| Experienced Promoters
GRG Global Textiles Limited (GGTL) is a part of the GRG group. GRG Group is promoted by Mr. Shashikant Goenka and Mrs. Samta Goenka. The promoters have more than two decades of experience in the textiles industry. Acuité believes that GGTL draws strength from the experience and competence of the experienced management.
Strong Counter Party:
WLL, a flagship textile company of Welspun Group, is presently concentrating in manufacturing of cotton based products viz. Terry Towels, Bed Sheets, Pillow Covers, Top of the Bed, Bath Rugs etc. It has a presence in over 34 countries and caters to 17 out of the top 30 retailers in the world. The company has excellent relationship with the likes of Wal-Mart, JC Penney, Shopko, Calvin Klein etc. to which it has been a regular supplier. GGTL's performance is directly linked with the product demand for WLL' products as the company has long-term agreement with WLL for purchase of its 90 percent production.
Improved utilization of production capacity:
The plant has started its commercial operations on 1st of September 2022 and was operational only for 7 months in the initial year. During FY2024 the plant was fully operational with a capacity utilization of 70 percent in fabric segment and ~83 percent capacity utilization in two-for one yarn segment which resulted in a revenue of Rs.521.10 Cr. (Prov.) for the year. More than 95 percent of the production was sold to Welspun Living Limited (erstwhile Welspun India Limited) as per the long-term supply agreement. Further, the GGTL registered sales of Rs.141.84 Cr. during the first quarter of FY2025 which is 8 percent higher than previous year sales during the same period. The fabric sales to WLL are expected to remain the major contributor to the revenue, in the range of 65-75 percent for the current year as well, while the TFO- yarn sales are expected to remain in the range of 25-35 percent. However, the operating profit margin for FY2024 (Prov.) declined to 5.85 percent from first year’s margin of 14.18 percent. The decline in operating profit margin is due to increase in raw material prices and lower realization rates during the year. The company is entitled to interest cost reimbursement form the Gujarat government, resulting in significant reduction in finance expense for the year. Acuite expects, GGTL will maintain the similar performance over the medium term on account of supply agreement with Welspun.
Efficient working capital operations:
The working capital operations of GGTL are efficiently managed as evident from the gross current asset (GCA) days of 79 days in FY2024 (Prov.). The company receives batch wise orders from WLL and maintains inventory required for next 30 days. The payment terms customers, especially with WLL was provided for 30 days, which is as per the terms of supply agreement with WLL. Resulting less than 30 days debtors for FY2024 (Prov.). The company enjoys a little stretched payment period of 45 days with its suppliers. Acuite expects, the lower receivable period and inventory holding period with stretched payables period will help GGTL to maintain its working capital operations efficient.
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| Moderate financial risk profile:
GGTL’s financial risk profile is moderate, marked by moderate net worth, moderate gearing and above average debt protection metrics. The company’s net worth stood at Rs.71.51 Cr. as on March 31, 2024 (Prov.) against Rs.69.86 Cr. as on March 31, 2023. The improvement in net worth is due to accretion of profits to reserves during the period. The gearing level and total outside liabilities to tangible networth (TOL/TNW) stood at 2.68 times and 3.98 times as on March 31, 2024 (Prov.) respectively, against 3.01 times and 4.06 times respectively as on March 31, 2023. The marginal improvement in leverage indicators is due to reduction in total debt levels to Rs.191.30 Cr. as on March 31, 2024 (Prov.) from Rs.210.07 Cr. as on March 31, 2023. The debt protection metrics stood above average with DSCR and ICR of 1.73 times and 4.06 times respectively as on March 31, 2024 (Prov.). Debt to EBITDA improved marginally to 6.14 times as on March 31, 2024 (Prov.) from 6.87 times as on March 31, 2023. Acuite believes that the financial risk profile of the company will improve over the medium term.
High customer concentration risk;
GGTL’s growth linked to the performance of WLL GGTL will remain exposed to the high customer concentration risk in its revenue profile as majority of the revenue will be from WLL through the off-take agreement signed. GGTL has signed an off-take agreement for 90 percent of its production to WLL for their captive consumption. GGTL is entitled to sell 10 percent of its production to any third party. In the event, WLL does not place the order or place short order and if GGTL fails to sell it in the open market within 15 days, then WLL will be liable to pay for such unsold quantity of Products at the prevailing Market Price plus 12 percent simple interest for the period of delay. Acuité believes that GGTL will remain exposed to high customer concentration risk over the long run post SCOD as any uncertain event/lower demand in WLL’s end products might result in direct impact on GGTL’s scale and profitability. Howbeit, this risk is to the extent offset by factors such as products being general in nature, offtake agreement of GGTL stating open sale to other customers in case WLL not to procure the committed offtake and WLL being a healthy cash profit generating company and is a market leader in home textile, exhibiting low demand risk.
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