Acuité has considered consolidated financial and business risk profiles of L S Mills Limited (LSML), LS Mills Solar Green Energy Limited (LSMSGEL) and L S Mills Limited liability company (LSMLLC) which is a wholly owned subsidiary of LSML on account of their common management and the nature of business to arrive at this rating.

­Experienced management and established track record
Established in 1983, LSML is headed by Mr. S. Manivannan (Managing Director). The LSML has an operational track record of more than 3 decades with a diversified product portfolio including fibre, yarn, fabric and made-ups. The management is equally supported by the second line of management and has a team of more than 3000 well qualified - experienced workforce. With an integrated spinning, weaving and fabric manufacturing facility, each division functions as an independent profit centre. LSML's longstanding relations with its existing customers and suppliers aid the company in securing repeat orders on a regular basis supported by the timely availability of raw materials. Also, extensive experience of the promoters in the textile industry has helped the company in maintaining longstanding relations with some of the reputed players in the industry. Acuité believes that the LSML will benefit from establishing presence in textile industry and extensive experience of promoters.

Moderate financial risk profile
LSML’s financial risk profile is moderate, marked by an improving net worth, moderate gearing levels and debt protection metrics. The net worth of the company improved to Rs.381.08 crore in FY2025 as against Rs.339.83 crore due to accretion of profits into reserves. The total debt of the company increased in FY2025 to Rs.601.13 crore, which includes Rs.129.06 crore of long-term debt, Rs.2.01 crore of USL from directors and promoters, Rs.409.84 crore of short-term debt and Rs.60.23 crore of CPLTD. The debt-equity ratio stood in the similar range at 1.58 times as on March 31, 2025 as against 1.55 times as on March 31, 2024. TOL/TNW (Total outside liabilities/Total net worth) stood at 1.83 times as on 31 March, 2025 as against 1.78 times in previous year.

Further, the Debt/EBITDA of the company moderated and stood at 4.93 times as on March 31, 2025 as against 4.00 times as on March 31,2024. The improvement in the debt/EBITDA is due to decline in the operating margins. The debt protection metrics of the company is moderated with the interest coverage ratio (ICR) and debt service coverage ratio (DSCR) of 3.27 times and 1.19 times respectively in FY2025 as against 3.90 and 2.23 times respectively in FY2024. The NCA/TD stood at 0.12 times in FY2025.

The company is undertaking a Rs.300 crore CAPEX for modernization and setting up an in-house fabric processing unit, which was previously outsourced. Out of total project cost, Rs.235 crore will be funded through a sanctioned term loan, and the remaining Rs.65 crore via internal accruals. This move is expected to reduce job work expenses and enhance both revenue and profitability. Acuite believes that the financial risk profile of the company will remain moderate owing to debt funded CAPEX plans.

Improvement in operating performance in FY2025, however expected to remain subdued in coming years due to challenges in USA market
LS Mills recorded a 15 per cent year-on-year growth in operating income, reaching Rs.799.20 crore in FY2025 from Rs.695.45 crore in FY2024, driven by higher sales in the yarn and made-ups divisions. The made-ups segment contributed 45.41 per cent of total sales, slightly down from 46.59 per cent, reflecting a strategic shift to premium sheets (800–2000 TC) amid recovering demand in the US and UK markets. Despite the revenue growth, operating profit margin (OPM) declined to 14.32 per cent in FY2025 from 18.22 per cent in FY2024, which had benefited from one-time modernization gains. In FY2026, the company booked Rs.309.95 crore in revenue during 5MFY26 and an additional Rs.33 crore in September 2025, taking the total to Rs.343 crore as of 23rd September 2025 vis a vis revenue of ~Rs. 380 Cr. reported in H1FY2025. The relatively lower sales in September reflect early signs of pressure from increased tariffs imposed by the USA, LS Mills’ key export market. The company expects to close FY2026 with revenue in the range of Rs.730–Rs.750 crore, indicating a potential contraction in topline performance which is expected to continue further if there are no positive changes in the market conditions. Acuite believes, the challenging export market conditions are likely to adversely affect the revenues as well as profitability of the company going forward.

Concentration Risk – Geographic and Customer Exposure
L S Mills Limited is exposed to significant concentration risk, with approximately 40 per cent of its revenue derived from exports, of which nearly 80 per cent is to the U.S. market. Within this, a substantial portion of export sales—over 50 per cent—is contributed by a single customer, MyPillow (USA), over the past three years. This dual concentration heightens the company’s vulnerability to trade policy changes, such as elevated U.S. tariffs on Indian textile exports, and to customer-specific risks including demand fluctuations and credit exposure. Further, trade receivables of Rs. 90 crore and loans & advances of Rs. 37 crore extended to MyPillow have strained the working capital cycle, impacting liquidity and operational flexibility. However, the risk is mitigated to an extent since the company started recovering overdue debtors steadily and the long standing relations with the US based customers is expected to support operating performances and liquidity to an extent.

­Working capital intensive operations
LSML’s working capital cycle is intensive in nature marked by high gross current assets (GCA) days in the range of 230- 240 days over the last 2 years ending March 31, 2025. The GCA days are majorly marked by high debtor days and inventory days. The high inventory days is basically to company’s policy of holding raw materials. LSML would procure cotton as and when the prices are too low and stock it for the non-peak season. The company procure the cotton in the month of January and February. The debtor days stood at 125 days as on March 31, 2025, 102 days as on March 31, 2024. Out of the total debtors outstanding for more than 120 days amounting to Rs.123.30 crore as on June 2025, Rs.96.90 crore pertains to a single client — MyPillow USA. However LSML has secured an Export Credit Guarantee (ECG) of Rs.50 crore specifically for MyPillow, mitigating the risk of potential bad debt to an extent. The fund-based bank limit utilisation stands at 95 percent for 6 months ended August 2025. Acuite believes, the operations of the company would remain working capital intensive owing to elongated receivables. 

Susceptibility to volatility in raw material prices and foreign exchange fluctuation risk
LSML’s profitable margins are susceptible to fluctuations in the prices of major raw materials such as domestic cotton (DCH 32, MCU 5) and Import cotton (Giza and Supima). The main raw material purchased by the company is cotton. Cotton being an agricultural commodity by nature, the margins are susceptible to changes in cotton prices. Cotton availability and price of the same is highly dependent on agro-climatic conditions. Further, demand supply scenarios and government regulations of changes in Minimum Support Prices (MSP) leads to distortion of prices and affect the profitability of players across the cotton value chain. Further, exports of the company constituted around 40-50 percent of the total sales. As a result, the business is exposed to fluctuations in the foreign exchange rate.