Rating Rationale
June 26, 2018 | Mumbai
Trident Limited
Short-term rating upgraded to 'CRISIL A1+' ; long-term rating reaffirmed 
Rating Action
Total Bank Loan Facilities Rated Rs.3367.71 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Upgraded from 'CRISIL A1')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the short-term bank facility of Trident Limited (Trident) to 'CRISIL A1+' from 'CRISIL A1' and reaffirmed its 'CRISIL A+/Stable' rating on the long-term bank facilities.

The upgrade reflects CRISIL's expectation that Trident will maintain healthy liquidity over the medium term, despite temporary spikes in working capital requirement in keeping with need to build up cotton inventory for the off-season. As on March 31, 2018, liquidity was supported by cash surplus of Rs 160 crore and unutilised bank line of almost Rs 500 crore. CRISIL believes Trident's management will maintain a good amount of cash surplus over the medium term.

During fiscal 2018, despite strong performance of its writing and printing paper (WPP) division (19% of revenue), Trident's operating performance was affected by modest performance of its textile business (81% of revenue) because of low yarn prices, high cotton prices, moderation in demand in key overseas markets, and unfavourable movement in foreign exchange (forex) rates. Overall revenue growth was flat, while operating margin declined slightly to 19.6% in fiscal 2018 from 20.4% in fiscal 2017.

As the company retired long-term debt by Rs 359 crore (including prepayment of Rs 50 crore) and only undertook modest capital expenditure (capex), debt remained under control at Rs 2800 crore as on March 31, 2018. Cash generation is expected to improve over the medium term, supported by better yarn and cotton spread, and gradual ramp-up of utilisation of the recently added home textile capacity, which will ensure higher captive consumption of yarn. With no sizeable capex expected in the near future, progressive debt repayment should lead to continued improvement in credit metrics. Gearing is expected at 1 time as on March 31, 2019, against 2 times as on March 31, 2016, and interest coverage at 8 times for fiscal 2019 compared to 5 times for fiscal 2016.

The ratings continue to reflect Trident's diversified revenue 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, and susceptibility to slowdown in the end-user market and to 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 reserves (Rs 768 crore as on March 31, 2017) while computing the adjusted networth. 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 networth and assets. 

Key Rating Drivers & Detailed Description
* Diversified revenue with leading market position in the home textiles segment
Trident has an established presence in the textiles and WPP businesses. In the textile business too, revenue is diversified, with 40% coming from yarn and 60% from bed linen and bath linen (terry towels) in fiscal 2018. The diversity is expected to improve 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 2018, the company increased capacity utilisation in the bed linen segment to 44%.

In the WPP business too, it 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.

* Strong operating efficiency driven by integration of operations
Manufacturing processes of both the home textile and paper businesses are highly integrated. Total captive consumption of yarn stands at around 38%. . The newly commissioned bed sheet unit 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 of about 40% in the paper business, among the highest in the industry.

Although profitability moderated in fiscal 2018, operating performance is expected to recover in fiscal 2019 with arrival of new and cheaper cotton stock and expectation of better volume growth. CRISIL believes Trident will sustain healthy operating margin of 18-20% driven by improving efficiency in home textile operations as utilisation ramps up, and by continued strong performance in the paper segment. Reduction in duty drawback rates from 7.3% to 2% post implementation of goods and services tax (GST) has been partially offset by availability of input credit and increase in Merchandise Exports from India Scheme (MEIS) rates from 2% to 4%. Hence, impact on profitability is not expected to be material.

* Adequate and improving financial risk profile
Trident's financial risk profile will improve steadily over the medium term supported by expected increase in cash accrual, and progressive debt repayment in spite of large working capital requirement and moderate capex. Its annual cash accrual is expected over Rs 700 crore over the medium term.

The company envisages turnover of USD 3 billion by fiscal 2025 for which it has charted a long-term capacity addition plan with an outlay of Rs 7200 crore at Madhya Pradesh. CRISIL understands the plan is still in nascent stage and the company has not decided on the implementation schedule. As per the company's management, any meaningful outlay will commence in fiscal 2021. CRISIL expects Trident's cash accrual to substantially improve with increase in utilisation of newly set up home furnishing capacity, which is likely to restrict any major debt funding of the capex. Acceleration of the capex plan or more-than-expected debt funding will remain key rating sensitivity factors. In the interim, Trident's capex is pegged at Rs 175 crore and Rs 220 crore during fiscals 2019 and 2020, respectively.

The company has term debt obligation of about Rs 300 crore in fiscal 2019. Given its healthy cash accrual, no major capex plan, and prudent working capital management, it has accelerated debt repayment (Rs 359 crore repaid in fiscal 2018 against scheduled repayment of Rs 300 crore). Adjusted gearing is estimated at 1.37 times as on March 31, 2018, against 1.57 times a year earlier, while ratio of adjusted debt to earnings before interest, tax, depreciation, and amortisation (EBITDA) is estimated to have remained stable at 3.0 times.

The company has healthy liquidity with unutilised bank line of around Rs 500 crore and liquid investment of Rs 150 crore as on March 31, 2018.

