| 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 coupled with presence in an integrated textile space with established brand name of “Pashupati” the business risk profile is expected to remain comfortable and 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. Acuité believes that the business risk profile shall continue to benefit from the conscious investment of management in technology upgradation in the operations.
Improvement in revenues
The revenue of the group improved by ~57 percent and stood at Rs.855.97 crore in FY22(Prov) compared to revenue of Rs.545.12 crores in FY21. The increase in the revenue is majorly due to the increase in the price realization for the products. There is also an increase in the revenue of Pashupati Texspin LLP as the firm has started the exports in FY22. The operating profit margin of the group declined and stood at 6.34 percent in FY22(Prov) compared against 7.63 percent in FY21. The decline in the operating margin is on account of increase in raw material costs as well as increase in the selling expenses. The selling expenses increased as the brokerage and the commission charges increased in FY22. The operating margins are expected to improve in the future as the group is taking cost reduction measures like installation of solar panels. The PAT margin stood at 1.58 percent in FY22(Prov) against 1.55 percent in FY21. Acuité believes that the revenue of the group will improve in the medium term on back of the experienced management and increase in the exports. The operating margins are also expected to improve on account of the investment in the solar projects. However the cotton industry outlook for the medium term will be a key rating sensitivity.
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| Moderate financial risk profile
The group has a moderate financial risk profile marked by tangible net worth of Rs.138.36 crore as on 31 March 2022(Prov) as against Rs.134.15 crore on 31 March 2021. The growth seen in the networth is subdued on account of withdrawal of capital from Pashupati Cotyarn LLP. The gearing level of the group stood at 1.80 times as on 31 March 2022(Prov) as against 1.49 times as on 31 March 2021. The total debt of the group comprised of long term debt of Rs.134.71 crores, unsecured loans of Rs.9.26 crores and short term debt of Rs.73.67 crore as on 31 March 2022. The group has taken a loan of Rs.20.20 crores from HDFC Bank in FY22 for the solar project. The project will be completed by FY23. The group is further planning to take a loan of Rs.26.14 crores for further installation of solar and windmills. The coverage ratios of the group remained moderate with Interest Coverage Ratio (ICR) of 2.49 times for FY22(Prov) as against 2.42 times for FY21. The Debt Service Coverage Ratio (DSCR) stood low at 1.06 times for FY22(Prov) as against 1.10 times for FY21. The DSCR for FY22 is low and will continue to remain low in medium term due to the high debt obligations arising due to the new loans availed. The total outside liabilities to tangible net worth (TOL/TNW) of the group stood at 2.12 times as on 31 March 2022(Prov) as against 1.64 times as on 31 March 2021. Acuité believes that the financial risk profile of the group will remain a key sensitivity in medium term.
Working capital intensive operations
The group’s operations are working capital intensive as evident from Gross Current Asset (GCA) of 117 days as on March 31, 2022(Prov) as against 134 days as on March 31 2021. The inventory days improved and stood at 36 days for FY22(Prov) compared against 60 days for FY21. Average 20-30 days inventory is kept by the group. The debtor days stood at 51 days for FY22(Prov) as against 34 days for FY21. Average debtor days are 15-45 days for spinning segment and 30-90 days for the weaving segment. The creditor days of the group stood at 15 days for FY22 as against 6 days for FY21. The average creditors days is around 30-60 days. The average utilization of the working capital limits of the company remained moderate at ~84 percent in last six months ended Sept’ 22 for the group. Acuité believes that the working capital management of the group will continue to remain a key rating sensitivity going ahead.
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.
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