January 25, 2024

GTN Industries Limited: Ratings reaffirmed

Summary of rating action

Previous Rated Amount Current Rated Amount

Instrument* Rating Action
(Rs. crore) (Rs. crore)
Long-term/ Short -term – Fund
56.15 61.00 [ICRA]BBB-(Stable)/ [ICRA]A3; reaffirmed
based
Short -term – Non-Fund based
8.55 0.00 -
Others
Long-term/ Short -term –
- 3.70 [ICRA]BBB-(Stable)/ [ICRA]A3; reaffirmed
Unallocated
Total 64.70 64.70
*Instrument details are provided in Annexure-I

Rationale

While reaffirming the ratings, ICRA continues to take comfort from GTN Industries Limited’s (GTNIL) established presence in
the domestic cotton yarn market, its long relationship with reputed customers in the domestic and export markets, along with
the promoters’ extensive experience of more than five decades in the cotton spinning industry. Further, the ratings factor in
ICRA’s expectation that GTN Engineering (India) Limited {GEIL rated [ICRA]A- (Stable)/A2+} and GTNIL’s promoters would be
willing to extend financial support to GTNIL, should there be a need. There has been a track record of funding support from
GEIL in the past. In FY2024, the financial performance of GTNIL is expected to remain weak owing to wide fluctuation in raw
material prices and weak demand, impacting realisation. GTNIL has witnessed inventory losses in H1 FY2024, resulting in
operating losses during the same period. However, with slight improvement expected in H2 FY2024, the company expects to
report modest operating profit for the full fiscal. Nonetheless, GTNIL’s overall financial profile continues to remain
comfortable, led by a conservative capital structure with low external debt and comfortable liquidity owing to cushion in the
fund-based limits. Also, with the rundown of the high-cost inventory by FY2024 and expected revival in demand, the
profitability is expected to improve from the next fiscal.

The ratings remain constrained on account of working capital-intensive nature of operation with high inventory requirement,
which is likely to keep the liquidity position under check. Also, GTNIL operates in an intensely competitive and commoditised
spinning industry. Low product differentiation and a 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 Stable outlook reflects ICRA’s expectation that GTNIL’s cash flows are expected to remain comfortable relative to its debt
service obligations and the company will continue to benefit from being a part of the GTN Group.

Key rating drivers and their description

Credit strengths
Low reliance on external debt; conservative gearing level – The company’s debt profile as on September 30, 2023 comprised
working capital borrowings of Rs. 3.8 crore and non-convertible redeemable preference shares (NCRPS) of Rs. 20.6 crore from
the Group company, GEIL. The company has nil term loan. GTNIL’s capital structure stood comfortable at 0.3 times as on
September 30, 2023, marked by low reliance on external borrowings. ICRA expects GTNIL’s gearing to remain conservative at
less than 0.5 times over the medium term with an interest cover above 2.8 times and TOL/TNW below 0.5 times, going forward.

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 Established presence in domestic market and extensive experience of promoters – The company enjoys established presence
in the domestic cotton yarn market and shares long relationship with reputed customers in the domestic and exports markets.
Its promoters have extensive experience spanning more than five decades in the cotton spinning industry. Further, the ratings
consider the track record of funding support from the Group company, GEIL, to meet debt obligations of GTNIL.

Credit challenges

Weak financial risk profile; profitability remains vulnerable to fluctuation in raw material prices – Cotton constitutes a
significant portion of the total cost of production. Thus, it remains exposed to fluctuation in the prices of cotton owing to
various agro-climatic reasons and Government policies (through minimum support price). The same was reflected in the
current year, with a moderation in profits owing to accumulated inventory at a higher cost. GTNIL has witnessed inventory
losses in H1 FY2024, resulting in operating losses during the same period. However, with slight improvement expected in H2
FY2024, the company expects to report modest operating profits for the full fiscal. The profitability is expected to improve
from the next fiscal with the rundown of the high-cost inventory by FY2024 and expected revival in demand.

Working capital intensive nature of operations – The operations of the company are working capital intensive in nature,
reflected by NWC/OI of ~26% as of September 2023 mainly due to high inventory and debtor levels.

Intense competition limits pricing power – GTNIL operates in an intensely competitive and commoditised spinning industry,
characterised by low product differentiation and a fragmented industry structure, which result in limited pricing power and
profitability.

Environmental and social risks

Environmental considerations - Spinning companies using natural fibres are exposed to agro-climatic risks as the quality, prices
and supply of the natural raw materials (such as cotton, wool, silk etc.) depend on climatic conditions, rainfall pattern, crop
infestation among others.

Social considerations - The social risk for the sector emanates from high labour involvement despite increasing mechanisation.
The sector is exposed to risks related to labour and that of protests/social issues with local communities, which might impact
expansion/modernisation plans. The entity is also exposed to the risk of operational disruption due to inability to properly
manage the human capital in terms of their safety and overall well-being.

