| Extensive experience of the promoters coupled with a diversified product profile
The Tenty Group has been in the plastic packaging segment for more than four decades. The group has its own units in West Bengal and Assam, respectively. Over the years, the extensive experience of the promoters has helped the group build a healthy reputation and long-standing relationships with its reputed clientele, including Linc Pen and Plastics Ltd., Win Pen Pvt. Ltd., Haldiram Bhujiwala Ltd., and Orient Electric Ltd. The promoters’ experience of over four decades, their strong understanding of local market dynamics, and healthy relations with suppliers and customers should continue to support the business. The group has a diversified product profile that includes a plastic pen and its spare parts, various types of packaging products, and varied-size containers, cups, and bottles made of 100 percent food-grade materials. The products find application in various end-user industries, such as the education sector, food and beverage sectors, FMCG, etc. The group has a diversified customer base, with the top 5 customers contributing more than 50 percent of FY 2022 revenue. Thus, a diversified product profile and reputed customer base de-risk the business to a large extent.
Moderate revenue profile
The revenue of the group stood at Rs. 708.60 crore in FY22 as compared to Rs. 574.25 crore in FY21, registering a YOY growth of 23% on account of the ease of lockdown and the reopening of the education sector. The increase is supported by growth in Tenty Private Ltd. and Dolswap Business Private Limited, both of which are into the manufacturing and selling of plastic-moulded products. The revenue of Tenty Private Limited stood at Rs. 197.28 crore in FY22 as compared to Rs. 141.49 crore in FY21. Dolswap Business Private Limited registered a growth in revenue, which stood at Rs. 154.19 crore in FY22 as compared to Rs. 109.01 crore in FY21. The group has diversified its customer base and further added a reputed customer named Dabur to their customer profile, encompassing eminent companies, which has aided in their revenue growth year after year. The revenue stood at Rs.783.91 crore in FY23 (prov) as compared to Rs. 708.60 crore in FY22, registering a YoY growth of 11% in FY23. Topline growth in FY23 (prov) was lower vs. FY22 on account of lower sales of fans in Q4 FY23. The government has mandated the obligatory BEE rating requirement for all new types of ceiling fans sold in India starting in January 2023. During the pre-summer sales, which are generally fast-moving for all fan manufacturing companies in the January to March quarter (Q4FY23), sales were weak due to an oversupply of existing, accumulated non-BEE-grade inventory. However, business demand for BEE-rated fans is expected to normalise in FY24, which will further reduce competition from local and unorganised players in the market.
The operating margin of the group declined to 5.17 percent as of March 31, 2022, from 5.21 percent as of March 31, 2021. Further, the margins have been in the same range at 5.20 percent as of March 31, 2023 (Prov). The profitability margins of the group have been volatile over the past three years on account of fluctuations in material expenses. Major raw materials include plastic granules, which are crude oil derivatives, and thus the prices for the same are fluctuating in nature. Since raw material costs account for 83 percent of total production costs, even a slight variation in the rates of raw materials drastically impacts profitability. The PAT margin has been in the range of 1.21 percent to 1.45 percent from FY21–23 and is expected to be in the same range.
Acuite believes that going forward, revenue will further increase on account of reduced competition in the market due to mandatory fan star ratings, which is a favourable development in the near to medium term.
Average financial risk profile
The group’s average financial risk profile is marked by a healthy net worth base, moderate gearing, and moderate debt protection metrics. The tangible net worth of the group improved to Rs. 126.95 crore as of March 31, 2022, from Rs. 123.82 crore as of March 31, 2021, due to the accretion of reserves and the infusion of equity capital. Further, the tangible net worth of the company increased to Rs. 138.32 crore as of March 31, 2023 (prov). Acuité has considered unsecured loans to the tune of Rs. 24.76 crore as of March 31, 2022, as part of its net worth as these loans are subordinated to bank debt. The gearing of the group stood at 1.20 times as of March 31, 2022, as compared to 0.98 times as of March 31, 2021, and will continue to remain at the same level at 1.13 times as of March 31, 2023 (Prov). The promoters have extended significant financial support to the group, via unsecured loans to cover working capital and debt obligations. The total outside liabilities/tangible net worth (TOL/TNW) stood at 3.08 times as of March 31, 2022, as against 2.65 times as of March 31, 2021, and will continue to remain at the same level. The moderate debt protection metrics of the group are marked by an interest coverage ratio of 1.93 times as of March 31, 2022, and a debt service coverage ratio of 1.231 times as of March 31, 2022. The metrics would continue to remain at moderate levels going forward. Net cash accruals/total debt (NCA/TD) stood at 0.11 times as of March 31, 2022. Acuité believes that going forward, the financial risk profile of the group may improve on account of improved cash accruals.
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| Working capital-intensive nature of operations
The working capital intensive nature of operations of the group is marked by high yet improving Gross Current Assets (GCA) of 239 days as of March 31, 2022, as against 252 days as of March 31, 2021. The high GCA days are on account of the stretched receivables of the group, which stood at 190 days as of March 31, 2022, as compared to 197 days as of March 31, 2021. The receivables due for more than 180 days have increased substantially in FY22 as compared to FY21, in the absence of any provision in their financial statement.
Thus, any write-offs or delays in realisation can impact the liquidity as well as the financial risk profile of the group. However, the inventory period stood comfortably at the same level of 42 days as on March 31, 2022, and March 31, 2021. The group is saddled with high debtor days, leading to high working capital intensity during the financial year end, which is expected to improve in the short to medium term. Acuité believes that the working capital operations of the group are likely to remain almost at the same levels over the medium term due to the high levels of inventory holding.
Susceptibility to volatility in the prices of raw materials
The prices of the raw materials are impacted by global demand and linked to global crude oil prices, making them highly volatile. The major raw materials for Tenty’s products are plastic granules derived from crude oil, making them highly volatile. The fluctuation in prices is generally passed on to the customers, albeit with a lag. The group’s margins are susceptible to the rise in material costs owing to a time lag in the pass-through of price hikes to the customers, although the regular price revision mitigates the risk to an extent. Further, with the customers bearing the freight expenses, there is some postponement of offtake during periods of high freight rates for cost optimisation at the customer’s end.
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