­Established track record and improving operational metrics:
Santhi Processing Unit Private Limited (SPUPL) is promoted by Mr. Durai swami having vast experience of 40 years in the textile industry. The company has developed a strong customer base both in the domestic and export market. The company has shown significant improvement in revenue for FY22 as the company generated revenue of Rs.329.39 Cr (Provisional), while sales for FY21 stood around Rs.129.14 Cr. This significant improvement in revenue is mainly due to increase in realisation value of yarn (Average rate of yarn increased to Rs. 266 per kg in FY22 vis-à-vis Rs.185 per Kg in FY21) coupled with higher sale of looms which were manufactured on job work basis. This was done to capture the increased demand of fabrics in the market and yield higher margins. 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 net worth, healthy gearing (debt-to equity), and moderate total outside liabilities to total net worth (TOL/TNW) and healthy debt protection metrics. SPUPL's net worth is moderate at Rs. 59.09 Cr as on March 31, 2022 (Provisionals) as compared to Rs.52.63 Cr as on March 31, 2021. Gearing is healthy at 0.78 times as on March 31, 2022(Provisional). TOL/TNW is moderate at 1.22 times as on March 31, 2022(Provisionals) against 1.37 times as on March 31, 2021. Interest coverage ratio improved to 3.16 times as on March 31, 2022(Provisional) from 2.81 times on March 31, 2021. Debt service coverage ratio(DSCR) stood at 1.54 times as on march 31, 2022(Provisional). Acuite believes that financial risk position of SPUPL will improve over the medium term.

Efficiently managed working capital cycle
SPUPL's working capital management is moderate marked by its gross current asset (GCA) of 72 days as on March 31, 2022 (Provisional) against 106 days as on March 31, 2021. Debtors days stood at 24 days as on March 31, 2022(Provisional) as compared to 70 days as on previous year end. Creditor days stood at 26 as on March 31, 2022(Provisional). Current Ratio Stood at 1.37 times as on March 31, 2022 (Provisional) against 1.49 times as on previous year end. Acuite believes that working capital management of the company will remain efficient over the medium term.

­Intense competition in the industry
The textile industry is highly fragmented, comprising several small and mid-sized players and the operating margins are susceptible to changes in cotton and yarn prices which are highly volatile. The activities in textiles range from the production of natural raw materials such as cotton, jute, silk and wool to the manufacture of quality products such as viscose fibre, synthetic filament and spun yarn. The industry is often plagued by obsolescence, unhealthy regulations. This emphasises the need for strengthening the management mechanism in the industry, to face the emerging challenges. SPUPL is currently incurring capex around Rs.8.00 Cr for Solar Power which could cover upto 60% of the electricity usage, however, the management has no plans to incur any capital expenditure on its existing spindle capacity of 14,600 spindles , 3 vortex machines and 80 looms. This could lead to increase in dependency on job work of the yarn to fabric to maintain the current revenue levels around Rs.300 Cr. Acuite believes that SPUPL have the experienced management to overcome these demand and price related fluctuations.