| Trident Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised the outlook on the long term bank facilities of Trident Limited (Trident) from ‘Stable’ to ‘Positive’ and reaffirmed the rating at ‘CRISIL AA-’. The rating on short term bank facilities and commercial paper programme is reaffirmed at ‘CRISIL A1+’.
The rating action reflects healthy improvement in the financial risk profile of Trident post significant reduction in the debt over last few quarters supported by ramp up of operational performance in home textiles division this fiscal. The company has reduced its debt from Rs 1952 crore as on March 31, 2020 to Rs 1059 crore as on December 31, 2020 through prepayments from internal accrual, controlled capex as well as non-recourse factoring initiatives. The traction in home textile division also remains strong with the both, bed sheets and towels segments reaching the highest capacity utilization since inception i.e. 101% and 62% respectively in the 3rd quarter of this fiscal. The strong demand for the home textiles stemmed from increased stay-at-home period and focus on health and hygiene for consumers, is expected to remain healthy in next fiscal.
The capacity utilizations in the cotton yarn segment also reached 97% in 3rd quarter of this fiscal, higher than pre-covid levels, partially owing to increased captive consumption for increased production of home textiles as well as rebound in the cotton yarn demand in the industry. Paper segment also has seen ramp up albeit gradual, with utilization levels reaching 87% in 3rd quarter. Over medium term, the aggregate revenues are expected to grow by ~15% p.a. as against CAGR (compounded annual growth rate) of ~2% during fiscal 2018 to 2020, led by continued traction in home textiles and cotton yarn as well as recovery in the paper segment as well as commissioning of planned capacity addition.
The operating profitability of the company has remained healthy at 18.5% in nine months of fiscal 2021 as against 18% in fiscal 2020, in spite of COVID impact in first quarter, owing to cost optimization initiatives undertaken by company. Over medium term, the operating margins are expected to remain stable between 18-20% p.a.
Lower capex intensity in fiscal 2020 and 2021 as well as healthy annual cash accrual of ~Rs 400 – 600 crore coupled with usage of non-recourse factoring has resulted in sharp reduction in debt levels. As a result, the Net debt/EBIDTA is expected to improve to below 1.5 times for fiscal 2021 from 2.3 times in 2019 and to remain below 1.5 times over medium term. Liquidity profile remains healthy, supported by cash & equivalents of Rs 80 crore and unutilized bank limits of Rs 300 crore in February 2021.
The company also has deferred a part of its earlier planned capex plan of ~Rs 1400 crore involving capacity expansion in cotton yarn and paper debottlenecking projects. Presently, the company is carrying out only one out of the three phases in cotton yarn expansion while paper project will be considered only after substantial recovery is seen. Owing to controlled capex, the debt protection metrics is expected to remain healthy.
Business profile remains healthy as Trident being the second largest player in home textiles and third largest yarn manufacturer in India apart from being one of the leading manufacturers of writing and printing (WPP) paper in North India.
The rating continues to reflect Trident’s diversified revenue profile with leading market position in the home textiles segment, strong operating efficiency in the paper and home textiles segments driven by high integration, and adequate and improving financial risk profile. These strengths are partially offset by exposure to volatility in cotton prices and fluctuations in forex rates, working capital-intensive operations, susceptibility to slowdown in the end-user market and competition in the home textiles industry. |
Analytical Approach For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Trident and its two wholly owned subsidiaries, Trident Global Corp Ltd and Trident Europe Ltd due to business and financial linkages. In line with its analytical treatment, CRISIL has reduced revaluation reserve (Rs 768 crore as on March 31, 2017) while computing the adjusted net worth. The company has revalued its property, plant and equipment, and certain other assets as per Ind AS norms and created a revaluation reserve which has been reduced from net worth and assets.
Please refer Annexure – List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths:
Trident has an established presence in the textiles and WPP businesses. In the textile business too, revenue is diversified, with 32% coming from yarn and 68% from bed linen and bath linen (terry towels) in fiscal 2020. The diversity is expected to improve in fiscal 2021 with increasing revenue contribution of bed linen and terry towels. The company is one of the largest manufacturers and exporters of terry towels in India, and following its entry into the bed linen segment, has positioned itself among the leading home textile players in the country. During fiscal 2020, the capacity utilisation in the bed linen and bath linen segments stood at 60% and 48% respectively. The same has improved to 80% and 60% respectively in 9M of fiscal 2021.
In the WPP business too, Trident is one of India’s leading players, with capacity of 175,000 tonne per annum (TPA). It has an established brand, Trident, in sub-segments such as copier paper, which is witnessing healthy growth.
The diversity in business streams limits volatility in revenue and profit.
Manufacturing processes of both the home textile and paper businesses are highly integrated. Total captive consumption of yarn stands at around 50%. The bed sheet unit commissioned in fiscal 2016 has captive spinning, weaving, and processing capability, which meets all its requirement. Furthermore, Trident has a captive power facility of about 50 megawatt (MW) which leads to substantial power savings.
