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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 5.00 | ACUITE BBB- | Stable | Assigned | - |
| Bank Loan Ratings | 38.00 | ACUITE BBB- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 6.00 | - | ACUITE A3 | Assigned |
| Total Outstanding | 49.00 | - | - |
| Total Withdrawn | 0.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) on the Rs.38.00 crore bank facilities of Chenniappa Yarn Spinners Private Limited (CYSPL). The outlook is ‘Stable'.
Acuité has assigned its long-term rating to ‘ACUITE BBB-’ (read as ACUITE triple B minus) and short term rating to ‘ACUITE A3’ (read as ACUITE A three) on the Rs.11.00 crore bank facilities of Chenniappa Yarn Spinners Private Limited (CYSPL). The outlook is ‘Stable'. Rationale for reaffirmation & assigned: The rating reaffirmation takes into account stable operating performance of CYSPL marked by stable operating income and operating margins and a moderate financial profile. The financial risk profile of CYCPL continues to be moderate with moderate debt protection metrics and moderate gearing. The overall gearing of the company stood at 1.65 times as on March 31, 2024, as against 1.75 times as on March 31, 2023. The rating takes into consideration the established market position of the company in the cotton yarn spinning business. The ratings also draw comfort from the long, extensive experience of the promoters in the aforementioned industry. However, the rating is constrained by working capital intensive nature of operations and higher reliance on working capital limit. |
| About the Company |
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Tamil Nadu-based Chenniappa Yarn Spinners Private Limited was incorporated in the year 2005 by Mr. C. Subramaniam, managing director. The company is engaged in spinning activity for the manufacturing of cotton yarn. The company at present has 22,800 spindles, 736 rotors, and a windmill with a capacity of 2.20 megawatts (MW) and solar with a 3.90 MW capacity. The company manufactures grey yarn, mélange yarn, and open-end yarn. The count ranges between 20-40s.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of CYSPL to arrive at the rating |
| Key Rating Drivers |
| Strengths |
CYSPL has been engaged in cotton spinning for more than a decade. The company is promoted by Mr. C. Subramaniam along with his family members. Mr. C. Subramaniam is the managing director of the company and possesses more than 3 decades of experience in the textile industry. In the year 1992, Mr. C. Subramaniam started a firm called Chenniappa Textiles, engaged in manufacturing of fabrics. Later, in 2005, he started Chenniappa Yarn Spinners Private Limited as a part of backward integration. This helped the promoter in understanding the market dynamics. The extensive industry experience of the promoters has enabled them to establish a healthy relationship with its various customers and suppliers. The company has a total of 22,800 spindles of capacity, 736 rotors, and 2.20 megawatts (MW) windmill capacity, with solar with 3.90 MW capacity. Acuité believes that the company will sustain its existing business profile over the medium term on the back of an established track record of operations with an experienced management.
The company’s financial risk profile is moderate, marked by a moderate capital structure, gearing, and healthy debt protection metrics. The net worth of the company stood at Rs.33.25 Cr. and Rs.31.64 Cr. as on March 31, 2024, and 2023, respectively. The improvement in net worth is due to the accretion of reserves. Gearing of the company stood at 1.65 times as on March 31, 2024, against 1.75 times as on March 31, 2023. Debt protection metrics—interest coverage ratio and debt service coverage ratio—stood moderate at 2.01 times and 1.25 times as on March 31, 2024, respectively, as against 2.57 times and 1.08 times as on March 31, 2023, respectively. TOL/TNW (total outside liabilities/total net worth) stood at 1.96 times and 2.22 times as on March 31, 2024 and 2023, respectively. The debt to EBITDA of the company stood high at 5.56 times as on March 31, 2024, as against 5.59 times as on March 31, 2023. Acuité believes that the financial risk profile of the company is expected to remain moderate owing to moderate accretion to reserves and no significant debt-funded capex in the medium term.
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| Weaknesses |
CYSPL’s working capital operations are intensive, marked by high gross current asset (GCA) at 233 days in FY2024 as against 233 days in FY2023. The GCA days are impacted mainly on account of inventory days and debtor days where extended credit periods are offered to customers. Inventory days stood at 126 days in FY2024 as against 103 days in FY2023. Debtor days stood at 93 days in FY2024 as against 84 days in FY2023. Around 90 percent of debtors were realized within a 6-month period. Subsequently, the payable period stood at 32 days in FY2024 as against 49 days in FY2023, respectively.
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 are highly dependent on agro-climatic conditions. Despite the prevalence of Minimum Support Price (MSP), the purchase price depends on the prevailing demand-supply situation, which limits bargaining power with the suppliers as well. CYSPL is engaged in the manufacture of fine counts, which provides some cushion from raw material price fluctuations. Acuité believes that CYSPL 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 market.
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| Rating Sensitivities |
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| Liquidity Position: Adequate |
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CYSPL liquidity is adequate, marked by adequate net cash accruals to its maturing debt obligation. The company has generated cash accruals in the range of Rs. 4.86 Cr. in FY2024, while its maturing debt obligations were Rs. 2.92 Cr. during the same period. Going forward, the company is expected to generate net cash accruals of Rs. 5.83-7.37 Cr. in FY 2025-26 against Rs. 3.12-3.82 Cr. debt obligations. The current ratio stood at 1.29 times as on March 31, 2024. Further, the average bank limit utilization for the fund-based limits stood at 95 percent, and for non-fund-based limits stood at 78 percent for the last 12 months ending in October 2024. The company maintains unencumbered cash and bank balances of Rs. 0.28 Cr. as on March 31, 2024. Acuité believes that the liquidity of the company is likely to improve over the medium term.
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| Outlook: Stable |
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 93.16 | 92.48 |
| PAT | Rs. Cr. | 1.62 | 2.03 |
| PAT Margin | (%) | 1.74 | 2.20 |
| Total Debt/Tangible Net Worth | Times | 1.65 | 1.75 |
| PBDIT/Interest | Times | 2.01 | 2.57 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Appplicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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