Press Release December 31, 2024 DHAKSHAN TEXTILES PRIVATE LIMITED Rating Assigned and Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	20.97	ACUITE BBB+ | Stable | Assigned	-
Bank Loan Ratings	72.50	ACUITE BBB+ | Stable | Reaffirmed	-
Bank Loan Ratings	5.50	-	ACUITE A2+ | Reaffirmed
Total Outstanding	98.97	-	-
Total Withdrawn	0.00	-	-

Rating Rationale

­Acuité has reaffirmed its long-term rating of 'ACUITE BBB+' (read as ACUITE triple B plus)  and its short-term rating of 'ACUITE A2+' (read as ACUITE A two plus)  on the Rs.78.00 Cr. bank facilities of Dhakshan Textiles Private Limited (DTPL; part of KKP group). The outlook is 'Stable'. ­Acuité has assigned its long-term rating to 'ACUITE BBB+' (read as ACUITE triple B plus) on the Rs.20.97 Cr. bank facilities of Dhakshan Textiles Private Limited (DTPL; part of KKP group). The outlook is 'Stable'. Rationale for rating reaffirmation: The rating reaffirmation considers, the improvement in operating profit margin, despite a lower revenue growth due to a change in product mix and the expectation of sustained growth in operating profit for the current year. The trading revenue dropped by 51 percent during FY2024 (Prov.), due to change in product mix, resulting in muted growth in revenue at Rs.803.38 Cr. for the year. However, the group registered revenue of Rs.444 Cr. during the first half of FY2025, there by promising a decent revenue growth for the year with the presence of order book worth Rs.226 Cr. for next 3 months. The operating profits of the group over the past three years have improved significantly at a compounded annual growth rate of 17.6 percent, despite of unfavourable market conditions. The improvement in operating profits is mainly due to the benefits from the integrated supply chain coupled by lower trading activity. The rating also draws comfort from the above average financial risk profile and adequate liquidity position of the company, although constrained by the intensive nature of working capital operations.

About the Company

­Dhakshan Textiles Private Limited (DTPL) was incorporated in 2019. It has its registered office in Namakkal, Tamil Nadu. DTPL which is located in Virali was one of the two units of KKP textiles Private Limited. Later on April 6, 2022 DTPL was demerged as per the directions and approval of NCLT Chennai Bench. Promoters has been maintaining separate records for DTPL since 2018. The company is into yarn manufacturing of 20s -80s counts with 28,000 spindle capacity. Directors of Dhakshan Textiles Private Limited are Mr. Nallathambi Subash Kumar, Mr. Nallathambi Sathesh Kumar, Mr. Bakkialakshmi Nallathambi and Mr. Periasamy Nallathambi.

About the Group

­KKP group consists of KKP spinning mills Private Limited, KKP Fine linen Private Limited, KKP garments Private Limited, KKP Hi-tech Weaving India Private Limited, KKP Weaving and Processing mills Private Limited and KKP Textiles Private Limited. The group was earlier managed by two brothers Mr. Periaswamy Nallathambi and Mr. Periaswamy Chinnaswamy (Owns KKP Textiles Private Limited). KKP textiles Private Limited had two units in Virali and Pudhupatti. The Virali unit which was demerged effective April 06, 2022 and now named as 'Dhakshan textiles Private Limited’ managed by Mr. N Sathish Kumar and Mr. Subhash Kumar, sons of Mr. Periaswamy Nallathambi. Other unit which is in Pudhupatti is managed by Mr. Periaswamy Chinnaswamy. All the Companies in the group except KKP Textiles are managed by Mr. Nallathambi and Sons. The group is vertically integrated from spinning of yarn to garment production. which includes purchase of cotton and viscose from various suppliers to production fabrics and textiles. The entire Group has capacity of 68,000 spindles , 438 Looms, windmills which can generate 6.5 MW of power and 600 Stitching Machines. While, DTPL alone has 28,000 spindles capacity and 1.25 MW of power capacity.

