Rationale

 For arriving at the ratings, ICRA has consolidated the financials of GTN Engineering India Limited (GEIL) and its Group company, GTN Industries Ltd (referred to as the GTN Group/Group). The ratings reaffirmation of the GTN Group primarily considers its established operational track record in the engineering and textile businesses, spanning more than five decades. In the engineering division, the Group has established relationships with TechnipFMC for supplying API valve bodies, GV assembly, clad valves etc, for the past 25 years. In FY2024, the performance of the engineering division remained healthy with an annual revenue growth of ~17% and an operating margin (including nonoperating income) of ~27% (~20% in FY2023). The agreement with TechnipFMC was last renewed on April 1, 2023 for the next 10 years, which provides revenue visibility. The performance of the textile business, however, remained subdued amid higher cotton prices and weak demand conditions. In FY2025, while the spread between yarn prices and cotton prices continues to remain weak, the same is expected to improve somewhat with some moderation in the cotton prices witnessed in recent months. Also, the healthy order book in the engineering division is likely to result in strong revenue along with high operating margins for the division, which is likely to offset the subdued performance of the textile division to an extent. In addition, the closure of a few loss-making divisions during the past few years will also provide some stability to the operating profit going forward. The debt protection metrics improved in FY2024 and are expected to remain comfortable in the medium term. The liquidity position remains adequate with cash and liquid investment of ~Rs. 87 crore as on March 31, 2024 and sufficient buffer available in the sanctioned working capital limits on a consolidated basis. However, the ratings continue to be constrained by high dependence on a single client in the engineering division, TechnipFMC, which contributed ~40% to the total revenues and ~95% to the engineering division’s revenue in FY2024. The company is making efforts to diversify the customer base in the engineering division by foraying into precision engineering. However, given the long-drawn approval process and the slow ramp-up of new orders, these efforts are likely to translate into a meaningful order book only over the medium term. The ratings are also constrained by the high working capital intensity, with NWC/OI of ~33% due to high inventory level to factor in the lead time for imported bought-out components for the engineering division and 60-90 days of credit extended to TechnipFMC. Further, its earnings remain exposed to the volatility in raw material prices and foreign exchange rate fluctuations, which can impact the company’s contribution level. The Stable outlook on the [ICRA]A- rating reflects ICRA’s opinion that GEIL will continue to benefit from the healthy orders from TechnipFMC, and it will be able to maintain its business positioning while sustaining the profitability levels.