threads India Limited (TIL; part of the Lohia group).

 

Revenue is expected to grow by over 15% in fiscal 2022 (after muted growth in the last two fiscals), driven by improved exports, recovery in end-user industry and focus on high-margin products such as nylon and polyester. Though domestic revenue is estimated to have been impacted during the first quarter by the localised lockdown to contain the spread of the second wave of Covid-19, recovery is expected over the next few quarters. Operating margin is likely to sustain at 10-11% over the medium term because of cost-control initiatives and shift to higher margin products.

 

Turnover remained stable in fiscal 2021 despite the nationwide lockdown in the first quarter, mainly due to favourable export sales and pent-up demand in the home textiles segment. Margin improved by 100 basis points because of price hikes and cost-control measures.

 

The ratings continue to reflect the strong market position of TIL in the industrial sewing threads segment in India, steady revenue growth, adequate financial risk profile and support from the Lohia group. These strengths are partially offset by large working capital requirement and susceptibility to volatile raw material prices and intense competition.

Analytical Approach

The Lohia group comprises the flagship company, Lohia Corp Ltd (LCL; 'CRISIL AA-/Stable/CRISIL A1+'), and TIL. These companies are under the same management, with Mr RK Lohia as the group chairman. CRISIL Ratings has considered the standalone business and financial risk profiles of TIL as there are no linkages between the two companies. CRISIL Ratings has factored in the expected financial support to TIL from the group in case of any exigency.

Key Rating Drivers & Detailed Description

Strengths

  • Strong market position in the industrial sewing threads segment: The 25-year-long experience of the promoters has resulted in a strong clientele comprising Texport Industries Ltd, Aditya Birla Fashion and Retail Ltd, Arvind Lifestyle Brands Ltd and Wildcraft India Pvt Ltd. Also, by diversifying into segments such as leather goods, readymade garments, parachutes, and car upholstery, the company has insulated itself from slowdown in any one industry.

 

  • Support from the Lohia group: The chairman is involved in the strategic decision-making of the group companies. Also, strong cash surplus of the group provides high financial flexibility.

 

  • Adequate financial risk profile: Gearing was healthy at 0.83 time and networth large at Rs 68 crore, as on March 31, 2021. Debt mainly comprises working capital borrowings. Of the total estimated debt of Rs 57 crore, long-term borrowings include Rs 3 crore and working capital debt Rs 53 crore. Debt protection metrics were moderate, with interest coverage and net cash accrual to total debt ratios of 2.93 times and 0.13 time, respectively, in fiscal 2021. The metrics are expected to improve over the medium term with reduction in working capital requirement. Net cash accrual is expected to be Rs 9 crore per annum against planned capital expenditure (capex) of Rs 8-9 crore over the next two fiscals. The capex will be funded through a mix of debt and cash accrual. Minimal long-term borrowings and steady accrual are expected to improve financial risk profile over the medium term.

 

Weaknesses

  • Exposure to intense competition: The threads segment is dominated by large players such as Madura Coats Pvt Ltd (‘CRISIL AA-/Stable/CRISIL A1+’) and Vardhman Yarns & Threads Ltd (‘CRISIL AA-/Stable/CRISIL A1+’). TIL is a comparatively small player and hence lacks pricing power. Realisations could come under pressure on account of intense competition.

 

  • Large working capital requirement: Gross current assets are estimated at 349 days as on March 31, 2021, because of sizeable inventory of 253 days (due to high focus on just-in-time delivery) and stretched receivables. Efficient working capital management while scaling up business will be a key monitorable over the medium term.

Liquidity: Adequate

Expected annual net cash accrual of Rs 6-7 crore should sufficiently cover debt obligation of Rs 1 crore and Rs 0.23 crore in fiscals 2022 and 2023, respectively. Bank limit utilisation averaged 54% over the 12 months through April 2020. Being a part of the Lohia group, TIL should receive financial support in case of exigency. The group had a cash surplus of about Rs 209 crore as on March 31, 2021. Debt-funded capex is likely to be minimal over the medium term.

Outlook: Stable

The operating performance of TIL will improve over the medium term, driven by recovery in end-user demand and improvement in operating efficiency. Financial risk profile should remain adequate, backed by moderate debt metrics and partly debt-funded capex.

Rating Sensitivity Factors

Upward factors

  • Significant and sustained increase in revenue and profitability resulting in net cash accrual of over Rs 20 crore
  • Improvement in financial risk profile driven by increase in accrual and efficient working capital management

 

Downward factors

  • Substantial slowdown in end-user industry affecting revenue or profitability
  • Larger-than-anticipated, debt-funded capex or steep increase in receivables and inventory weakening gearing to above 2 times
  • Change in the support strategy of the group

About the Company

Incorporated in 1983 and part of the Lohia group, TIL manufactures a wide range of synthetic filaments, fibres, and industrial sewing threads in Kanpur and Bengaluru. The company caters to various industrial segments such as leather goods, readymade garments, sports goods, upholstery, luggage accessories, tents, automobile seats, safety belts and industrial filters.

 

LCL manufactures machines for producing high-density polyethylene/polypropylene bags. These include extrusion lines, winders, and circular looms.

Key Financial Indicators

Particulars

Unit

2021

(Provisional)

2020

(Audited)

Revenue

Rs.Crore

128

128

Profit After Tax (PAT)

Rs.Crore

3.73

1.92

PAT Margin

%

2.9

1.5

Adjusted debt/adjusted networth

Times

0.83

0.95

Interest coverage

Times

2.93

2.02

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

Cash Credit*

NA

NA

NA

58.00

NA

CRISIL A-/Stable

NA

Long-Term Loan

NA

NA

30-Sept-2023

5.5

NA

CRISIL A-/Stable

NA

Proposed Long-Term Bank Loan

Facility

NA

NA

NA

23.5

NA

CRISIL A-/Stable

NA

Letter of Credit

NA

NA

NA

12.00

NA

CRISIL A1

NA

Vendor Financing

NA

NA

NA

2.00

NA

CRISIL A1

*Interchangeable with bill discounting

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 87.0 CRISIL A-/Stable   -- 31-03-20 CRISIL A-/Stable / CRISIL A1 23-07-19 CRISIL A-/Stable / CRISIL A1 18-04-18 CRISIL A-/Stable / CRISIL A1 CRISIL A-/Stable / CRISIL A1
Non-Fund Based Facilities ST 14.0 CRISIL A1   -- 31-03-20 CRISIL A1 23-07-19 CRISIL A1 18-04-18 CRISIL A1 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
Cash Credit* 58 CRISIL A-/Stable Bank Guarantee 1.5 CRISIL A1
Letter of Credit 12 CRISIL A1 Cash Credit* 60 CRISIL A-/Stable
Long Term Loan 5.5 CRISIL A-/Stable Letter of Credit 20 CRISIL A1
Proposed Long Term Bank Loan Facility 23.5 CRISIL A-/Stable Long Term Loan 5.27 CRISIL A-/Stable
Vendor Financing 2 CRISIL A1 Proposed Long Term Bank Loan Facility 7.23 CRISIL A-/Stable
- - - Standby Line of Credit 5 CRISIL A1
- - - Vendor Financing 2 CRISIL A1
Total 101 - Total 101 -
*Interchangeable with bill discounting
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
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support
CRISILs Bank Loan Ratings

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