Unsupported Rating

­Not Applicable

Analytical Approach

Extent of Consolidation

•Full Consolidation

Rationale for Consolidation or Parent / Group / Govt. Support

­­Acuite has considered consolidated business and financial risk profile of Dhakshan textiles Private Limited (DTPL), KKP Spinning Mills Private Limited (KSMPL), KKP Weaving and Processing Mills Private Limited (KWPMPL), KKP Hi-Tech Weaving India Private Limited (KHPL), KKP Garments Private Limited (KGPL) and KKP Fine linen Private Limited (KFLP) hereafter referred as “KKP Group” on account of common promoters, vertically integrated group with strong operational linkages and significant amount of intercompany transactions.

Key Rating Drivers

Strengths

­Experienced promoters and established track record of operations: The group established its first company KKP Weaving and spinning mills in 1983. The promoters later expanded into other activities of spinning, weaving, knitting, Stitching and production of grey fabrics. The promoters of the group has experience of more than 2 decades. The group is vertically integrated this includes spinning of yarn to production of garments and Madeups. DTPL involves in purchase of cotton and viscose from various suppliers and production of compact yarn to their group companies. The Group has 68,000 spindle capacity, 350 looms, 6.5 M.W of windmills and 600 Stitching machines. This captive consumption will ensure the better margins and provides the flexibility of production as per customer desire and gives competitive edge over other players in the industry. Acuite believes that the group will continue to benefit from its long track of operations and the rich experience of the management. Improved operating margins albeit low revenue growth led by change in product mix. In FY2024, KKP group registered a revenue of Rs.803.38 Cr, marginally improved from FY2023 revenue of Rs.799.75 Cr, despite of lower trading activity. The group changed its product mix with a view to reduce the trading in spinning and weaving segments. Consequently, the trading revenue dropped by 51 percent, from Rs.245 Cr. in FY2023 to ~Rs.120 Cr. in FY2024. The operating profit margins improved to 14.95 percent in FY2024 (Prov) from 11.75 percent in FY2023, due to lower trading activity coupled by benefits of integrated operations. Additionally, the group registered revenue Rs.444.20 Cr. (net off intercompany transactions) till September 2024 and expected to close the year in the range of Rs.850-870 Cr, as the group currently has order book for three months which is approximately Rs226 Cr. The operating profit margin is expected to remain in the range of 14-15 percent for the medium term due to favourable market conditions and further supported by benefits from integrated operations. The PAT margin improved to 4.09 percent in FY2024 (Prov.) from 2.70 percent in FY2023, despite of increased interest costs and depreciation, primarily due to substantial improvement in operating profit for the year. Above average financial risk profile: KKP group’s financial risk profile is above average marked by healthy networth, moderate gearing and moderate debt protection metrics. As on March 31, 2024 (Prov.), the group’s networth stood at Rs.318.44 Cr. compared to, Rs.280.49 Cr. The improvement in networth is due to accretion of profits to the reserves. Despite a marginal increase in overall debt levels to Rs.448.06 Cr. as on March 31, 2024(Prov.) from Rs.430.33 Cr. as on March 31, 2023, gearing levels remained comfortable at 1.41times as on March 31, 2024 (Prov.). Additionally, the total outside liabilities to tangible networth (TOL/TNW) also improved marginally to 1.70 times as on March 31, 2024(Prov.) against 1.81 times as on March 31, 2023. The gearing of the company is expected to improve further over the medium term on account of absence of any debt funded capex plans. The debt protection metrics stood moderate with DSCR and ICR of 1.31 times and 2.54 times respectively as on March 31, 2024(Prov.). Debt to EBITDA also improved to 3.63 times as on March 31, 2024(Prov.) against 4.49 times as on March 31, 2023. Acuite believes that the financial risk profile of the company will improve further over the medium term due to its conservative leverage policy

