|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 477.20 | ACUITE A | Stable | Upgraded | - |
| Bank Loan Ratings | 72.00 | - | ACUITE A1 | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 549.20 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
|
Acuité has upgraded the long-term rating to ‘ACUITE A (read as ACUITE A)’ from ACUITE BBB+ (read as ACUITE triple B plus) and the short-term rating to ACUITE A1 (read as ACUITE A one) from ACUITE A2+ (read as ACUITE A two plus) on the Rs. 549.20 Cr bank facilities of Manjeet Cotton Private Limited (MCPL). The outlook is Stable.
Rationale for the rating upgrade The rating upgrade is on account of stable operating and financial performance of MCPL, marked by stable operating income, operating profitability and moderate financial risk profile. The revenue of the Company stood at Rs. 7000.54 Cr in FY22 as against Rs. 6713.19 Cr in FY21, while its operating profitability though thin, improved to 2.91 percent in FY2022 as against 2.64 percent in FY2021. The increase in revenues and thin profitability margins are on account of increased contribution from the trading segment. Owing to aggressive bidding in e-auction of one of its key suppliers i.e. Cotton Corporation of India (CCI) for cotton trading, MCPL’s scale of operations surged in the last two years. However, with increase in market prices of cotton vis-à-vis government fixed minimum selling prices, Acuite believes revenues of MCPL will moderate over the near to medium term due to expected reduction in trading. The financial risk profile of the Company continues to remain moderate, marked by healthy net-worth, moderate gearing and comfortable debt protection metrics. Going forward, MCPL’s ability to maintain its scale of operations and profitability margins without deterioration in its financial risk profile and working cycle will remain a key rating monitorable. |
| About the Company |
|
Maharashtra based Manjeet Cotton Private Limited (MCPL) was incorporated in 2005 as a private limited company to consolidate the existing businesses of other group companies which were operational since 1982. MCPL is engaged into cotton ginning, trading, export and extraction of cotton oil seeds, cotton seeded-linting, spinning and weaving. It is promoted by Mr. Bhupendra Rajpal, Mr. Rajendra Rajpal and Mr. Sanchit Rajpal. It has manufacturing units at 18 cities located in the states of Madhya Pradesh, Maharashtra, Karnataka, Telangana, Odisha and Rajasthan.
|
| Analytical Approach |
|
Acuité has considered the standalone business and financial risk profiles of MCPL to arrive at this rating |
Key Rating Drivers
| Strengths |
MCPL is operating since 1982 and is one of the largest cotton processors in India. MCPL was founded by Mr. Bhupendra Singh Rajpal, and Mr. Rajendra Singh Rajpal, who possess more than three decades of experience in the textile industry. The promoters are also well supported by the second generation management, Mr. Sanchit Rajpal. MCPL has established working relationships with number of customers and suppliers in the domestic and international market. MCPL has diversified business profile marked by processing of cotton ginning, trading & exporting of cotton yarn to both domestic and international markets and extraction of cotton seed oil. Moreover, the company has currently 18 manufacturing facilities which are located in major cotton producing regions of India such as, Madhya Pradesh, Maharashtra, Karnataka, Telangana, Odisha and Rajasthan. Further, the proximity to raw material ensures the steady supply of raw material at competitive rates. The experienced of promoters and long track record of operations in the cotton industry has helped the company to maintain healthy and long term relationships with both its customers and suppliers. Furthermore, MCPL derives around 75-80 percent of the revenue from the domestic market and remaining through exports. The operating income of the company stood at Rs. 7000.54 Cr. in FY22 as against Rs. 6713.19 Cr in FY21. The company has registered a revenue of ~Rs. 1324.20 Cr. in H1FY23 and is expected to close the year in the range of ~Rs.4000-5000 Cr. Acuité believes that MCPL will continue to benefit from their established presence in the industry backed by promoters’ vintage and diversified business risk profile over the medium term.
The financial risk profile of MCPL is moderate marked by healthy net worth, moderate gearing levels and comfortable debt protection matrices. The net worth stood at Rs. 501.04 Cr. as on March 31, 2021 as against Rs. 376.34 Cr. as on March 31, 2021. The net-worth increased due to accretion of profits to reserves. The total debt of Rs. 669.99 Cr. as on March 31, 2022 includes long term borrowings of Rs. 156.61 Cr ,working capital borrowings of Rs. 484.27 Cr. and unsecured loans of Rs. 29.11 Cr. The company’s overall gearing improved to 1.34 times as on March 31, 2022 as against 1.64 times as on March 31, 2021. The TOL/TNW improved to 1.79 times as on March 31, 2022 as against 2.76 times as on March 31, 2021. The Debt protection metrics of the Company is comfortable, marked by interest coverage ratio of 4.75 times in FY22 as against 4.07 times in FY21. The NCA/TD improved to 0.20 times in FY22 as against 0.18 times in FY21. Acuité expects MCPL’s financial risk profile to remain moderate over the medium term in the absence of any major debt funded capex plan.
