Trident Limited - CRISIL reaffirms ratings

CRISIL Ratings has reaffirmed its ratings on the bank facilities and Commercial Paper of Trident Limited (Trident) at 'CRISIL AA/Stable/CRISIL A1+'.

The ratings continue to reflect Trident's diversified revenue profile with leading market position in the home textiles segment and established position in WPP, strong operating efficiency driven by integrated operations, and strong financial risk profile. These strengths are partially offset by exposure to volatility in cotton prices and fluctuations in foreign exchange (forex) rates, working capital-intensive operations, and susceptibility to slowdown in the end-user market and competition in the home textiles segment.

Operating performance is expected to moderate year-on-year basis in fiscal 2023 due to heightened raw material inflation and subdued export demand because of inventory correction at retailers and inflationary impact on consumer demand. Revenues are expected to be flattish in this fiscal as the industry in the first half of the fiscal is expected to face short term headwinds on account of lower export demand while operating margin is expected to moderate to 18-19% this fiscal compared to 21.7% in fiscal 2022. This is also reflected in decline of 10% in revenues quarter-on-quarter in first quarter of fiscal 2023 and moderation in operating margin to 15.6% from 17.5% last quarter. The second half of the fiscal is expected to see improvement in performance with expectations of normalization of EBITDA margins on account of lower cotton prices and revival of demand. Increasing proportion of captive power and captive yarn consumption to support operating margins at 18-20% range in the medium term despite raw material headwinds. Substantially high integrated operations in the industry has resulted in less variability and best in class operating margins among peers.

The capacity utilisation in the cotton yarn segment also reached 88% in fiscal 2022 compared to 80% in fiscal 2021, partially owing to increased captive consumption for production of home textile products as well as strong rebound in the cotton yarn demand and realisations in the industry. Paper segment has also seen ramp up, albeit gradually, with utilisation levels improving to 90% in fiscal 2022. In fiscal 2022, the aggregate revenues grew by over 50%, led by low revenue base of last year, continued traction in home textiles and cotton yarn, recovery in the paper segment, as well as commissioning of planned capacity addition. Furthermore, operating profitability is expected to sustain to over 19%, also supported by implementation of Rebate of State and Central Taxes and levies (RoSCTL) incentives and due to benefit of higher scale.

Financial risk profile remains strong with robust accruals and phased capital expenditure (capex) plan. Net Cash Accrual increased from Rs. 646 crore in fiscal 2021 to Rs. 807 crore in fiscal 2022 however it is expected to moderate to Rs. 550-600 crore this fiscal. The company has reduced its debt from Rs 1952 crore as on March 31, 2020 to Rs 1571 crore as on March 31, 2022 through prepayments from internal accrual, controlled capex as well as non-recourse factoring initiatives. Company plans to undertake capex of Rs 1200-1300 crore over the medium term which will be funded by debt of around Rs 900 crore. The repayment obligations for these loans are back ended which will support the overall financial risk profile and liquidity. Total debt/earnings before interest, depreciation, tax and amortisation (EBIDTA) is expected to remain below 1.5 time for fiscal 2023. Liquidity profile remains healthy, supported by cash and equivalents of over Rs 293 crore as on 31 March, 2022 and average unutilised bank limit of Rs 710 crore for 12 months ending 30, June 2022.

Source : Equity Bulls

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Trident CRISIL RatingUpdate Reaffirmed