­Experience of promoters and established t rack record of operations
RWPL was incorporated in 2001 promoted by Mr. Lakshmanan Giri and his wife Mrs. G . Subhagiri. The company has a competent management supported by a team of well qualified and experienced second line personnel. The promoters have presence in the textile industry for nearly two decades. This has helped in building healthy relationships with its suppliers and customers to ensure a steady raw material supply and repeat business. RWPL's revenue from manufacturing has improved due to enhanced capacity utilisation from 82 looms to 192 looms during the last two years ending FY2023. Further, RWPL is expected to enjoy the benefit of proximity to the cotton growing area along with the promoters’ experience and local presence is expected to aid in improving its business risk profile over the medium term. 

Stable operating performance:
RWIPL has reported revenue of Rs.258.78Cr during FY23 which was declined by 2 percent against revenue of Rs.264.79Cr from previous year. The slight decline in revenue is on account of sluggish demand during the year. The EBITDA margins of the company have improved to 10.30 percent during FY23 from 9.76 percent of previous year. The improvement in EBITDA is due to low raw material prices during the year and are   expected to further improve marginally to ~11 percent on account of improved realisations and savings from captive power over the near to medium term. The company has reported revenue of Rs.125Cr till September 2023 which is in line with the revenue of previous two years during the same period and expected to register revenue in the range of Rs.260Cr-265Cr for the year FY24 as the company is currently  operating at its full capacity.

Comfortable financial risk profile
RWPL’s financial risk profile is comfortable, marked by moderate networth, healthy capital structure and debt protection metrics. Company’s net worth stood at Rs. 69.76 Cr as on March 31, 2023 as compared to Rs. 60.34 Cr as on March 31, 2022. Improvement in networth is on account of accretion to reserves. RWPL's capital structure is healthy marked by improving gearing and total outside liabilities to total net worth (TOL/TNW) of 0.84 times and 1.07 times respectively as on March 31, 2023 as against 1.23 times and 1.36 times as on March 31, 2022. The comfortable profitability coupled with healthy gearing levels has resulted in comfortable debt protection metrics with interest coverage of 4.86 times and NCA/TD of 0.31 times for FY23 as against 3.92 times and 0. 22 times, respectively, for FY22. Besides Debt service coverage ratio stood at 1.81 times as on March 31, 2023. 
Acuité believes that the company's financial risk profile will remain comfortable on account of absence of debt funded capex plans over the medium term.

Moderate working capital operations
RWPL’s operations are moderate as reflected by its gross current asset (GCA) days of 109 days during FY23. The company maintains inventory of about 10-20 days and gives credit period of 60-80 days to its customers. Its creditor’s days stood in the range of 10-20days during last 3 years ending FY23. Moderate working capital management and moderate accruals lead to moderate utilisation of its working capital limits at an average of 47 percent over the past 12 months ended September 2023. As the raw materials are seasonally available; however, manufacturing and sales operations are carried out throughout the year leading to moderate working capital operations throughout the period. Acuité believes that the working capital cycle will continue to remain in the similar over the medium term on account of business cycle of cotton industry.

Susceptibility of the margins to volatility in raw material prices:
The RWPL’s  profitable margins are susceptible to fluctuations in the prices of raw materials, which affects sales realisations. Any adverse movement in the price of key raw materials, such as yarn, could have an adverse impact on the RWPL’s margins, as it may not be able to pass on the price hike to its customers owing to stiff competition. Operating margins of cotton spinners are susceptible to changes in cotton prices, which are highly volatile and commoditised product. Any abrupt change in cotton prices due to supply-demand scenario, carry-over stocks in the overseas market, and government regulations of changes in minimum support price (MSP) can lead to distortion in market prices and affect the profitability of players across the cotton value chain, including spinners.