Rating Rationale
June 10, 2020 | Mumbai
Triton Valves Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.100 Crore
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of Triton Valves Ltd (Triton).
 
Triton's revenue in fiscal 2020 (~12% DE growth, for 9 months ending December 2019) was impacted by the slowdown in the domestic automobile industry. However, increased domestic sourcing and lower brass prices have benefited operating margin which improved to 10.5% for first 9 months of fiscal 2020 compared to 7% for the corresponding period in the previous fiscal.
 
Operating performance is expected to remain subdued in the near term following COVID-19 led supply disruptions in the first quarter of fiscal 2021 and the persisting demand slowdown in the automobile and tyre industry. However the decline in revenues from the tyre valve segment is expected to be partly offset by revenues from new business which is likely to commence from second half of this fiscal. Consequently, overall revenue is expected to decline by about 5%, while margins are expected to moderate by 100-150 basis points.
 
Triton is currently undertaking capital expenditure of about Rs 35 crore (in Triton and new subsidiaries) spread over fiscals 2020 and fiscal 2021 to increase operating efficiency and to cater to new business. A significant part of this is being debt funded. Nevertheless, financial risk profile remains adequate with interest cover expected at over 4 times and gearing to remain less than 1 time in the medium term, and sufficient accruals to meet repayment obligations. Further liquidity is supported by unutilised bank lines and forthcoming promoter support.
 
The ratings continue to reflect Triton's established market position in the domestic automobile tube valves and cores segment, and adequate financial risk profile. These strengths are partially offset by the company's moderate scale of operation, and susceptibility to volatile commodity prices and fluctuations in forex rates.

Analytical Approach

CRISIL has consolidated the business and financial risk profiles of Triton and its subsidiaries: Triton Valves Hongkong Ltd (incorporated in November 2018) and two wholly owned subsidiaries set up in fiscal 2020 namely, Triton Valves Future Tech Pvt Ltd and Triton Valves Climatech Pvt Ltd.
 
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: 
* Established market position in valves and cores used for automotive tyre tubes: Triton is the leader in the domestic automotive tube valves and cores segment with 75% market share. It supplies to almost all key tyre manufacturers in India, including MRF Ltd, Apollo Tyres Ltd (rated 'CRISIL AA+/Stable/CRISIL A1+'), JK Tyre and Industries Ltd, and Ceat Ltd. The key customers account for around 85% of the organised segment of the domestic tyres and tubes market, and Triton caters to tube types across vehicle categories manufactured in India.
 
* Adequate financial risk profile: Networth will benefit from gradual accretion to reserves and equity infusion by promoters, While promoter loans have come down from Rs 4.8 crore as on March 31st 2019 to about Rs 2 crore as on March 31st 2020, , fresh equity of about Rs 3 crore has come in through preferential allotment of equity and warrants. Capex in fiscal 2021 is expected to be about Rs 25 crore and will be part debt-funded. Albeit subdued operating performance, cash accruals to be fairly steady at over Rs 10-12 crore and will aid in sustaining gearing below 1 time over the medium term. Interest cover and net cash accruals to total debt are also expected to remain adequate.
 
Weaknesses:
* Susceptibility of operating margin to volatility in commodity prices, and fluctuations in forex rates: The price of key raw material (brass, which accounts for 75-80% of input costs) is prone to fluctuations, as it is inherently linked to the international demand and supply scenario. Besides, the company imports part of its brass requirement, which exposes it to risks associated with adverse forex movements. However, Triton passes on a large proportion of hike in input prices to customers at periodic intervals. Furthermore, it reduced its import dependence in fiscal 2019. Nevertheless, given that part of the price increase is to be absorbed and imports should continue, operating margin will remain susceptible to any adverse movements on the input side.
 
* Moderate scale of operations: Despite being the market leader and operating for over three decades, scale of operation remains moderate. The key limitations being a single product company and the moderate size of the organised segment of the market for valves and cores, estimated at Rs 300-320 crore in fiscal 2019. Manufacturers of these products remain exposed to the threat of new entrants or the possibility of large tyre manufacturers catering to all or a portion of their valve requirements in-house. Besides, a moderate scale of operations and networth constrain the ability to withstand business or cyclical pressures.
Liquidity Adequate

Triton has adequate liquidity. Cash accrual of over Rs 12 crore per annum expected over the medium term will be adequate to meet annual debt obligation of Rs 2-5 crore. Fund-based limits of Rs 67 crore were utilized at about Rs 35 crore as on March 31, 2020. The company is expected to undertake capex of about Rs 22 crore in fiscal 2021 which will be partly debt funded. Liquidity also benefits from access to promoter support in the form of unsecured loans as demonstrated in the past

Outlook: Stable

CRISIL believes that Triton will continue to benefit from its established relationship with tyre manufacturers and steady long term demand prospects. Besides steady accruals and access to timely promoter support in case of financial exigencies will continue to benefit financial risk profile and liquidity.

