Rationale
The revision in the
long-term rating of GTN Industries Limited (GTNIL) primarily considers the
expected improvement in its profile post implementation of the revival plan
submitted by company to its lenders. As a part of this plan, the company shall monetise
one unit at Medak and GTN House to its Group company GTN Engineering (India)
Limited. The receipt of funds to the tune of approximately Rs. 75-80 crore is
anticipated to pay off the entire term loans, as well as reduce the working
capital borrowing pertaining to the Nagpur unit (Rs. 46.80 crore). In this
regard, three of the bankers have already accepted the plan and GTNIL has
reduced its exposure accordingly towards Term Loans and working capital of
Medak Unit for two of the bankers. The debt exposure of balance two bankers is
expected to be reduced shortly. Moreover, the company reported improvement in
operating margins in FY2021 on account of increased contributions, which is
expected to continue in the current fiscal as well. ICRA however notes that
while the above plan is expected to result in improvement in financial risk
profile from H2FY2022, which was severely under stress till FY2021, the cash
accruals and debt-coverage indicators would remain modest at an absolute level.
Also, the working capital-intensive nature of operation with high inventory
requirement is likely to keep liquidity position stretched. Also, GTNIL
operates in an intensely competitive and commoditised spinning industry. The
low product differentiation and fragmented industry structure translate into
limited pricing power and profitability. Thus, its earnings remain exposed to
the volatility in cotton prices, which have constrained its contribution levels
in the past. The rating derives comfort from GTNIL's established presence in
the domestic cotton yarn market, its long relationship with reputed customers
in the domestic and exports markets, along with the promoters' extensive
experience of more than five decades in the cotton spinning industry. Further,
the rating notes the favourable track record of funding support from the Group
company, GTN Engineering India Limited (GEIL, rated [ICRA]BBB (Stable)/A3+) to
meet debt obligations of GTNIL.
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