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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 33.42 | ACUITE BBB- | Negative | Reaffirmed | Stable to Negative | - |
| Bank Loan Ratings | 8.58 | - | ACUITE A3 | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 42.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) and it's short term rating of ‘ACUITE A3’ (read as ACUITE A three) on the Rs.42.00 Cr bank facilities of CHENDURAN COTSPIN INDIA PRIVATE LIMITED (CCIPL). The outlook is revised to 'Negative' from 'Stable'.
Rarionale for the rating The revision in outlook is on account of subdued operating performance of Chenduran group. The operating income of the Group improved to Rs. 189.75 Cr in FY2022 as against Rs. 118.63 Cr in FY2021. In 9MFY2023, the revenue of the Group stood at Rs. 109.83 Cr and is expected to generate Rs.150-160 Cr by year end. The operating profitability which declined from 11.86 percent in FY2021 to 8.56 percent in FY2022, is expected to decline further, however, shall remain range bound within 7-9 percent. The moderation in FY23 is primarily on account of subdued demand across industry and raw material price inflation. Further, the liquidity position of the Group is likely to remain stretched in the near term with tightly matching net cash accruals against repayment obligations. The ratings continue to be supported by the experienced management and moderate financial risk profile of the Group. Going forward, ability of the Group to improve its scale of operations and profitability margins while maintaining the capital structure will remain a key rating monitorable. |
| About Company |
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Chenduran Cotspin India Private Limited (CIPL) was incorporated as a private limited company in 1991 by Mr. P. Govindasamy who is having an experience of over three decades in the textile industry. The company is managed by his sons K. G. Senthil Kumar P. G. Ramesh and Mr. P. G. Balaji joined the business. The company is Tiruppur based and has manufacturing facility located in Tiruppur district with installed capacity of 38000 spindles, manufacturing cotton yarn and polyester yarn blend. The client profile of the company is located in Tiruppur ,Mumbai, Chennai and Kolkata.
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| About the Group |
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Elkaypee Spinners Private Limited (ESPL) was incorporated as a private limited company in 1993. The manufacturing facility is located in Dindigul (Tamil Nadu) with installed capacity of 38000 spindles, manufacturing Polyester yarn blend. The same is supplied to textiles located in Chennai and Kolkata.
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Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuite has considered the consolidated business and financial risk profile of Chenduran Cotspin India Private Limited and Elkaypee Spinners Private Limited (referred as the Group) as both entities are engaged in same line of business with common promoters and management.
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Key Rating Drivers
| Strengths |
CIPL was incorporated in 1991 by Mr. P. Govindsamy. Subsequently, his sons Mr. K.G Senthil Kumar and Mr. P. G. Ramesh and Mr. P.G. Balaji joined the business. The promoters have experience of more than a decade in business operations of the company and hence has also been able to establish long standing relationship with customers and supplier.
The financial risk profile of the group has remained moderate marked by low gearing and moderate debt protection metrics. The net worth of the group stood at Rs.47.87 Cr and Rs.45.17 Cr as on March 31, 2022 and 2021 respectively. The gearing of the group stood at 0.84 times as on March 31, 2022 against 1.08 times as on March 31, 2021. The interest coverage ratio and debt service coverage ratio stood at 2.91 times and 2.12 times as on March 31, 2022 respectively as against 2.42 times and 2.48 times as on March 31, 2021 respectively. TOL/TNW stood at 1.20 times in FY2022 against 1.42 times in FY2021. The debt to EBITDA of the company stood at 2.40 times as on March 31, 2022 as against 3.74 times as on March 31, 2021. Acuité expects the financial risk profile to remain moderate over the medium to long term period due to absence of any major debt funded capex plan.
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| Weaknesses |
Group’s working capital cycle is moderate as reflected by its gross current asset (GCA) days at 114 days as on March 31, 2022 as against 197 days as on March 31, 2021. The improvement in GCA days are driven by mainly inventory days. Inventory days stood at 57 days as on March 31, 2022 as against 84 days as on March 31, 2021. Subsequently, the payable period stood at 13 days as on March 31, 2022 as against 7 days as on March 31, 2021 respectively. The debtor day stood at 46 days as on March 31, 2022 as against 87 days as on March 31, 2021. Further, the average bank limit utilization in the last eight months ended November, 22 remained at ~90 percent for fund based limits.
Group's profitability is susceptible to changes in the prices of the raw material, i.e. viscose fibre. The prices of viscose yarn are influenced by movement in prices of its substitutes, i.e. cotton and polyester staple fibres. The prices of cotton are highly dependent on agroclimatic conditions. Besides, cotton prices are fixed by the government through Minimum Support Price (MSP). However, the purchase price depends on the prevailing demand-supply situation, which limits bargaining power with suppliers as well. The prices of the main raw material. i.e. viscose fibre, are relatively stable as compared to cotton prices. Acuité believes that group should be able to maintain its operating profitability around existing levels, notwithstanding the volatility in prices of its key inputs on the back of its established position in the domestic market. Further, the company is exposed to intense competition in the highly fragmented textile industry. The company also faces stiff competition from organized and unorganized players in the domestic market.
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| Rating Sensitivities |
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| Material Covenants |
| None |
| Liquidity Position: Stretched |
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The liquidity profile of the group is stretched marked by modest net cash accruals against repayment obligations. THe , group generated net cash accruals of Rs 6.84 Cr in FY2022 against its long term debt obligations of Rs. 0.16 Cr. The group is expected to generate net cash accrual of around Rs.6 to 8 Cr in FY23-25 against debt repayment of Rs.4-6 Cr during the period. Unencumbered cash and bank balances stood at 0.32 Cr as on March 31, 2022. The current ratio remained above unity at 1.45 times as on March 31, 2022 . The fund based bank limits utilization of group is 90 percent for fund based limits respectively for the past eight months ending November 2022.
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| Outlook: Negative |
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Acuité believes that the outlook of the Group is ‘Negative’ on account of subdue operating performance in the current year which is expected to lead to a stretched liquidity position over the near term.. Outlook may be revised to 'Stable ' on significant and sustainable improvement in scale of operations ,profitability margins and overall liquidity position of the Group.. The rating may be 'downgraded' if there is higher-thanexpected decline in revenues ,profitability margins and deteriorationg in the liqudity position of the Group.
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| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 189.75 | 118.63 |
| PAT | Rs. Cr. | 1.55 | 2.43 |
| PAT Margin | (%) | 0.82 | 2.05 |
| Total Debt/Tangible Net Worth | Times | 0.84 | 1.08 |
| PBDIT/Interest | Times | 2.91 | 2.42 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any Other Information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.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 |
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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
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