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.