Rating Sensitivity factors
Upward factors
* Triton's revenues and profitability improves significantly, leading to sustained increase in cash accruals to over Rs. 20 crore
* Sustenance of financial risk profile driven by lower gearing and healthy debt protection metrics.
 
Downward factors
* Larger than expected debt-funded capex, or stretch in working capital requirements, weakening the company's financial risk profile leading to gearing of over 1.3 times on a sustained basis.
* Lower than expected revenues or margins resulting in significant reduction in cash generation.
About the Company

Triton, incorporated in 1976, manufactures valves and cores that are used in automobile tyre tubes. The company was set up by Mr M V Gokarn and is currently managed by his son, Mr Aditya Gokarn (managing director). The promoters hold 50.5% equity in the company. Triton supplies to almost all major tyre manufacturers in India, and has maintained its leadership position for over a decade.
 
In the nine months ended December 31, 2019, net profit was Rs 4.15 crore on net sales of Rs 162 crore vis-a-vis Rs 1.04 crore and Rs 184 crore, respectively, in the previous corresponding period.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 243 221
Profit after tax (PAT) Rs crore 3 7
PAT margin % 1.4 3.0
Adjusted debt/ adjusted networth Times 0.76 0.79
PBDIT / interest and finance charges Times 3.91 5.13

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 Cash Credit NA NA NA 42 CRISIL BBB+/Stable
NA Working Capital Demand Loan NA NA NA 15 CRISIL BBB+/Stable
NA Letter of Credit NA NA NA 10 CRISIL A2
NA Letter of Credit* NA NA NA 15 CRISIL BBB+/Stable
NA Standby Letter of Credit NA NA NA 10 CRISIL BBB+/Stable
NA Long Term Loan NA NA Jan-2022 5.5 CRISIL BBB+/Stable
NA Proposed Fund- Based Bank Limits NA NA NA 2.5 CRISIL BBB+/Stable
*Interchangeable with cash credit of Rs 10 crore
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Triton Valves Hongkong Ltd Full Business and financial linkages
Triton Valves Future Tech Pvt Ltd Full Business and financial linkages
Triton Valves Climatech Pvt Ltd Full Business 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  65.00  CRISIL BBB+/Stable      04-09-19  CRISIL BBB+/Stable  21-09-18  CRISIL BBB+/Stable  14-11-17  CRISIL BBB+/Stable  CRISIL BBB+/Stable 
                30-08-18  CRISIL BBB+/Stable  03-01-17  CRISIL BBB+/Stable   
Non Fund-based Bank Facilities  LT/ST  35.00  CRISIL BBB+/Stable/ CRISIL A2      04-09-19  CRISIL BBB+/Stable/ CRISIL A2  21-09-18  CRISIL A2  14-11-17  CRISIL A2  CRISIL A2 
                30-08-18  CRISIL A2  03-01-17  CRISIL BBB+/Stable/ CRISIL A2   
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 42 CRISIL BBB+/Stable Cash Credit 42 CRISIL BBB+/Stable
Letter of Credit 10 CRISIL A2 Letter of Credit 10 CRISIL A2
Letter of Credit* 15 CRISIL BBB+/Stable Letter of Credit* 15 CRISIL BBB+/Stable
Long Term Loan 5.5 CRISIL BBB+/Stable Long Term Loan 5.5 CRISIL BBB+/Stable
Proposed Fund-Based Bank Limits 2.5 CRISIL BBB+/Stable Proposed Fund-Based Bank Limits 2.5 CRISIL BBB+/Stable
Standby Letter of Credit 10 CRISIL BBB+/Stable Standby Letter of Credit 10 CRISIL BBB+/Stable
Working Capital Demand Loan 15 CRISIL BBB+/Stable Working Capital Demand Loan 15 CRISIL BBB+/Stable
Total 100 -- Total 100 --
*Interchangeable with cash credit of Rs 10 crore
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 Auto Component Suppliers
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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