­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.

Continued growth in operating income & margins during FY23:
Lucky group has shown steady growth in revenue during FY23. The group has reported consolidated revenue of Rs. 957.44Cr for FY23 (Prov.) against Rs.849.43Cr of previous years with 6 percent YoY growth. EBITDA margin improved to 15.39 percent as per FY23 (Prov.) against 14.10 percent during previous year. Operating margins in LYTIPL were marginally affected by fluctuations in the raw material prices, however, due to integrated nature of operations of
the company, the margins remained range bound. LYTIPL on a standalone basis has reported EBITDA margin of 13.13 percent during FY23 (Prov.) against 13.95 percent during previous year. LWIPL (Standalone) has reported EBITDA margin of 15.84 percent during FY23 (Prov.) against 13.14 percent during previous year. Value realisation was relatively higher in fabrics over yarn during the year which resulted in improved margins for LWIPL. Further, the group has incurred capex of Rs.216Cr during FY23 towards wind power and modernization of capacity. During current year FY24, the group shall be incurring further capex in LWIPL towards addition of capacity. Going forward, the group's revenue and profitability is expected to improve in the medium term as the capex will be operational from Q4FY24.

Above average financial risk profile:
Financial risk profile of the group is above average as evident from the net worth position and capital structure, and moderate coverage indicators. The net worth improved to Rs.168.76 Cr as on March 31, 2023 (Prov.) as against Rs.131.41Cr during FY22, the growth is mainly due to accretion of profits to reserves.  The group has high gearing at 2.74 times as on March 31, 2023 (Prov.) against 2.32 times during previous year. The deterioration was on account of debt funded capex. The total outside liabilities to net worth was at 3.27 times as on March 31, 2023 (Prov.) as against 3.11 times in previous year. The coverage indicators were adequate with DSCR of 1.68 times as on March 31st 2023 (Prov.) as against 2.09 times as on March 31st 2022. Interest coverage stood at 4.33 times as on March 31st 2023(Prov.) as against 5.64 times as on March 31st 2022. Debt to EBITDA has marginally deteriorated to 3.10 times as per FY23 (Prov.) from 2.50 times during previous year. 

Moderate working capital operations:
Working capital operations of the group are moderately intensive which is reflected by the Gross current assets days ranging between 127-156 days during past 3 years. During FY23 (Prov.) GCA days stood at 127 days against 128 days during previous year. The debtor days stood at 79 days for FY23 (Prov.). Generally, the group allows a credit period of 60-90 days to its customers. The group maintains raw material inventory for 1-2 months and finished goods inventory for 30 days. The group’s creditor days were ranging between 30-40 days during past 3 years. Besides, current ratio of the group has deteriorated to 1.24 times as on March 31, 2023 (Prov.) against 1.38 during the previous year. Moderate working capital operations has led to moderate dependency on its fund based working capital limits. The consolidated fund based limits were utilised at an average of 77 percent during past 12 months ending May 2023. Acuite believes that working capital operations of the group will remain moderately intensive on account of high debtor days.

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".