Liquidity position: Adequate

The company’s liquidity is expected to remain adequate with moderate utilisation of working capital limits, healthy cash
accruals, nil repayment obligations and limited capital expenditure plans in the near term, providing comfort to the liquidity
position.

Rating sensitivities

Positive factors – The ratings can be upgraded if there is a healthy and sustained increase in the company’s scale of operations
and profits, while maintaining comfortable liquidity position and debt protection metrics. Specific metrics that could trigger
an upgrade include an interest coverage above 3.5 times on a sustained basis.

Negative factors – Pressure on the rating may arise if there is a deterioration in the operational performance of the company
and/or any weakening of linkages with the promoter group. Interest coverage below 2.8 times on a sustained basis could also
be a negative trigger.

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 Analytical approach

Analytical Approach Comments

Corporate Credit Rating Methodology

Applicable rating methodologies
Textiles - Spinning
Group Company: GTN Engineering India Limited (GEIL)
The ratings factor in ICRA’s expectation that GEIL (rated [ICRA]A- (Stable)/A2+) and GTNIL’s
Parent/Group support
promoters would be willing to extend financial support to GTNIL, should there be a need.
There is a track record of funding support from GEIL in the past.
Consolidation/Standalone Standalone

About the company

GTNIL manufactures and trades in cotton yarn and is a part of the Hyderabad-based GTN Group, which has diversified business
interests ranging from textiles to engineering. GTNIL was founded by Late M. L. Patodia and at present, it is managed by Mr.
M. K. Patodia. The company’s shares are listed on the Indian bourses. Earlier, GTNIL had an installed capacity of 97,104 spindles
across its two spinning units in Medak (Telangana) and Nagpur (Maharashtra). However, the Medak unit was sold to the Group
company, GEIL, on May 1, 2022 and now the company operates with 41,856 spindles.

Key financial indicators (audited)

GTNIL Standalone FY2022 FY2023 H1 FY2024

Operating income 480.9 313.9 98.0
PAT 34.7 15.6 -2.9
OPBDIT/OI 17.5% 9.8% -0.4%
PAT/OI 7.2% 5.0% -3.0%
Total outside liabilities/Tangible net worth (times) 3.0 0.6 0.4
Total debt/OPBDIT (times) 1.1 1.0 -31.2
Interest coverage (times) 7.8 4.1 -0.2
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amount in Rs. crore

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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 Rating history for past three years

Current rating (FY2024) Chronology of rating history for the past 3 years
Amount Date & Date &
outstanding Date & rating Date & rating in FY2023 rating in rating in
Amount in FY2024
Instrument as on Dec
Type rated FY2022 FY2021
30, 2023
(Rs. crore) Aug 06, Sep 01,
(Rs. crore) Jan 25, 2024 Nov 15, 2022 Apr 01, 2022
2021 2020
Long [ICRA]B-
1 Term Loan - - - - -
term (Stable)

Fund-based Short
2 - - - - - [ICRA]A4
limits term

Non-fund Short
3 - - [ICRA]A3 [ICRA]A4+ [ICRA]A4 [ICRA]A4
Based limits term

[ICRA]BB+(P
Long [ICRA]BBB- [ICRA]B+(S
[ICRA]BBB- ositive)
4 Fund based term/Sh 61.00 (Stable)/ table)/[IC -
(Stable)/[ICRA]A3 withdrawn/[I
ort term [ICRA]A3 RA]A4
CRA]A4+
Long [ICRA]BBB-
Unallocated
5 term/Sh 3.70 (Stable)/ - - - -
limits
ort term [ICRA]A3

Complexity level of the rated instruments

Instrument Complexity Indicator

Long-term/ Short -term – Fund based limits Simple
Long-term/ Short -term – Unallocated Not applicable

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Amount Rated
ISIN Instrument Name Date of Issuance Coupon Rate Maturity Current Rating and Outlook
(Rs. crore)
NA Fund based limits NA NA NA 61.00 [ICRA]BBB- (Stable)/ [ICRA]A3
NA Unallocated NA NA NA 3.70 [ICRA]BBB- (Stable)/ [ICRA]A3
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis - Not Applicable

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 ANALYST CONTACTS
Jayanta Roy Priyesh Ruparelia
+91-33-71501100 +91-22-61693328
jayanta@icraindia.com ppriyesh.ruparelia@icraindia.com

Sumit Jhunjhunwala Prerna Aggarwal

+91-33-7150 1111 +91-124-4545380
Ssumit.jhunjhunwala@icraindia.com gprerna.aggarwal1@icraindia.com

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
shivakumar@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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For more information, visit www.icra.in

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