Rationale

The reaffirmation of ratings reflects Garware Technical Fibres Limited's (GTFL) conservative capital structure, strong liquidity position, healthy profitability indicators supported by improved product mix, prudent working capital management and strong cash flow generation from the business. GTFL remains well diversified in terms of geography, business segments and product profile. Moreover, due to strong accruals, prudent working capital management as well as moderate capex plans, it continues to generate free cash flow from business. ICRA expects GTFL's capital structure as well as coverage indicators to remain strong with the company likely to remain in net cash surplus position and the Total Debt/OPBIDTA expected to remain below 1.0x over the medium term. Owing to consistent focus on value-added products, the company was able to gradually expand its OPBIDTA margin over the last five years, despite the short-term impact of the Covid-19 pandemic. After a muted Q1 FY2021 because of the lockdown impact, GTFL witnessed a strong recovery in Q2 FY2021 led by good demand across both the domestic as well as international markets, resulting in better profitability than that of the last year. The ratings continue to derive comfort from the well-entrenched position of GTFL in the domestic market with healthy market position in fishnet, ropes and twines business. ICRA expects the company to maintain its healthy operating performance, given its focus on value-added products, rising share of exports in the overall revenue and new product development, which commands premium over its existing product. Its liquidity position remains strong, with GTFL reporting cash and investments (including investments of over ~Rs. 250 crore in fixed maturity plans) to the tune of Rs. 400 crore as on March 31, 2020. ICRA expects its credit profile to improve further over the medium to long-term, supported by strong accruals and healthy growth prospects in the overseas market. The rating strengths are partially offset by a price sensitive domestic market witnessing muted growth over the last few years and competition from the unorganised segment. ICRA notes the announcement of share buyback worth Rs. 73.0 crore by GTFL, post-tax would result in cash outflow of about Rs. 90.0 crore for the firm. Despite sizable cash outflow for share buyback, GTFL will have healthy free cash flows in FY2021. ICRA also expects the company to maintain its credit profile through its organic or inorganic investment plans. However, the impact of any such investments, on the credit profile would be evaluated by ICRA on a case-by-case basis.