* Exposure to volatility in cotton prices and rupee
Trident is 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. Despite the benefits derived from its large procurement and adequate risk management systems, the company's profitability remains susceptible to volatility in cotton prices. Furthermore, Trident is a net exporter and derives nearly 50% of its revenue from exports. While it hedges its forex exposure, any significant volatility in forex rate could hit profitability. Sharp movement in forex rates and cotton prices will be a key rating monitorable.

* Working capital-intensive operations
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 procures cotton during the peak season and 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 revenue) to the US, and has a collection period of 45-60 days, leading to moderate working capital requirement, reflected in gross current assets of 120-150 days. Efficient working capital management is critical to Trident's operations as the company scales up business.

* Susceptibility to slowdown in the end-user market and to competition in the home textiles segment
Trident derives more than 65% 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.
Outlook: Stable

CRISIL believes Trident's business risk profile will continue to improve over the medium term, driven by the expected increase in the company's customer base and healthy growth prospects in the home furnishings and WPP segments. Financial risk profile and liquidity are expected to improve gradually with higher cash generation and moderate capex in the near future.

Upside scenario
* Successful ramp-up of utilisation of new capacity, leading to strong revenue growth, and sustenance of operating margin at 18-20%
* Reduction in gearing below 1.0 time and debt to EBITDA ratio to around 2.0 times on a sustained basis; faster reduction in these metrics through equity infusion
* Substantial improvement in liquidity with sustained increase in unencumbered cash surplus

Downside scenario
* Material decline in profitability due to less-than-envisaged ramp-up in utilisation of bed-linen and towels capacity, or significant volatility in raw material prices or appreciation in rupee value
* Material increase in gearing to above 2.0 times or debt to EBITDA ratio to above 3.0 times, due to sizeable debt-funded capex or acquisition, or significant stretch in working capital cycle
* Sizeable reduction in liquidity, due to stretched working capital cycle or larger-than-anticipated capex.

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.

Trident's promoters hold 67.8% stake in the company through various holding entities, and the rest is held by institutional players, bodies corporate, and public.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs cr 4652 4693
Profit after tax (PAT) Rs cr 264 325
PAT margin % 5.7 6.9
Adjusted debt/adjusted networth Times 1.37 1.57
Interest coverage Times 7.73 6.98

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 Cr) Rating Assigned with Outlook
NA Cash Credit NA NA NA 1200 CRISIL A+/Stable
NA Long-Term Loan NA NA 30- Jun-23 239.17 CRISIL A+/Stable
NA Long-Term Loan NA NA 31-Dec-24 173.97 CRISIL A+/Stable
NA Long-Term Loan NA NA 30-Jun-23 166.63 CRISIL A+/Stable
NA Long-Term Loan NA NA 31-Dec-24 182.71 CRISIL A+/Stable
NA Long-Term Loan NA NA 31-Dec-24 137.41 CRISIL A+/Stable
NA Long-Term Loan NA NA 31-Dec-24 113.78 CRISIL A+/Stable
NA Long-Term Loan NA NA 30-Jun-23 95.76 CRISIL A+/Stable
NA Long-Term Loan NA NA 30- Sep-24 133.48 CRISIL A+/Stable
NA Long-Term Loan NA NA 30-Jun-23 47.84 CRISIL A+/Stable
NA Long-Term Loan NA NA 30-Jun-23 85.33 CRISIL A+/Stable
NA Long-Term Loan NA NA 30-June-23 87.91 CRISIL A+/Stable
NA Long-Term Loan NA NA 30-Sep-21 27.77 CRISIL A+/Stable
NA Long-Term Loan NA NA 1-Aug-21 57.25 CRISIL A+/Stable
NA Long-Term Loan NA NA 30- Sep-21 18.05 CRISIL A+/Stable
NA Long-Term Loan NA NA 29-Jun-21 27.36 CRISIL A+/Stable
NA Long-Term Loan NA NA 30-Sep-21 36.05 CRISIL A+/Stable
NA Long-Term Loan NA NA 30-Jun-22 137.24 CRISIL A+/Stable
NA Long-Term Loan NA NA 23-Mar-19 50.00 CRISIL A+/Stable
NA Letter of Credit NA NA NA 350.0 CRISIL A1+
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  3017.71  CRISIL A+/Stable      09-11-17  CRISIL A+/Stable  27-10-16  CRISIL A/Stable  09-11-15  CRISIL A-/Stable  -- 
            08-05-17  CRISIL A+/Stable  13-10-16  CRISIL A/Stable       
Non Fund-based Bank Facilities  LT/ST  350.00  CRISIL A1+      09-11-17  CRISIL A1  27-10-16  CRISIL A1  09-11-15  CRISIL A2+  -- 
            08-05-17  CRISIL A1  13-10-16  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 1200 CRISIL A+/Stable Cash Credit 1200 CRISIL A+/Stable
Letter of Credit 350 CRISIL A1+ Letter of Credit 350 CRISIL A1
Long Term Loan 1817.71 CRISIL A+/Stable Long Term Loan 1817.71 CRISIL A+/Stable
Total 3367.71 -- Total 3367.71 --
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
Rating Criteria for Cotton Textile Industry
CRISILs Criteria for Consolidation

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