| Experienced management and established presence in the industry
The group is promoted by Mr. Mohmed Umar General and his three sons, Mr. Mohmed Amin General, Mr. Mohmed Juned General and Mr. Mohmed Zaid General. The group has a presence since 1995 and has more than two decades of established track record in the textile industry. The group has longstanding relationships with its customers and suppliers for over two decades. The established track record of operations and experience of the management has helped the group to develop healthy relationships with its customers. On the back of the experienced management and established presence, the group has seen a 50% Y-o-Y growth in FY2022. The revenue stood at Rs. 188.80 crore in FY2022 as against Rs.125.84 crore in FY2021. Also, the group has already achieved a turnover of Rs ~ 146 crore till December 2022.
Acuité believes that the group will continue to benefit from its established presence in the industry over the medium term.
Diversified customer base, Proximity to raw material and geographically well diversified
The general group caters to around 200 clients in domestic market with top ten customers contributing to less than ~50.00 percent of the total revenue for last three years ending 2022. This also mitigates customer concentration risk to a certain extent. The manufacturing facilities of General group are located at Surat, a textile hub of India which ensures regular supply of raw materials and easy reach to customers. General Group has PAN India presence and caters to major regions such as Maharashtra, Gujarat, Delhi and Bengaluru with longstanding relationships with customers and suppliers. The group enjoys easy connectivity to road & rail, leading to better lead -time and facilitates delivery of finished products in a timely manner. Presence in the textile manufacturing region results in benefits derived from easy availability of raw material at a better price, weaving of grey fabrics at cheaper cost and lower logistic expenditure.
Moderate Financial risk profile
The group has a moderate financial risk profile with moderate net worth, stable gearing and moderate debt protection metrics. The tangible networth of the company stood at Rs. 87.53 crore as on March 31, 2022 as against Rs. 84.58 crore in March 31, 2021. The group currently follows a moderate leverage policy as the gearing of the group improved at 0.83 times as on March 31, 2022, as against to 0.93 times as on March 31, 2021. The TOL/TNW of the group stood at 0.98 times as of March 2022 as against 1.02 times as of March 2021. Also, the debt protection metrics of the company remained moderate with Debt Service Coverage ratio of the group stood at 1.09 times in FY2022 as against 1.26 times in FY2021. Interest coverage ratio of the company stood at 4.66 times in FY2022 as against 5.04 times in FY2021.
Going ahead, Acuite expects deterioration in the financial risk profile of the general group on account of the on-going debt funded capex. The group is currently operating Water Jet Looms for manufacturing fabric and at present, the group has 469 looms with an average plant utilization of 83% in last 4 Years. The group is further setting up an expansion project adjacent to the existing plant for manufacturing of Fabric from 180 Water jet looms with an installed capacity of 194.40 lac meters / year and from 120 Air jet looms 140.40 lac meters/year. The total cost of project is expected to be Rs. 190.86 crore and is expected to be funded through bank loans of Rs. 134 crore, share capital of Rs. 15 crore, unsecured loans from promoters/directors of Rs. 20.55 crore and internal accruals of Rs. 20-22 crore. The project is expected to be completed by November 2023 and the debt tie up for the project is complete.
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| Working capital intensive nature of operations
General Group has an intensive working capital cycle marked by GCA days of 155 days in FY2022 as against 254 days in FY2021. The improvement in GCA days is driven by the improvement in Inventory days to 85 days in FY2022 from 110 days in FY2021. The inventory days were higher in FY2021 as the Group was running its operation at 90% despite the weak demand which led to piling up of the inventory. The group’s debtor collection period stood also saw an improvement to 69 days in FY2022 from 127 days in FY2021. Creditor days of the group stood at 25 days in FY2022 as against 27 days in FY2021. The current ratio stood at 1.68 times as on March 31, 2022. However, despite the slight improvement in the working capital cycle, the average utilisation of the working capital limits is higher and stood around 95-97% for the year ended on December 2022.
Acuite expects that with an increase in the company’s capacity the working capital requirements are also expected to increase in the near to medium term,
Highly competitive textile industry, economic slowdown and volatility of raw materials 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 group. The Indian textile industry has also seen a muted growth in the past few years and has been impacted by the pandemic having adverse impact on operating performance of most of the textile players including General group. Also, margins remain fluctuating due to volatility in pricing of raw materials, i.e. polyester, which is dependent on crude oil prices which is also observed in the profitability of the group as the operating margin has declined to 13.19 percent in FY2022 from 20.08 percent in FY2021. The profit after tax margin also subsequently declined to 3.67 percent in FY2022 as against 4.34 percent in FY2021.
Acuité believes that the ability to manage steady revenue growth while maintaining profitability and efficiently managing working capital cycle will be the key rating sensitivity factors.
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