By Akash Krishnatry

India Ratings and Research (Ind-Ra) has affirmed Trident Limited’s commercial paper (CP) programme as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating

Rating Action

CP

-

-

7 to 365 days

INR500

IND A1+

Affirmed

The CP has been carved out of Trident’s working capital limits and will be used to meet working capital requirements.

KEY RATING DRIVERS

Robust Business Profile: Trident has a large scale of manufacturing operations and a diversified product mix comprising yarn, terry towels, bed linen, paper and chemicals. It caters to leading global retailers. Trident has a subsidiary each in the US and Europe, to reinforce its marketing efforts in the regions. 

The company’s large vertically integrated home textile facilities (cotton-to-bed and bath linen) provide it with the benefits of low cost, fast order execution and high quality controls. Moreover, its paper segment diversifies its overall earnings base. In FY18, bed and bath linen, yarn and paper contributed 48% (FY17: 49%), 33% (33%) and 19% (18%) to the total revenue, respectively. 

Headwinds over FY18 in Home Textiles:
Trident had limited success in ramping up its terry towel and bed linen capacities over FY18 amid multiple headwinds in the business. Terry towel capacity utilisation reduced to 45% in FY18, after picking up at 50% in FY17 (FY16:  41%). Exceptional destocking by few of the large global retailers due to their changing mix of online and brick and mortar sales led to reduced volume offtake primarily for terry towels. A strong rupee and lower fiscal incentives post goods and services tax implementation further impacted the business margins. 

Bed linen capacity ramp-up was not impacted much, as the company’s stocks
with global retailers are at a low level. Moreover, Trident pushed sales on the domestic front in the bed linen segment. Hence, the capacity utilisation of the bed linen facility picked up fairly to 44% in FY18 (FY17: 29%). Ind-Ra expects Trident to ramp up its terry towel and bed linen production volumes steadily over FY19-FY20. 

Paper Business Supported Profitability:
 Trident’s overall revenue and EBITDA were broadly resilient, despite the downturn in the home textile business, in FY18, supported by the strong performance in paper division. Paper business performed exceptionally well in FY17 and FY18 with an EBITDA margin of 36% and 38%, respectively, due to a significant demand-supply gap in the market, created because of underutilisation of some capacities due to leveraged  balance sheets and operational challenges during demonetisation and goods and services tax. The company’s paper division has competitive advantage due to its input cost advantage, captive power and reasonable brand recall. The paper segment insulates Trident’s cash flows from cyclicality of the textile business. 

Steady Deleveraging:
 Net adjusted leverage (adjusted for a corporate guarantee of INR0.53 billion) moved up to  3.3x  in FY18 (FY17: 3.0x), due to slightly weak overall profitability margins of 18.5% (20.3%) and an elongated working capital cycle of 110 days (82 days). However, limited capex requirements coupled with progressive debt repayments and healthy EBITDA over FY19-FY20 shall help in steady deleveraging. 

Comfortable Liquidity:
 Trident’s average utilisation of the fund-based working capital limits was comfortable at 80% during the 12 months ended April 2018. Moreover, its average utilisation of adjusted working capital limits (considering cash and equivalents) was about 60%. It had unrestricted cash and equivalents of more than INR2.5 billion on an average. Its interest coverage has remained strong and improved (FY18: 7.2x, FY17: 6.8x; FY16: 5.3x; FY15: 3.2x) on account of healthy EBITDA and a low average cost of debt (4.2% as of March 2018). Textile sector-related fiscal incentives contributed to the strong coverage. Ind-Ra expects Trident to generate free cash flow over FY19, further strengthening its liquidity. Industry-level debt is usually high at the end of the financial year due to a build-up of cotton inventories. However, Trident is likely to maintain a strong liquidity position, given the management’s stance of low-to-moderate capex in the medium term towards brownfield expansion and captive power. 

Exposure to Price and Forex Risks:
 Trident is vulnerable to volatile raw cotton prices and fluctuations in foreign currency; these factors can impact margins in a competitive export market. However, Trident has built strong supplier and customer relations, enabling it to revise prices periodically. Trident hedges around 50% of its forex exposure. 

Other Industry Risks:
Domestic and global players from China and ASEAN countries compete closely in the global home textile space. Moreover, the company’s global presence makes it vulnerable to an economic slowdown in these regions or changes in import policies which could impact business flow from these regions. 

Moreover, as home textile division’s leading customers account for a large share of its revenue, Trident's order book is exposed to any changes in their sourcing policies. It has been growing its home textile business domestically and other geographies to mitigate risks from any global market specific headwinds. 


RATING SENSITIVITIES

Negative: Net leverage exceeding 3.5x and/or deterioration in the liquidity position on a sustained basis could lead to a negative rating action.


COMPANY PROFILE

Incorporated in 1990 as Abhishek Industries Ltd, Trident is promoted by Mr Rajinder Gupta. Headquartered in Ludhiana (Punjab), the company was renamed Trident Limited in 2011. 

Trident manufactures cotton yarn, terry towels, bed linen and paper. It has manufacturing facilities in Barnala (Punjab) and Budhni (Madhya Pradesh). On 31 March 2018, the facilities collectively held 555,964 spindles, 5,504 rotors, 688 looms (terry towel) and 500 looms (bed sheet)., The company also has a paper manufacturing capacity of 175,000 tonnes per annum. 

FINANCIAL SUMMARY
 

Particulars

FY18

FY17

Revenue* (INR billion)

45.9

46.9

EBITDA margin (%)

18.5

20.3

Interest coverage (x)

7.2

6.8

Net adjusted leverage (x)

3.3

3.0

*Net of excise & other income except forex

Source: Trident, Ind-Ra 


RATING HISTORY

Instrument Type

Current Rating

Historical Rating

Rating Type

Rated Limits (million)

Rating

11 April 2017

CP

Short-term

INR500

IND A1+

IND A1+


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Akash Krishnatry

    Senior Analyst
    India Ratings and Research Pvt Ltd 601-9 Prakashdeep Building 7 Tolstoy Marg New Delhi 110001
    +91 11 43567263

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121