In the WPP segment, Trident manufactures paper using cost-effective wheat straw as the primary fibre source as against the commonly used wood pulp. The plant is at Barnala in Punjab, which is the largest wheat cultivating state in India. These factors have led to operating margin in the vicinity of 35-40% in the WPP business, among the highest in the industry. The margins in paper segment have been impacted marginally in 9M of fiscal 2021 to 28% owing to suppressed realisation amidst impacted demand, however are expected to climb back to earlier levels by next fiscal.
Financial risk profile has improved steadily over the last few fiscals, supported by healthy cash flow generation, and better credit metrics. Gross Debt reduced to Rs 1952 crore at March 31, 2020 from Rs 2436 crore at March 31, 2019 and further to Rs 1059 crore as on December 31, 2020. Debt protection metrics such as debt to EBITDA and interest cover have improved year on year. The Net debt/EBIDTA which improved to 1.9 times in fiscal 2020 from 2.3 in fiscal 2019 is expected to improve further to below 1.5 times in 2021 and remain below 1.5 times next fiscal. The capex plan also remains moderate and will be done prudently with substantial funding from internal accrual leading to no major increase in debt levels over medium term. The capex for fiscal 2021 and fiscal 2022 is expected at ~300-400 crore p.a. Higher than expected debt funded capex/acquisition will remain key rating sensitivity factor.
The company’s liquidity is adequate and supported by strong cash generating ability, unutilised bank line of around Rs 300 crore and cash & equivalents of Rs 80 crore in February 2021.
Weaknesses
Trident’s operating profitability is moderately susceptible to volatility in prices of key raw material, cotton (which constitutes 50% of the cost of yarn). Cotton prices are volatile as they are sensitive to international demand/supply, and factors such as monsoon or pest attacks. This does impact margins despite benefits derived from its large procurement and adequate risk management systems, Furthermore, Trident is a net exporter and derives nearly 55-60% of its revenue from exports. While it hedges its forex exposure, any significant volatility in forex rate could impact profitability. Sharp movement in forex rates and cotton prices will be a key rating monitorable.
Cotton, the key raw material for the home textiles business, is a seasonal crop and good quality cotton is available only during the peak cotton season (October to March). Trident maintains inventory of 4-6 months at the year-end as cotton availability and quality is generally an issue during the off-season. Furthermore, Trident exports its home textile products (50%+ of overall revenue). Debtor days reduced from 49 in fiscal 2019 to 23 in fiscal 2020 owing to management’s initiatives for better terms on credit period and financing arrangements. Nevertheless overall working capital requirement remains moderate reflected in gross current assets (net of cash) of 100-120 days. Efficient working capital management is critical to Trident’s operations as the company scales up business.
Trident derives more than 70% of its revenue in the home textiles segment from the US, and hence, is susceptible to any major slowdown or changes in import policies in this market, and to fluctuations in forex rates. Also, as its leading customers account for a large share of its textile revenue, the company’s fortunes are susceptible to sourcing policies of these customers. To mitigate this impact, Trident is trying to enhance its presence in Europe. Nevertheless, while export prospects for home textiles are healthy, competition has also increased. Any significant move by competing countries such as China, Pakistan, or Vietnam to push their exports by altering local policies or through bi-lateral relationship with importing countries, can affect the competitive position of Indian players, including Trident. |
Liquidity: Strong Liquidity remains strong. Cash accrual is expected to be ~Rs 600-800 crore per annum over medium term, against maturing debt of ~Rs 120-150 crore per annum. Liquidity is further aided by cash and equivalents of Rs 80 crore and unutilized bank limits of Rs 300 crore in February 2021. The company has utilized its fund based working capital limits of Rs 1500 crore at ~50% over past twelve months ending December 2020. |
Outlook: Positive CRISIL Ratings believes Trident's business risk profile to remain healthy over the medium term, driven by healthy traction in home textiles and cotton yarn segment and expected recovery in paper segment next fiscal and supported by healthy profitability levels. Financial risk profile is expected to remain healthy with healthy reduction in debt in past few quarters and moderate capex in the near future. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Trident was incorporated in 1990 as Abhishek Industries Ltd, promoted by Mr Rajinder Gupta, and got its present name in 2011. The company, headquartered in Ludhiana (Punjab), manufactures cotton yarn, terry towels, bed linen, and paper. It is one of the leading manufacturers and exporters of terry towels in India. It also manufactures WPP using wheat straw as primary fibre source and distributes copier paper under the Trident brand in the domestic market. Its manufacturing facilities are in Barnala and Budhni (Madhya Pradesh). In the textile business, it has 5.5 lakh spindles, 6464 rotors, 672 looms for terry towels, and 500 looms for bed linen. In paper, it has capacity to produce 175,000 TPA.
As on December 31, 2020; Trident’s promoters hold 73.02% stake in the company through various holding entities, and the rest is held by institutional players, bodies corporate, and public.
In the first nine months of fiscal 2021, the company posted revenue and profit after tax of Rs 3186 crore and Rs 228 crore respectively as against Rs 3736 crore and Rs 300 crore in similar period in fiscal 2020.
Key Financial Indicators– CRISIL Ratings Adjusted Figures
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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