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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 18.00 | ACUITE BB+ | Stable | Assigned | - |
| Bank Loan Ratings | 68.69 | ACUITE BB+ | Stable | Downgraded | - |
| Bank Loan Ratings | 2.00 | - | ACUITE A4+ | Downgraded |
| Total Outstanding Quantum (Rs. Cr) | 88.69 | - | - |
| Rating Rationale |
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Acuité has downgraded 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 the Rs. 70.69 Cr bank facilities of Devika Fibres Private Limited (DFPL). Further, Acuité has also assigned its long term rating of ‘ACUITE BB+’ (read as ACUITE Double B plus) on the Rs. 18.00 Cr bank facilities of DFPL. The outlook is ‘Stable’.
Rationale for Downgrade The downgrade in the rating reflects deterioration in the operating performance of DFPL marked by declining profitability margins and stretched liquidity position. The operating margins of the company deteriorated from 6.35 percent in FY22 to 2.41 percent in FY23. Such deterioration is seen on account of an increase in cost of raw materials. Also, the PAT margins deteriorated from 2.73 percent in FY22 to (1.20) percent in FY23. The deterioration in PAT margins is on account of high depreciation and interest costs. Further, the rating also factors in the stretched liquidity position of the company, marked by low net cash accruals against repayment obligations and high reliance on bank debt to fund its working capital requirements. The average utilization of fund-based bank limits stood at ~90-95% percent for the working capital facilities for the past 08 months ended August 2023. Also, the rating takes into consideration intensive working capital operations, intense competition and challenging business environment. Going forward, the company's ability to improve its liquidity position and improve its profitability margins over the medium term while maintaining its capital structure will remain a key rating monitorable. |
| About the Company |
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Devika Fibres Private Limited (DFPL) established in 1993, is engaged in texturizing of Polyester Filament Yarn (PFY), catering mainly to the local weaving units in domestic market with presence in export market. The manufacturing facility is in at Kudsad village in Gujarat while the marketing activities are carried out from Surat. Company is promoted and managed by Mr. Gopal Sultania and Mr. Ashok Sultania.
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| Analytical Approach |
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Acuité has considered the standalone approach of Devika Fibres Private Limited (DFPL) for arriving at the rating.
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Key Rating Drivers
| Strengths |
| >Experienced management and established track record of operations
The company has established presence of more than two decades in Polyester Yarn Industry in India and has established market for their products. DFPL is promoted and managed by Mr. Gopal Sultania and Mr. Ashok Sultania. The promoters possess more than two decades of experience in the said line of business. The company is well supported by second line of management and their rich experience has helped them to establish longstanding relationship with its customers and suppliers. The experience of promoters is reflected through stable scale of operations over three years, with revenue of Rs.298.19 Cr in FY2023 as against Rs.287.07 Cr in FY2022. However, the company has achieved Rs.112 Cr till August 2023 and is targeting a revenue of around Rs.300 Cr for FY2024. Further, the exports constitues of 15% of revenue earned in FY2023 with majorly being in the key markets of South Korea, Germany, Bangladesh, Morocco, Nepal and among others. Acuité believes that the company will continue to benefit from its established presence in the industry over the medium term. >Moderate Financial Risk Profile The financial risk profile of the company stood moderate marked by moderate net worth, gearing and debt protection metrics. The tangible net worth stood at Rs.62.45 crore as on 31 March, 2023 as against Rs.66.03 crore as on 31 March, 2022. The total debt of the company stood at Rs.90.77 crore includes Rs.46.83 crore of long-term debt, Rs.30.87 crore of short-term debt, Rs.8.88 crore of unsecured loans and Rs.4.20 crore of CPLTD as on 31 March 2023. The gearing (debt-equity) stood at 1.45 times as on 31 March, 2023 as compared to 0.93 times as on 31 March, 2022. Interest Coverage Ratio stood at 1.41 times for FY2023 as against 3.94 times for FY2022. Debt Service Coverage Ratio (DSCR) stood at 0.97 times in FY2023 as against 2.74 times in FY2022. Total outside Liabilities/Total Net Worth (TOL/TNW) stood at 1.72 times as on 31 March, 2023 as against 1.14 times as on 31 March, 2022. Net Cash Accruals to Total Debt (NCA/TD) stood at 0.03 times for FY2023 as against 0.19 times for FY2022. Acuité believes that the financial risk profile of the company is expected to remain moderate with regular accretions to reserves in the medium term. |
| Weaknesses |
| >Intensive Working Capital Management
The working capital management of the company is intensive marked by GCA days of 127 days in FY2023 as against 103 days in FY2022. The debtor days stood at 48 days in FY2023 as against 44 days in FY2022 which is in line with the average credit period allowed to customers of 30 – 60 days. However, the creditor days stood at 19 days in FY2023 as against 13 days in FY2022 which is in line with credit period of 15-30 days. The inventory days stood at 64 days in FY2023 as against 42 days in FY2022. Generally, the inventory holding period that the company follows is 60-90 days. As a result, the average working capital utilization for fund-based limits stood at ~90-95 percent and for non-fund-based limits stood at ~65-70 percent for the last 08 months ending August 2023. Acuité believes that the company's ability to efficiently manage its working capital requirements will remain the key rating sensitivity. >Intense competition and Challenging business environment DFPL operates in textile industry which is marked my presence of large number of players which limits bargaining power with customers. The sector has limited entry barriers. The prices of polyester and cotton yarn are highly volatile in nature and dependent on crude oil prices. Any adverse change in prices will have direct impact on the margins of the company. However, the volatility risk is mitigated to certain extent as the company is able to pass on the price impact on its customers. |
| Rating Sensitivities |
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| All Covenants |
| Not Available |
| Liquidity Position: Stretched |
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The company’s liquidity position is stretched as the average bank limit utilization for the past 08 months ending August 2023 is 90-95% percent. Further, the company has insufficient net cash accruals of Rs.2.63 Cr in FY2023 as against its maturing debt obligations of Rs.4.20 Cr in the same year. In addition, it is expected to generate a sufficient cash accrual in the range of Rs.6.56-Rs.8.00 crores against the maturing repayment obligations of around Rs.4.79 crore over the medium term. The working capital management of the company is intensive marked by GCA days of 127 days in FY2023 as against 103 days in FY2022. The current ratio stands at 2.33 times as on March 31, 2023 as against 3.24 times as on March 31, 2022.
Acuité believes that the liquidity of the company is likely to remain adequate over the medium term on account of adequate cash accruals to its maturing debt obligation. |
| Outlook: Stable |
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Acuité believes that DFPL will continue to maintain 'Stable' outlook over the medium term from its promoter's industry experience. The outlook may be revised to 'Positive' if the company reports increase in operating revenues with improvement in its margins and cash accruals. Conversely, the outlook may be revised to 'Negative' if company generates lower-than- anticipated cash accruals, most likely as a result of sharp decline in operating margins, or further stretch in its working capital cycle, or larger than expected debt funded capex impacting its financial risk profile, particularly its liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 298.19 | 287.07 |
| PAT | Rs. Cr. | (3.59) | 7.84 |
| PAT Margin | (%) | (1.20) | 2.73 |
| Total Debt/Tangible Net Worth | Times | 1.45 | 0.93 |
| PBDIT/Interest | Times | 1.41 | 3.94 |
| Status of non-cooperation with previous CRA (if applicable) |
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Crisil vide its press release dated 19th Nov 2022, had rated the company to CRISIL B+/stable/A4; Issuer Not Cooperating. India Ratings vide its press release dated 24th July 2023, had rated the company to IND-RA BB/A4+; Issuer Not Cooperating. |
| 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 • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.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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