CRISIL reaffirms long-term bank facilities rating of TNPL

CRISIL has reaffirmed its 'CRISIL A/Stable' rating on the long-term bank facilities of Tamil Nadu Newsprint and Papers Limited (TNPL).

Despite lower revenues due to a weak fourth quarter and tepid demand for writing and printing paper (WPP) and multi layered coated paper board (MCPB), TNPL's operating profits were almost in line with expectations, with operating profitability in fact improving in fiscal 2020. This was as the company benefited from lower raw material costs, especially imported wood pulp (key raw material for MCPB) prices. Consequently, while TNPL's revenues are estimated to decline by about 15% in fiscal 2020 compared to the previous fiscal, the operating margins are better at an estimated 18% (14% in fiscal 2019).

However, with COVID-19 outbreak severely impacting retail demand for both WPP and MCPB and current sluggish economic outlook, TNPL's performance is expected to moderate in fiscal 2021. Besides, the company had also temporarily shut down its operations in both the plants for three weeks in March ' April 2020, to comply with the requirements imposed by the nationwide lockdown. While operations have subsequently resumed in both the units with adequate precautionary measures; capacity utilization in both units are at below 70%, lower than the normal levels. Further, with demand and prices for both WPP and MCPB expected to remain muted in the near term, TNPL's performance is also expected to be impacted in the first six months of fiscal 2021, and gradually recover thereafter. CRISIL expects the company's revenues to decline by ~20% to less than Rs 3,000 Cr for fiscal 2021, before rebounding in fiscal 2022. Operating margins are also expected to moderate to around 15-16% in fiscal 2021, before recovering back to the historical levels of 19-21% from next fiscal.

Furthermore, the company is undertaking large capacity expansion at its MCPB facility for setting up a captive pulping unit and a WPP manufacturing unit. Total capital expenditure (capex) is about Rs 2520 crore and is being implemented in phased manner between fiscals 2020 and 2024. While the project is 80% debt funded, progressive large repayments of existing debt will enable TNPL to sustain its leverage at less than 1.5 times over the medium term. Furthermore, CRISIL also believes that TNPL's strong refinancing capabilities and established relationship with lenders, will enable it to tide over any cash flow mismatches.

The rating continues to reflect TNPL's leading position in the domestic WPP market, strong operating capabilities, product diversity with presence in both WPP and MCPB. These strengths are partially offset by TNPL's moderate financial risk profile, as reflected in modest debt protection ratios. Further, the company also has sizeable long-term debt obligations over the medium term, which may require part refinancing. Also, the company's operating profitability is partially susceptible to volatility in imported pulp prices. Besides, the company is also exposed to project implementation risks.

Shares of TAMIL NADU NEWSPRINT & PAPERS LTD. was last trading in BSE at Rs.101.75 as compared to the previous close of Rs. 100.55. The total number of shares traded during the day was 16957 in over 982 trades.

The stock hit an intraday high of Rs. 104.9 and intraday low of 100.95. The net turnover during the day was Rs. 1743594.

Source : Equity Bulls

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