Weaknesses

­Working capital intensive nature of operations: KKP group’s working capital operations are intensive in nature as reflected through its gross current asset (GCA) days of 278 days in FY2024 (Prov.) against 261 days in FY2023. The stretched GCA days are mainly on account of higher inventory levels and stretched debtor days. The high inventory levels are common across the industry as the raw material i.e. cotton generally is procured during the season of October to March and will be stocked up to meet the inventory requirements for next 5-6 months. This has led to high inventory days at 162 days in FY2024 (Prov.). The group offers a credit period of 60-90 days its customers and enjoys a credit period of 45-60 days from its suppliers. The elongated working capital conversion cycle has led to high dependency on the fund based working capital limits, which were utilized at an average of 90 percent in past 12 months ending September 2024. Acuite expects, the working capital operations of the group to remain intensive over the medium term on account of business cycle of the industry. ­Intense competition in the textile industry and susceptibility to changes in raw materials : The group operates in a highly competitive textile industry, characterised by minimal product differentiation and fragmented nature, which restricts pricing flexibility. Indian textile products face stiff competition due to the products from other countries like Bangladesh, Pakistan, Vietnam, etc in the export market. The main raw material purchased by the company is cotton. Hence, the margins are susceptible to changes in cotton prices. Cotton being an agricultural commodity, the availability and price of the same is highly dependent on agro climatic conditions. The purchase price depends on the prevailing demand-supply situation which limits bargaining power with the suppliers as well. Acuite believes that KKP group will able to maintain its operating margins around existing levels in spite of volatility in raw material prices owing to the benefits of integrated operations

Rating Sensitivities

­Positive: ­Maintaining the operating profit margins at current levels. Significant improvement in operating revenue. Improvement in financial risk profile. Negative: Any further deterioration in working capital management leading to deterioration in liquidity. Any debt funded capex resulting in deterioration in financial risk profile.

Liquidity Position: Adequate

­KKP group’s liquidity position is adequate as reflected through sufficient net cash accruals against the repayment obligations. The group registered NCA’s of Rs.63.67 Cr. as on March 31, 2024 (Prov.), comfortably covering the debt obligation of Rs.37.15 Cr. for the same period. NCA’s are expected to range between Rs.70-75 Cr. over the medium term which would comfortably meet the expected repayment range of Rs.35-42 Cr. The group’s current ratio stood moderate at 1.45 times as on March 31, 2024 (Prov.) and the GCA days remained intensive at 278 days in FY2024. The fund based bank limits were utilized at an average of 90 percent during the past 12 months ending September, 2024. Additionally, the group has Rs.2.33 Cr. in free cash and bank balances providing additional liquidity comfort. Acuite believes that the liquidity position of the group will remain adequate over the medium term on account of sufficient cash accruals against repayment obligations.

Outlook: Stable

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Other Factors affecting Rating

­None

Key Financials

Particulars	Unit	FY 24 (Provisional)	FY 23 (Actual)
Operating Income	Rs. Cr.	803.38	799.75
PAT	Rs. Cr.	32.87	21.58
PAT Margin	(%)	4.09	2.70
Total Debt/Tangible Net Worth	Times	1.41	1.53
PBDIT/Interest	Times	2.54	2.27

Status of non-cooperation with previous CRA (if applicable)

­Not Applicable

Any Other Information

­None

Applicable Criteria

• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm

Note on complexity levels of the rated instrument

­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.

