| Experienced management and long track record of operations
The firm was established in the year 2000 as a partnership entity, with Mr. Rameshwar Tawani and Mr. Karan Singh Rajpal as its current partners. Mr. Tawani brings over 26 years of experience to the firm, while Mr. Karan Singh Rajpal, a qualified second-generation leader, plays a vital role in managing its day-to-day operations.
Acuité believes that the firm’s long presence in the industry and the experience of the management will continue to support the growth plans going forward over the medium term.
Significant improvement in scale of operations; albeit decline in operating margin
In FY 2024, the firm recorded a significant growth in revenue to Rs. 732.17 Cr., compared to Rs. 316.18 Cr. in FY2023 and Rs 322.31 Cr. in FY2022. This revenue growth was primarily driven by higher sales volumes resulting from an increase in both actual installed capacity and production levels. Additionally, the capacity utilization rose to 57.35% in FY 2024, up from 19.67% in FY 2023. In 8MFY25, KGPF’s reported revenue of approximately Rs. 330.39 Cr, compared to Rs. 367.62 Cr. in 8MFY24. However, the operating margin for FY2024 declined to 1.78 %, in FY2024 from 2.62 % in FY2023.
This decline in operating margin was primarily due to lower price realizations, despite the increase in sales volumes for FY 2024. However, despite the challenges, KGPF was able to record a significant growth in topline, albeit some moderation is expected in FY2025 primarily on account of persistent lower price realisation. Further, the Profit After Tax (PAT) margin recorded a decline, standing at 0.76 % in FY2024, as compared to 1.17 % in FY2023.
Improved working capital operations
The working capital operations of the firm improved and remained efficient in nature marked by GCA days of 53 days in FY2024 as against 90 days in FY2023. The GCA days improved on account of improved inventory cycle and debtor days. The inventory holding period improved and stood at 29 days in FY2024 as compared to 56 days in FY2023.The debtor’s collection period stood at 21 days in FY2024 as against 33 days in FY2023. The creditor days stood at 3 days in FY2024 as against 12 days in FY2023. The raw materials required for the manufacturing business are directly acquired from farmers, hence no credit period is extended for this segment. Furthermore, the average utilization for fund-based limits remained moderate, averaging around 56.20% over the last nine months ending Nov 2024.
Acuite believes that the ability of the firm to improve its scale of operations without any significant elongations in the working capital cycle will be a key monitorable.
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| Moderate financial risk profile
The financial risk profile of the firm is moderate marked by moderate networth, gearing and debt protection metrics. The adjusted tangible net worth of the firm increased to Rs. 39.36 Cr. as on March 31st,2024, as against Rs. 32.95 Cr. as on March 31st, 2023. The networth includes Rs. 9.08 Cr. as Quasi Equity. The total debt of the firm stood at Rs. 72.91 Cr. as on March 31, 2024, as against Rs. 48.48 Cr. as on March 31, 2023. The gearing of the firm marginally increased to 1.85 times as on March 31, 2024 from 1.47 times as on March 31,2023. However, is expected to improve over the medium term as the firm does not plan to incur any additional long-term loans. The TOL/TNW of the firm stood at 2.02 times as on March 31, 2024, as against 1.81 times as on March 31,2023. Also, the Debt/EBITDA levels of the firm stood at 5.28 times in FY2024 as against 5.26 times in FY2023. Further, the debt protection metrics of the firm stood moderate reflected by debt service coverage ratio of 1.71 times for FY2024 as against 1.72 times for FY2023. The interest coverage ratio stood at 2.05 times for FY2024 as against 2.29 times for FY2023. The decline in ICR is due to higher interest cost incurred during the year. The net cash accruals to total debt (NCA/TD) stood at 0.10 times in FY2024 as compared to 0.11 times in the previous year.
Going ahead, the financial risk profile is expected to improve on account of steady accruals generation and in absence any further major debt funded capex over the medium term.
Highly fragmented and regulated industry with intense competition and exposure to agro-climatic risk
The firm operates in a highly fragmented and regulated cotton industry characterized by the presence of a large number of unorganised players, thereby impacting the group’s bargaining power. The prices of raw cotton are regulated by the government through MSP (Minimum Support Price) mechanism which impact the procurement of raw cotton required by the domestic ginning companies. However, the selling price of the output depends on the prevailing demand-supply situation restricting the bargaining power with customers, thereby impacting margins. Acuité believes that the firm will be able to mitigate this risk to some extent on account of its promoters’ experience and well-established position in the market. Further, cotton being a seasonal crop and the production of the same being highly dependent upon monsoon, the firm is always exposed to agro climatic risk.
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