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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 17.22 | ACUITE BB | Stable | Downgraded | Negative to Stable | - |
| Bank Loan Ratings | 3.78 | - | ACUITE A4+ | Downgraded |
| Total Outstanding | 21.00 | - | - |
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Rating Rationale |
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Acuité has downgraded its long-term rating to 'ACUITE BB' (read as ACUITE Double B) from ‘ACUITE BBB-’ (read as ACUITE triple B minus) and it's short-term rating to 'ACUITE A4+' (read as ACUITE A four plus) from ‘ACUITE A3’ (read as ACUITE A three) on the Rs.21.00 Cr. bank facilities of ELKAYPEE SPINNERS PRIVATE LIMITED (ESPL). The outlook is revised to 'Stable' from 'Negative'.
Rationale for downgrade and revision in outlook: The rating downgrade and revision in outlook is on account of a higher-than-expected decline in revenues, profitability margins and deterioration in the liquidity position of the Group. The operating income of the group has shown degrowth of ~ (28.44) percent in FY2023.. It stood at Rs. 135.79 Cr in FY2023 against Rs. 189.75 Cr in FY2022 and is estimated to record revenue of Rs.123.70 Cr in FY2024. The profitability margin (EBITDA) also declined to 5.26 percent in FY2023 from 8.56 percent in FY2022, and is estimated to decline further in FY2024 and remain in range of 3-3.5 percent. The estimated moderation operating performance in FY24 is primarily on account of subdued demand across cotton industry and raw material price inflation. The liquidity profile of the group stood stretched, marked by inadequate net cash accruals generation to its maturing debt obligations. The Group generated cash accruals of Rs.4.59 Cr in FY2023, against its maturing debt obligations of Rs. 6.90 Cr during the same period. The rating also factors in the deterioration in the financial risk profile marked by a below average capital structure,high gearing and weak debt protection metrics. The gearing of the group stood at 2.65 times as on March 31, 2023, against 0.84 times as on March 31, 2022. The ratings, however,continues to be supported by the established track record of operations along with experienced promoters. Going ahead, the ability of the group to improve its scale of operations and profitability margins while improving its capital structure will remain a key rating monitorable. |
| About Company |
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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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| About the Group |
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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 Chennai based and has manufacturing facility located in Tiruppur district with installed capacity of 34000 spindles, manufacturing cotton yarn and polyester yarn blend. The client profile of the company is located in Mumbai, Chennai and Kolkata.
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| Unsupported Rating |
| Not applicable |
| 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 |
| Established track record of operations with experienced promoters
CIPL was incorporated in 1991 by Mr. P. Govindsamy. Subsequently, his son, Mr. K. G Senthil Kumar and Mr. P. G. Ramesh and Mr. P.G. Balaji joined the company. The promoters have experience of more than a decade in business operations of the company and hence have also been able to establish long relationships with customers and suppliers. Acuité believes that the group will continue to benefit from extensive experience of its management and established track record of operations |
| Weaknesses |
The operating income of the group has shown degrowth by nearly 28.44 percent in FY2023, i.e. It stood at Rs. 135.79 Cr in FY2023 against Rs. 189.75 Cr in FY2022. The main reasons for the decrease in revenue are fluctuating cotton prices, subdued demand levels, and resultant underutilization of capacity. The group’s operating margin declined and stood at ~5.26 percent in FY2023 from ~8.56 percent in FY2022, and it is expected to decline further. However, it will remain within a range of 3–3.5 percent. Further, the group is estimated to achieve a revenue of Rs.123.70 Cr in FY2024. The moderation in FY2024 is primarily on account of subdued demand across industry and raw material price inflation. Acuité believes that the ability of the group to improve its scale of operations and profitability margins while improving its capital structure will remain a key rating monitorable.
The financial risk profile of the group has remained below average, with a below- average capital structure, high gearing levels, and weak debt protection metrics. The net worth of the group stood at Rs.23.85 Cr and Rs.47.87 Cr as of March 31, 2023, and 2022, respectively. The reason for the decline in net worth is on account of a reduction in quasi-equity in FY2023. The reason for the withdrawal of Quasi equity is on account of inadequate net cash accruals to repay the debt. The gearing of the group stood at 2.65 times as on March 31, 2023, against 0.84 times as on March 31, 2022. The deterioration in the gearing ratio is on account of an increase in the debt portion and a decrease in the net worth position. The debt protection metrics - interest coverage ratio and debt service coverage ratio stood at 2.09 times and 0.80 times as on March 31, 2023, respectively, as against 2.91 times and 2.12 times as on March 31, 2022 respectively. The debt to EBITDA of the company stood at 6.18 times as on March 31, 2023 as against 2.40 times as on March 31, 2022. Acuité believes that the financial risk profile of the group will remain below average over the medium term.
The group’s working capital cycle is intensive, as reflected by its high gross current asset (GCA) days at 136 days as on March 31, 2023, as against 114 days as on March 31, 2022. The deterioration in GCA days is on account of the increase in inventory days and other current assets. Inventory days stood at 67 days as on March 31, 2023, as against 57 days as on March 31, 2022. The debtor day stood at 33 days as on March 31, 2023, as against 46 days as on March 31, 2022. Subsequently, the payable period stood at 44 days as on March 31, 2023, as against 13 days as on March 31, 2022, respectively. Further, the average bank limit utilization over the 12 months ended March 31, 2024, remained at ~94 percent for fund-based limits. Acuité believes that the working capital operations of the group will remain at similar levels over the medium term.
The 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 the 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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| Liquidity Position: Stretched |
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The liquidity profile of the group stood stretched, marked by inadequate net cash accruals to its maturing debt obligations. The group generated cash accruals of Rs.4.59 Cr in FY2023, while its maturing debt obligations were Rs. 6.90 Cr during the same period. Going forward, the group is expected to generate net cash accruals in the range of Rs. 0.52-4.27 Cr in FY 2024-25 against repayment obligations of Rs.4.56-5.77 Cr. The group has financial support from promoters to meet the shortfall in debt obligations. The unencumbered cash and bank balances stood at 8.23 Cr as on March 31, 2023. The current ratio stood at 1.11 times as on March 31, 2023 and the limits remains utilized at 94 percent for fund based over the 12 months ended March 31, 2024. Acuité believes that the liquidity of the group is likely to remain stretched over the near to medium term.
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| Outlook: Stable |
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Acuité believes that the outlook of the ‘Group’ will remain 'Stable' over the medium term on account of its experienced promoter and long track record of operations. The outlook may be revised to 'Positive' in case of significant improvement in scale of operations while improving the profitability and financial risk profile Conversely, the outlook may be revised to 'Negative' in case of any further stretch in its working capital management or reduction in operating income and profitability leading to strain on liquidity position and further deterioration in the financial risk profile of the group.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 135.79 | 189.75 |
| PAT | Rs. Cr. | 0.52 | 1.55 |
| PAT Margin | (%) | 0.39 | 0.82 |
| Total Debt/Tangible Net Worth | Times | 2.65 | 0.84 |
| PBDIT/Interest | Times | 2.09 | 2.91 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| 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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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) |
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1. Chenduran Cotspin India Private Limited (CIPL) 2. ELKAYPEE SPINNERS PRIVATE LIMITED (ESPL) |
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Contacts |
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About Acuité Ratings & Research |
