Rating Rationale
September 04, 2019 | 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 Limited (Triton).
 
Triton derives over 90% of its revenue from the automobile industry in India, which is currently witnessing a slowdown. Revenue is, therefore, estimated to decline 15-20% in fiscal 2019. Operating margin is, however, expected to remain stable at 10-12%, backed by increased domestic sourcing, lower brass prices, and cost improvement measures undertaken by the company. The margin had moderated to 7% in the first 9 months of fiscal 2019 due to steep and continued increase in input cost and unfavourable foreign exchange (forex) rates, but recovered to 12% and 11.5% in the quarters ended March 31, 2019, and June 20, 2019, respectively.
 
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 subsidiary: Triton Valves Hongkong Ltd (incorporated in November 2018) as it is in the same line of business.

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 is moderate at around Rs 72 crore as on March 31, 2019. Gearing which improved to 0.8 time (after reducing intangibles of Rs. 1 Cr from net worth) as on March 31, 2019, is expected to remain below 1 time over the medium term, while interest cover and net cash accruals to total debt is expected to remain adequate despite the  debt funded capex plans. Triton is planning a capex of Rs 25-30 crore over the fiscals 2020 and 2021.
 
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 13 crore per annum expected over the medium term will be adequate to meet annual debt obligation of Rs 4-5 crore. Fund-based limits of Rs 67 crore were utilized at 85% on average over the 12 months ended June 30, 2019. The company plans to undertake capex of around Rs 25-30 crore over the next two fiscals 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 scenario
* Sustained increase in revenue by 15-20% and operating margins of over 12%, leading to a substantial increase in cash accrual
* Improvement in financial risk profile driven by lower gearing and healthy debt protection metrics.
 
Downward scenario
* Decline in operating margins to below 8% leading to lower cash accruals
* Larger than expected debt-funded capex, or stretch in working capital requirements, weakening the company's financial risk profile.

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 50.2% 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 three months ended June 30, 2019, net profit was Rs 1.25 crore on net sales of Rs 53 crore vis-a-vis Rs 0.6 crore and Rs 61 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 facilities NA NA NA 2.5 CRISIL BBB+/Stable
*Interchangeable with cash credit of Rs 10 crore
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
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      21-09-18  CRISIL BBB+/Stable  14-11-17  CRISIL BBB+/Stable  18-11-16  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      21-09-18  CRISIL A2  14-11-17  CRISIL A2  18-11-16  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 35 CRISIL A2
Letter of Credit* 15 CRISIL BBB+/Stable Long Term Loan 14.7 CRISIL BBB+/Stable
Long Term Loan 5.5 CRISIL BBB+/Stable Proposed Fund-Based Bank Limits 1.31 CRISIL BBB+/Stable
Proposed Fund-Based Bank Limits 2.5 CRISIL BBB+/Stable Proposed Term Loan 6.99 CRISIL BBB+/Stable
Standby Letter of Credit 10 CRISIL BBB+/Stable -- 0 --
Working Capital Demand Loan 15 CRISIL BBB+/Stable -- 0 --
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 rating short term debt

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