­Established track record and stable operations:
Santhi Processing Unit Private Limited (SPUPL) is promoted by Mr. S. Duraisamy who possess a vast experience of 40 years in the textile industry. With a long track record of operations, SPUPL has become one of the renowned integrated textile player with a total spinning capacity of 14,600 spindles and 108 looms along with 6.35 megawatt (MW) solar power and windmills for captive power consumption. The promoter's extensive industry experience has helped the company to establish longstanding relationships with its key suppliers and customers. The extensive experience of promoter is also reflected through stable operations over the years. During FY2024, SPUPL registered revenue of Rs.336.72 Cr., while it is estimated to register a revenue of Rs.458.60 Cr. in FY2025. The significant growth in revenue is mainly due to higher quantity sale of fabrics. Further, higher realizations for yarn and fabrics are estimated to improve the EBITDA margins to 7.5-8.5 percent in FY2025.
Acuite believes that SPUPL will continue to benefit from the partners established presence in the textile industry.

Above average financial risk profile
SPUPL’s financial risk profile is above average, marked by moderate networth, healthy capital structure and debt protection metrics. SPUPL's  net worth stood at Rs. 74.73 Cr. as on March 31, 2024 as compared to Rs. 66.12 Cr. as on March 31, 2023. Improvement in networth is on account of accretion for profits to reserves. The total debt increased to Rs.65.17 Cr. as on March 31, 2024, compared to Rs.41.99 Cr. as on March 31, 2023. The increase in debt levels is primarily on account of long-term debt availed for capex purpose. Consequently, the gearing level and total outside liabilities to total net worth (TOL/TNW) stood at 0.87 times and 1.30 times respectively as on March 31, 2024 as against 0.64 times and 0.85 times as on March 31, 2023. The debt protection metrics stood moderate with interest coverage of 3.63 times and debt service coverage ratio (DSCR) of 1.79 times for FY2024 as against 4.50 times and 1.48 times, respectively for FY2023. Besides, Debt to EBITDA has marginally deteriorated to 2.52 times as on March 31, 2024 against 1.92 times of previous year.
Acuité believes that despite the debt funded capex company’s financial risk profile will remain above average on account of its improving scale of operations and expected improvement in profitability.

Efficient working capital operations
SPUPL’s working capital operations are efficiently managed as reflected by its gross current asset (GCA) days of 84 days, supported by lower inventory days of 25 days in FY2024. The company benefits from established relationships with customers, resulting in a debtor days of 44 days in FY2024 against 27 days in FY2023. Similarly, the company makes payment to its suppliers up on realizing its debtors, resulting in a creditor days of 36 days in FY2024 against 6 days in FY2023. This has led to moderate dependency on its fund based working capital limits, which were utilized at an average of 80 percent over the past 12 months ending March, 2025.
Acuite believes that, the company’s ability in maintaining the efficient working capital operations will be a key rating sensitive.

­Intense competition in the industry
SPUPL operates in a highly fragmented and competitive segment of textile value chain. This segment is marked by the presence of a large number of small to mid-sized players, especially in textile hubs like Tamil Nadu, Gujarat and Maharashtra. Many players operate as job-workers for large garment or fabric manufacturers, bidding on processing contracts where price and turnaround time are the primary differentiators. As a result, price competition is stiff, which may also limit the pricing power of individual players. This emphasises the need for maintaining customer relations and strengthening the integrated operations, to sustain the profitability. SPUPL is currently incurring capex around Rs.63.00 Cr. for Solar Power and a processing unit. The solar capex is expected to meet around 90 percent of the electricity usage and the processing unit is expected to strengthen the backward integration and reduce the dependency on job work of the yarn to fabric.

Risk of dependency on job work:
Santhi Processing Unit Private Limited relies on third-party processors for certain key operations, which may expose the company to operational risks, including limited control over quality and consistency. The reliance on job work also constrains the company's ability to capture higher margins. However, this risk is partially mitigated by company's established relationships with experienced job workers.
Acuite believes, that the ongoing capex on processing plant will enhance control and support improvement in margins over the medium term.