Acuité has consolidated the business and financial risk profiles of Pashupati Cotspin Limited and its group companies i.e. Pashupati texspin LLP and Pashupati Cotyarn LLP together referred to as the ‘Pashupati Group’. The consolidation is in view of the similar line of business, common ownership and significant intercompany financial and operational linkages.

­Reputed family held business with a vintage track of operations
Pashupati Group, based out of Kadi, Gujarat, is a family-owned business with existence since 1993 started by Mr. Saurin Parikh and his family members through a small cotton ginning company. Since then, the activities in the group has expanded into diverse activities of textile space under the management of Mr. Saurin Parikh who has an overall experience of more than two decades in the textile processing industry and is the President of the Gujarat Textile Association. The other family members, who are directors in the group companies look after the day-to-day operations and allied activities in the group. Over the years, the brand name of “Pashupati” has been established by Mr. Parikh through association the domestic and international markets. Acuité believes that with a vast experience of the management is likely to support the operations over the medium term.

Integrated chain of operations and usage of modernized technology in the processing and manufacturing facility
Pashupati Group has a robust manufacturing and cotton processing capacity and an integrated presence in the textile processing industry. It is majorly into ginning, spinning, weaving and processing activities. The group has double roller (DR) gins of 112 nos [4.01 lac bales/ annum] which is one of the highly modernized gins among saw ginning or rotobar gins. Double roller gins have the highest and longest fibre length retention percentage with a minimal fibre loss of approx. 2 percent. The spinning activity includes a capacity of 37,000 ring spindles resulting in an annual capacity of 9,500 MT. The group also deals in TFO (two for one) yarn which is the two staged process where the yarns are doubled and then twisted. This process involves twisting of two or more single yarns in order to enhance the properties of the end product such as strengthening the yarn. The group has ~18 TFO machines which result in 3,060 MT/ annum. Furthermore, the group also does direct warping and sectional warping [also known as sizing] with a capacity of 2,100 MT/annum resulting to yarn beams. The integrated and in-house processes of ginning, spinning and weaving has enabled the group to provide yarn beams of consistent quality which offers counts of 30s and 40s compact. The weaving activity is supported by modernized 48 airjet looms, capacity of 60 lac meters/ annum. Through the above-mentioned modernized capacity, the group has majorly moved to production of 100 percent compact yarn production; the highest quality of ring spun yarn and has the highest fibre strength.

Average financial risk profile
The tangible net worth of the group stood at Rs.128.07 crore as on March 31, 2023, as against Rs.140.32 crore as on March 31, 2022. There have been capital withdrawals made by the group which has impacted the networth in FY23. The gearing of the group stood at 2.00 times as on March 31, 2023, as against 1.71 times as on March 31, 2022. The total debt of the group consists of long-term debt of Rs.74.21 crore and short-term debt of Rs.146.90 crore as on March 31, 2023. The company has added term loans in FY22 and FY23 to the tune of around Rs.60 crore for installation of solar project and windmill. Due to the significant addition in the debt and decline in the business risk profile, the debt service coverage ratio of the group has deteriorated and stood below unity at 0.75 times as on March 31, 2023, as against 1.29 times as on March 31, 2022.  The interest coverage ratio stood at 2.19 times as on March 31, 2023, as against 2.73 times as on March 31, 2022. Acuité believes that the ability of the group to improve its financial risk profile will remain key monitorable in the medium term.

Working capital intensive operations
The Group’s working capital operations are intensive as evident from the GCA days of 133 days as on March 31, 2023 as against GCA days of 117 days as on March 31, 2022. The inventory days stood at 28 days for FY23 as against 34 days for FY22. Average inventory holding period is of around 20-30 days. The debtors’ days stood at 81 days for FY23 as against 51 days for FY22. The average credit period allowed to the customers is around 30-90 days. The creditors days stood at 31 days for FY23 against 15 days for FY22. The average credit period received from the supplier is around 30-60 days. The average utilization of the working capital limits of the company is high at ~91 percent in last six months ended November’ 23 for the group. Acuité believes that the ability of the group to improve the working capital management will be key rating sensitivity.

Susceptibility to volatility in prices of key raw materials
Pashupati Group’s profitable margins are susceptible to fluctuations in the prices of major raw materials such as domestic cotton (MECH, Shankar 6). Cotton being a seasonal crop, the production of the same is highly dependent upon the monsoon. Thus, inadequate rainfall affects the availability of cotton in adverse weather conditions. Furthermore, any abrupt change in cotton prices due to supply-demand scenario and government regulations of changes in Minimum Support Price (MSP) can lead to distortion of prices and affect the profitability of players across the cotton value chain. Acuité believes that the group’s business profile and financial profile can be adversely impacted on account of presence of inherent risk of susceptibility of volatility in raw cotton prices, since the industry is highly commoditized.