­­For arriving at this rating, Acuité has consolidated the business and financial risk profiles of LYTIPL and LWIPL together referred as ‘Lucky Group’. The consolidation is in the view of common management, similar line of business in textile processing industry, operational and financial linkages between the entities and management stated posture of extension of support with the group companies

­Promoters’ extensive experience in textile processing industry; Established player in viscose yarn manufacturing segment:
Lucky Group is engaged in the manufacturing of viscose yarn and blended fabric (i.e. a blend of viscose yarn and cotton yarn) for more than a decade. The group is promoted by Mr. P. Viswanathan, Mr. G. Rajamanickam and Mr. G. Doraisamy, Mr. Rajamanickam Saravana Prabhu who have more than three decades of experience in the textile industry. The top management is ably supported by a well-qualified and experienced team of second line of management. The group has integrated operations across the textile value chain and undertakes spinning and weaving. The group sells to traders, garment and hosiery manufacturers in and around Erode, Tirupur, Ichalkaranji, Surat and Kolkata, enjoys longstanding relationship with its customers and suppliers. Acuite believes that the experience of the management will benefit the business risk profile over the medium term.

Improving scale of operations:
Lucky group has demonstrated significant improvement in its revenue over the past three years, primarily driven by improvement in production capacities. In FY2023, the group registered revenue of Rs.960.13 Cr. at a growth rate of ~13 percent compared to Rs.849.43 Cr. in FY2022. Further, it is estimated to register revenue in the range of Rs.1075-1090 Cr. in FY2024. This growth in revenue is attributable to expansion of its production capacities. The group's operating profit margin has remained consistent, ranging between 14-16 percent over the past three years. Despite the volatility in the cotton prices over the past two year, the group has sustained its operating profit margins as its predominantly use viscose and blends it with cotton (generally in the ratio of 70:30). Viscose prices less volatile than cotton resulting in stable operating profit margins. However, the PAT margin has declined to 2.29 percent in FY2023 form 4.18 percent in FY2022 and is estimated to further decrease to the range of 1.65-1.75 percent in FY2024 due to higher depreciation and interest expense. Acuite believes that Lucky group's revenue will continue to improve over the medium term, driven by increased production capacities, while operating profit margins will remain in the current range.

Moderately intensive working capital operations:
The working capital operations of the group are moderately intensive in nature as reflected by gross current assets (GCA) of 111 days in FY2023 against 114 days in FY2022, primarily supported by low inventory of 28 days in FY2023 against 23 days in FY2022. The group predominantly uses viscose for yarn and fabric manufacturing, benefiting from its availability throughout the year regardless of seasonal fluctuations. Consequently, the fund-based working capital limits were moderately utilized, averaging around 78 percent over the past 12 months ending in April 2024. Debtors days remained stable at 79 days in FY2023 compared to last year, as the group is into weaving, debtor days will be slightly elongated. Creditor days stood at 34 days in FY2023 against 39 days in FY2022. Acuite believes that working capital operations of the group will continue to remain moderately intensive on account of  elongated debtor days.

Moderate financial risk profile:
The group’s financial risk profile remained moderate despite continuous debt infusion for capex, primarily marked by moderate net worth, moderate gearing and comfortable debt protection metrics. The net worth of the group has improved to Rs.153.36 Cr. as of March 31, 2023, from Rs.131.41Cr. as of March 31, 2022, due to the accretion of profits to reserves for FY2023. Total debt level of the group has increased to Rs.462.40 Cr. as on March 31, 2023 from Rs.304.54 Cr. of March 31, 2022 leading to deterioration in gearing level of the group to 3.02 times as on March 31, 2023 against 2.32 times as on March 31, 2022.  Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 3.59 times as of March 31, 2023 against 3.11 times as of March 31, 2022. Interest coverage ratio (ICR) and debt service coverage ratio (DSCR) stood comfortable at 3.88 times and 1.37 times respectively, as of March 31, 2023 against 5.64 times and 2.09 times respectively, as of March 31, 2022. Debt to EBITDA also deteriorated to 3.55 times as of March 31, 2023 from 0.60 times as of March 31, 2022 due to increase in total debt. For FY2024, gearing level and debt to EBITDA are estimated to deteriorate marginally due to infusion of debt for capex. However, debt protection metrics are estimated to remain comfortable due to estimated improvement in profitability and net cash accruals.

Moderate supplier concentration risk in the revenue profile
Lucky Group procures the viscose fibre from Grasim Industries Limited (GIL) and Mothi Spinners private limited (MSPL) in and around Tamil Nadu, and sells mainly to auto looms, traders, garment & hosiery manufacturers in around Erode, Tirupur, Ichalkaranji, Surat and Kolkata etc. GIL and MSPL constitutes around 60 percent of the total purchases of the group there by depicting moderate supplier concentration risk. However, the risk of concentration is mitigated to an extent on account of long standing relationship of the group and promoters with its major suppliers “Grasim Industries Limited” and "Mothi Spinners Private Limited".