Reputed business with a vintage track of operations
MIL is a 118 years old textile manufacturing player in India and part of Arvind Mafatlal Group founded by Mr. Mafatlal Gagalbhai. The current promoters of the company have an experience of greater than six decades in the business and are involved in the day to day operations as well strategic decision making of the company. Chairman of MIL Mr. Hrishikesh Mafatlal has an experience of more than 44 years and is on the board of Mafatlal Industries since 1979. Mafatlal is one of the oldest brands recalled for its presence in the textiles industry for readymade garments, school uniforms, corporate garments, home textiles, etc. MIL’s business is spread across the country with a robust dealer and B2B network spanning across all zones with more than 400 dealers and 35,000 retailers. MIL is having an integrated manufacturing facility including spinning, weaving, yarn dyeing and processing. The product portfolio includes garments/ fabrics for men and women, upholstery items, uniforms for schools, corporate houses, personal hygeine among others. Company has already created brands under “Mafatlal Healthcare” brands like “Coocoo”, “UNICHOICE”, “MEDIMEF” and “Frolica” are flagship brands.

Acuité believes that with a vast experience of the management along with distinguished and diversified product profiles and with an established brand name of “Mafatlal” the business risk profile is expected to remain comfortable and will support the operations over the medium term.

Improvement in business risk profile and availability of monetizable assets
The business risk profile of the company has witnessed improvement marked by healthy growth in operating revenue to Rs. 996.81 Cr. in FY22 as against Rs. 615.51 Cr. in FY21 reflecting a YoY growth of  ~62% during the period. Furthermore, the revenue from operations of the company improved ~69% YoY during 9MFY23 to  1019.06 Cr. compared to Rs.604.76 Cr. in 9MFY22. The growth is primarily driven by successful execution of  orders received from various State governments and B2B customers. In FY22, the company has also successfully completed non-core asset monetization with a profit worth ~Rs.47 crore in FY22

The profitability of the company also witnessed improvement reflected by growth in operating profit margin from (5.52)% in FY21 to 2.28% in FY22 and 5.22% in 9MFY23. Also, the company has reported PAT of Rs.25.72 Cr. in 9MFY23 and  Rs.29.29 crore in FY22 against loss of 93.75 crore in FY21. MIL holds 2.52 Cr number of shares of NOCIL Limited, out of which 0.58 Cr number of shares have been pledged to lenders against the borrowings and remaining 1.94  Cr number of shares are unencumbered. The unencumbered shares can be monetized by the company at any given emergency in the business. This serves as a cushion of liquidity for MIL in case of any uncertainty or mismatches of cash flow in the business going further. MIL is adequately equipped against any shortfall in liquidity or cash flow mismatches.

Further, the Company has reduced its term loan liability significantly which supports the profitability and liquidity.
Acuité believes MIL’s ability to sustain its scale of operations and profitability will remain a key rating sensitivity parameter.

Moderate Financial Risk Profile
The financial risk profile of MIL is characterized by moderate capital structure and moderate albeit improving debt protection metrics. The company reported tangible net worth of Rs.684.53 Cr. as on March 31, 2022 against Rs. 464.21 Cr as on March 31, 2021. The increase in the net worth is largely on account of change in the value of shares held in NOCIL Limited reported through other comprehensive income. Consequently the gearing improved to 0.16 times as on March 31, 2022 against 0.32 as on March 31, 2021. MIL’s debt protection metrics have also improved on the back of improvement in profitability. Interest coverage ratio and debt service coverage ratio improved to 3.58 and 1.42 times respectively in FY2022 which stood negative in the previous financial years. MIL’s total debt stood at Rs. 112.02 as on March 31, 2022 compared to Rs. 147.78 Cr. in the previous year. This consists of long term debt of ~Rs. 57 Cr. and working capital debt of Rs. 54 Cr. MIL’s capital structure is expected to remain stable in absence of any large capex plan.

Acuité expects that given MIL’s long term debt, continued improvement in its revenue and profitability will remain a key factor for MIL to generate cash inflows which will commensurate with its repayment obligations.
 

Working capital intensive nature of operations
The operations of the company are working capital intensive in nature marked by GCA days of 155 days for FY22 as against 187 days for FY21. The GCA days is majorly on account of receivable days of 94 days for FY22 compared against 132 days for FY21. MIL primarily works with large institutional buyers and have to extend credit period of around 90 days. The inventory levels of the company stood at 27 days during the same period compared against 14 days for FY21. MIL majorly holds finished goods inventory and follows an inventory holding policy of standard 30 to 40 days to cater the demand. However, the company also procures garments from large number of other units and is able to leverage its scale to get adequate credit period. The creditor days of the company stood at 160 days for FY22 compared to 168 days for FY21. However, MIL’s working capital limit utilisation remained moderate at 44.32% for fund based and 80.56% for non-fund-based facilities for the eight months ended February 2023.
Acuité believes the working capital cycle is expected to remain on similar lines however any elongation in the working capital cycle which affects its liquidity profile will remain key sensitivity parameter.

Susceptibility to volatility in prices of key raw materials
Cotton, coal and polyester cotton prices have exhibited considerable volatility in the recent past due to various reasons, such as government policies, effects of monsoon, demand-supply scenario, etc. Profitability margins of textile manufacturers are exposed to adverse movement in cotton prices thus any unprecedented increase in the raw material going forward, may impact the profitability margins of MIL.