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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 14.31 | ACUITE BB+ | Stable | Assigned | - |
| Bank Loan Ratings | 58.00 | ACUITE BB+ | Stable | Downgraded | - |
| Bank Loan Ratings | 2.00 | - | ACUITE A4+ | Downgraded |
| Total Outstanding | 74.31 | - | - |
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Rating Rationale |
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Acuite has downgrade its long term rating to ‘ACUITE BB+‘ (read as ACUITE double B plus) from ‘ACUITE BBB-‘ (read as ACUITE triple B minus) and short term rating to 'ACUITE A4+' (read as ACUITE A four plus) from 'ACUITE A3' (read as ACUITE A three) on Rs. 60.00 crore bank facilities of Cheran Spinner Private Limited (CSPL). The outlook is 'Stable'
Acuite has assigned its long term rating of ‘ACUITE BB+‘ (read as ACUITE double B plus) on Rs.14.31 crore bank facilities of Cheran Spinner Private Limited (CSPL). The outlook is 'Stable'. Rationale for downgrade
The rating downgrade takes into account of decline in operating margins in FY2024(prov) & FY2023, below average financial risk profile and stretched liquidity. The operating margins of the company declined and stood at 6.65 percent in FY2024(prov) as against 6.22 percent in FY2023 and 9.15 percent in FY2022 due to competitive prices of viscount yarn. Further, the DCSR of the company stood at 0.81 times as on FY2024(prov). The rating is supported by extensive experience of management and stable operating revenue. Going forward, the company’s ability to generate adequate NCA against CPLTD by improving its operating margins and timely completion of CAPEX is key monitorable. |
| About the Company |
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Incorporated in 1991, Cheran Spinner Private Limited (CSPL) is engaged in manufacturing of various types of yarn and specialises in manufacturing of viscose yarn. The manufacturing facility of the company is set up in Erode, Tamil Nadu with a capacity of 40,000 spindles. The company is promoted by A. S. Palanisamy, S. Muthusamy, P. Thangavel and M. Ramakrishna Prasad who have over three decades of experience in the industry.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuite has considered the standalone business and financial risk profile of CSPL to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Extensive experience of management and established track record of operations
CSPL is based out of Tamilnadu and was incorporated in 1991 reflecting its long track record of operations in the textile industry. The promoters of the company, A. S. Palanisamy, S. Muthusamy, P. Thangavel and M. Ramakrishna Prasad have been working in the textile industry for over three decades. The operations of the company are managed by its promoters who are ably supported by a qualified and well experienced senior management team. The experienced of promoters and long track record of operations in the textile industry has helped the company to maintain healthy and long-term relationships with both its customers and suppliers. Acuité believes CSPL will continue to benefit over the medium term from its longstanding association with its key customers as well as suppliers. Stable scale of operations albeit moderated profitability margins
CSPL is engaged in manufacturing various types of blended yarn and is primarily focused on the manufacturing of viscose yarn. The operating income of the company remained stable over the last three years through FY2024(prov). The operating income of the company stood at Rs.182.54 Cr in FY2024(prov) as against Rs.168.95 Cr. in FY2023 and Rs.171.59 Cr. in FY2022. The operating margins of the company have been moderated in FY2024 (prov) and FY2023. The operating margins of the company stood at 6.65 percent in FY2024(prov) as against 6.22 percent in FY2023 and 9.15 percent in FY2022. The decline in operating margins is on account of the dumping of viscose yarn at competitive prices by Chinese and Indonesian viscose yarn manufacturers; thus the bargaining power of domestic yarn manufacturers has decreased. The prices of the products sold by the company are market determined. Further, on account of the decline in operating margins, the PAT margins of the company are rangebound between 0.50 - 0.60 percent. Acuite believes that the company’s ability to sustain its scale of operations while improving profitability will remain a key rating sensitivity. |
| Weaknesses |
| Below - average financial risk profile