The operations of MCPL are working capital efficient marked by Gross current asset (GCA) days of 61 days in FY22 as against 71 days for FY21. The improvement in GCA days are mainly on account of reduction in debtor days which stood at 15 days in FY22 as against 22 days in FY21. The inventory days increased to 31 days in FY22 as against 15 days in FY21. The creditor days on the company stood low at 7 days in FY22 as against 2 days in FY21 as majority of the raw materials are purchased from farmers and the payment is done on advance or spot basis. The average utilization of its working capital bank limits stood in the range of 50-60 percent in last six months ended October, 2022. Acuite believes with the expected moderation in scale of operations, the company’s ability to maintain its efficient working capital cycle will be a key rating monitorable. |
| Weaknesses |
Cotton prices are regulated by the government through MSP (Minimum Support Price) mechanism. The price difference between the market price and MSP of cotton plays a significant role towards the profitability of the company. Higher MSP increases the unavailability of raw cotton for the manufacturing operations whereas the same increases the trading business of the company which impacts the profitability of the company. Due to high trading operations of the company in FY22, the operating profit margin remained thin, though it recorded marginal improvement as it stood at 2.91 percent in FY2022 as against 2.64 percent in FY2021. Further, the profitability is also susceptible to changes in the prices of raw material i.e. raw cotton. However, the selling price of the output depends on the prevailing demand-supply situation restricting bargaining power with customers, thereby impacting margins.
MCPL operates in a highly fragmented industry characterized by the presence of a large number of unorganized players, thus limiting the pricing power. Further, the raw material availability is highly depend upon the climatic conditions as seed cotton is exposed to agro climatic risks and the production is highly dependent upon the monsoon and the other climatic conditions. Higher temperature in already hot areas may hinder cotton development and fruit formation resulting in reduced yields and scarcity of raw cotton. |
| ESG Factors Relevant for Rating |
|
Incase of agricultural products industry, crop and livestock production has a substantial environmental impact. Cotton cultivation severely degrades soil quality. Conventional production practices for cotton involve the application of substantial fertilizers and pesticides. On the social front, employee health & safety management are of primary importance to this industry. Furthermore, employment quality and human rights concerns such as child labour are crucial considering the exploitative industry practices. Factors such as business ethics, management and board administration hold primary importance on the governance front.
MCPL has taken up various initiatives on social and environmental causes. The company has organised different welfare programs for upliftment of farmers. It has also given financial and technical support to NGOs engaged in rendering their services to farmers. It plans to open education centres in different villages for farmer upliftment. Further, as a part of its steps towards environment sustainability, its factories are largely operated vide solar power which is captively produced. |
| Rating Sensitivities |
|
| Material covenants |
| None |
| Liquidity Position: Adequate |
|
MCPL ‘s liquidity position is adequate marked by healthy net cash accruals against maturing debt obligations. The company generated cash accruals of Rs.136.33 Cr in FY22 and Rs. 109.51 Cr. in FY2021 against maturing debt obligations of approx. Rs. 4-6 Cr over the same period. Going forward, the cash accruals of the company are estimated to remain around Rs. 75-80 crore during 2023-24 period against maturing debt obligations of around Rs. 33-36 Cr. The company’s working capital operations are efficiently manged marked by Gross Current Asset (GCA) days of 61 days in FY22. The average utilization of the fund based bank limits of the company was moderate as it ranged between 50- 60 percent in last six months ended October, 2022. MCPL maintains unencumbered cash and bank balances of Rs. 58.41 crore as on March 31, 2022. The current ratio of the company stood at 1.64 times as on March 31, 2022.
|
| Outlook: Stable |
|
Acuité believes that MCPL will maintain a ‘Stable’ business risk profile over the medium term supported by healthy scale of operations, experienced management and long track record of operations. The outlook may be revised to ‘Positive’ in case the company registers healthy growth in its revenues while sustaining the profitability. Conversely, the outlook may be revised to ‘Negative’ in case of more than expected deterioration in scale of operations and profitability margins or any significant debt funded capex plan leading to deterioration in the company’s financial risk profile and liquidity position.
|
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 7000.54 | 6713.19 |
| PAT | Rs. Cr. | 124.49 | 99.46 |
| PAT Margin | (%) | 1.78 | 1.48 |
| Total Debt/Tangible Net Worth | Times | 1.34 | 1.64 |
| PBDIT/Interest | Times | 4.75 | 4.07 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
|
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
|
In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
|
|
| |
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |
|
Contacts |
| Analytical | Rating Desk |
| About Acuité Ratings & Research |