Rating History

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook 04 Nov 2024 Bank Guarantee (BLR) Short Term 0.50 ACUITE A2+ (Upgraded from ACUITE A2) Letter of Credit Short Term 5.00 ACUITE A2+ (Upgraded from ACUITE A2) Term Loan Long Term 9.69 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB | Stable) Proposed Long Term Bank Facility Long Term 2.31 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB | Stable) Term Loan Long Term 3.50 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB | Stable) Term Loan Long Term 24.00 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB | Stable) Cash Credit Long Term 29.50 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB | Stable) Cash Credit Long Term 3.50 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB | Stable) 07 Aug 2023 Letter of Credit Short Term 5.00 ACUITE A2 (Reaffirmed) Bank Guarantee (BLR) Short Term 0.50 ACUITE A2 (Reaffirmed) Term Loan Long Term 9.69 ACUITE BBB | Stable (Reaffirmed) Proposed Long Term Bank Facility Long Term 1.81 ACUITE BBB | Stable (Reaffirmed) Term Loan Long Term 3.50 ACUITE BBB | Stable (Reaffirmed) Term Loan Long Term 24.00 ACUITE BBB | Stable (Assigned) Cash Credit Long Term 29.50 ACUITE BBB | Stable (Reaffirmed) Cash Credit Long Term 3.50 ACUITE BBB | Stable (Assigned) Proposed Long Term Bank Facility Long Term 0.50 ACUITE BBB | Stable (Assigned) 21 Sep 2022 Letter of Credit Short Term 5.00 ACUITE A2 (Assigned) Bank Guarantee (BLR) Short Term 0.50 ACUITE A2 (Assigned) Cash Credit Long Term 29.50 ACUITE BBB | Stable (Assigned) Term Loan Long Term 6.13 ACUITE BBB | Stable (Assigned) Term Loan Long Term 4.32 ACUITE BBB | Stable (Assigned) Proposed Long Term Bank Facility Long Term 1.05 ACUITE BBB | Stable (Assigned) Term Loan Long Term 3.50 ACUITE BBB | Stable (Assigned)

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Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating State Bank of India Not avl. / Not appl. Cash Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 27.50 Simple ACUITE BBB+ | Stable | Reaffirmed Canara Bank Not avl. / Not appl. Cash Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 5.81 Simple ACUITE BBB+ | Stable | Reaffirmed Canara Bank Not avl. / Not appl. Cash Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 9.69 Simple ACUITE BBB+ | Stable | Assigned State Bank of India Not avl. / Not appl. Covid Emergency Line. Not avl. / Not appl. Not avl. / Not appl. 31 Dec 2025 1.78 Simple ACUITE BBB+ | Stable | Assigned Not Applicable Not avl. / Not appl. Proposed Long Term Bank Facility Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 18.42 Simple ACUITE BBB+ | Stable | Reaffirmed Not Applicable Not avl. / Not appl. Proposed Short Term Bank Facility Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 5.50 Simple ACUITE A2+ | Reaffirmed State Bank of India Not avl. / Not appl. Term Loan Not avl. / Not appl. Not avl. / Not appl. 31 Dec 2027 2.97 Simple ACUITE BBB+ | Stable | Reaffirmed Canara Bank Not avl. / Not appl. Term Loan Not avl. / Not appl. Not avl. / Not appl. 30 Nov 2027 15.99 Simple ACUITE BBB+ | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Term Loan Not avl. / Not appl. Not avl. / Not appl. 31 May 2025 1.81 Simple ACUITE BBB+ | Stable | Reaffirmed Canara Bank Not avl. / Not appl. Term Loan Not avl. / Not appl. Not avl. / Not appl. 30 Sep 2029 9.50 Simple ACUITE BBB+ | Stable | Assigned

*Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support)

­ Sr. No Name of the companies 1 Dhakshan Textiles Private Limited 2 KKP Spinning Mills Private Limited  3 KKP Weaving and Processing Mills Private Limited 4 KKP Hi-Tech Weaving India Private Limited 5 KKP Garments Private Limited  6 KKP Fine Linen Private Limited

Contacts

Mohit Jain Senior Vice President - Rating Operations Moparthi Anuradha Devi Senior Analyst - Rating Operations	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating. Note: None of the Directors on the Board of Acuité Ratings & Research Limited are members of any rating committee and therefore do not participate in discussions regarding the rating of any entity.