The financial risk profile of the company is below -average marked by moderate networth, gearing and below- average debt protection metrics. The tangible networth of the company stood at Rs.68.77 Cr. as on March 31, 2024 (prov) as against Rs. 67.69 Cr. as on March 31, 2023. The total debt consists of Rs.19.44 Cr. of long-term debt, Rs.37.47 Cr. of short-term debt and Rs.10.41 Cr. of current maturities of long-term debt. The short-term debt includes Rs.7.44 Cr. of raw material purchase loan from RBL Bank. Further, the company has two ongoing CAPEX which are expected to be completed in FY2025. The company is adding 2000 spindles and a solar project of 2MW. The total cost of the project is Rs.15.00 Cr which is partly funded by the addition of loans of Rs.12.40 Cr. The gearing level is moderate and stood at 0.98 times as on March 31, 2024 (prov) as against 0.75 times as on March 31, 2023. Further, TOL/TNW stood at 1.18 times as on March 31, 2024 (prov) as against 1.00 times as on March 31, 2023. However, the Debt/EBITDA ratio deteriorated and stood at 5.44 times as on March 31, 2024 (prov) as against 4.67 times as on March 31, 2023 and 3.24 times as on March 31, 2022. The debt protection metrics of the company are below -average with an interest coverage ratio of 2.23 times as on March 31, 2024 (prov) as against 2.33 times as on March 31, 2023. Furthermore, the DSCR stood below unity and stood at 0.81 times as on March 31, 2024 (prov) as against 0.81 times as on March 31, 2023. Acuite believes that the financial risk profile of the company will improve to moderate over the medium term. Further, with the expectation of improvement in the operating margins in FY2025 and FY2026, the company will be able to improve its debt protection metrics. Intensive nature of working capital operations
The working capital operations of the company are intensive marked by GCA days of 173 days in FY2024(prov) as against 180 days in FY2023. The GCA days are driven by the inventory holding period and the debtor collection period. On average, the company collectively maintains an inventory of raw materials and finished goods for 90 days. The inventory holding period of the company improved to 89 days in FY2024(prov) as against 101 days in FY2023. The company offers varied credit periods to debtors, which usually range between 50-70 days. The debtor collection period of the company stood at 64 days in FY2024(prov) as against 60 days in FY2023. Viscose fiber is the major raw material for the company and is purchased from Grasim on an advance payment basis. The creditor days stood at 11 days in FY2024(prov) as against 17 days in FY2023. CSPL’s reliance on bank limits stood high with 93.92 percent utilization of fund-based bank limits and 90.52 percent for the 12 months ended June 2024. Acuite believes that the working capital operations of the company may continue to remain intensive in the near to medium term considering the nature of the industry, and that will remain a key rating sensitivity. Highly competitive textile industry and susceptibility of profits due to the fluctuations in the raw material prices
The textile industry in India is highly fragmented and competitive marked by the presence of a large number of organised and unorganised players. The group is exposed to intense competition from both domestic players as well as the established players in the overseas market. The shifts in consumption patterns may have an impact on the operations of the company. Further, the viscose yarn prices in the industry have been compromised on account of heavy imports of viscose yarn at competitive prices having an adverse impact on the profitability of the viscose yarn manufacturers. Further, the company also faces a supplier concentration risk as ~80 percent of viscose fibre are procured from a single supplier. Any fluctuations in the prices of viscose yarn is likely to impact the profitability of the company. |
| Rating Sensitivities |
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| Liquidity Position: Stretched |
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The Liquidity of the company is stretched with inadequate net cash accruals as against its debt service obligations. The net cash accruals of the company stood at Rs.6.59 Cr. in FY2024(prov) as against debt service obligation of Rs.9.39 Cr. during the same period. The current ratio of the company stood at 1.77 times as on March 31, 2024 (prov) against 1.79 times as on March 31, 2023. The unencumbered cash balance of the company stood at Rs. 0.06 crore as on March 31, 2024 (prov). However, with the stabilisation of supply of viscount yarn in domestic market in Q1FY2025, ACUITE believes that the company will be able to generate sufficient net cash accruals over the medium term.
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| Outlook: Stable |
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Acuité believes that CSPL will maintain a ‘Stable’ outlook over the medium term owing to its experienced promoters and management and long track record of operations of the company. The outlook may be revised to 'Positive' if the company demonstrates substantial and sustained growth in its revenues from the current levels along with improving its margins. Conversely, the outlook may be revised to 'Negative' in case further deterioration in its working capital management or higher than expected debt-funded capex leading to deterioration in its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Provisional) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 182.54 | 168.95 |
| PAT | Rs. Cr. | 1.08 | 0.90 |
| PAT Margin | (%) | 0.59 | 0.53 |
| Total Debt/Tangible Net Worth | Times | 0.98 | 0.75 |
| PBDIT/Interest | Times | 2.23 | 2.33 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| 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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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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