| Experienced management and established track record in textile business and diversified clientele
SPFL benefitted from the extensive experience of its promoters Mr. Krishnakumar Jhunjhunwala and Mr. Madhusudhan Jhunjhunwala, who collectively possess more than two decades of experience in the textile industry. SPFL was the first company to manufacture Nylon 66 in India that can be utilized in a range of applications. Over the years, the company has managed to create a strong client base of 294 customers and exports to around 62 countries. Due to demise of Mr. Madhusudhan Jhunjhunwala in July, 2021, the company is presently managed by Mr. Krishnakumar Jhunjhunwala. Nonetheless, the management has ensured a steady succession plan. The daughter and son of Mr. Krishnakumar Jhunjhunwala, Ms. Neha Jhunjhunwala and Mr. Kanav Jhunjhunwala are actively involved in the company’s operations for the past 12 years and 3 years respectively. The promoters are adequately supported by highly qualified professionals.
Further, the company has an established clientele and caters to customers like Infiiloom India, Fitlene SL, Page Industries, Elevate textiles, American & Efird, etc. The yarn manufactured by the company is used in the manufacturing of automotive seat belts and trims, upholstery, athletic footwear, leather goods, soft luggage, lingerie, swimwear and sportswear. Further the special high tenacity yarn is a niche market, and the high strength yarn is used in the manufacturing of airbags, parachute etc. Leveraging their strong brand reputation, company expects swift utilisation of full capacity, resulting in increased sales volumes, higher realisations, and improved margins. Acuité believes that the extensive experience of the management and established global presence will strengthen the business risk profile over the medium term.
Improvement in overall operating performance albeit moderation in revenues
The revenue of the group stood at Rs 383.26 Cr. in the FY2024 as against Rs 387.40 Cr. in the FY2023. The slight decline in revenue is on account of pressure on realizations in the global market which is offset by the volume growth from 12.27 lakhs tons in FY2023 to 12.39 lakhs tons in FY2024. The average per kg realization stood at Rs. 299.24 per kg in FY2024 as against Rs. 307.91 per kg in FY2023. However, the revenue improved which stood at Rs 326.77 Cr. till 9MFY2025 as against the corresponding 9MFY24 at Rs 277.42 Cr. The EBITDA margins stood at 15.14 percent in FY2024 as against 14.67 percent in FY2023 on account of improvement in operating leverage during the FY2024, thus reflecting better operational performance and cost management albeit flat scale in the revenue operations. In addition to that EBITDA margin stood at 20.70 percent in 9MFY25 as against 14.00 percent in 9MFY24. The improvement is on account of change in purchase policy and passing on the raw material cost to end customers to an extent which supported overall improvement in profitability.
The PAT margins stood at 8.54 percent in FY2024 as against 5.52 percent in FY2023 on account of improvement in EBITDA margins, increase in non-operating income from Rs 9.88 Cr. in FY2023 to Rs 20.75 Cr. in FY2024 which mainly consist of interest income and fair valuation gain on investment. In addition to that PAT margin stood at 15.22 percent in 9MFY25 as against 7.68 Percent in 9MFY24. Acuite believes that the group would continue to improve it operating performance steadily over the medium term however, the sustained improvement in operating performance would remain a key monitorable over the near to medium term.
Healthy financial risk profile
The healthy financial risk profile of the group is marked by healthy net worth, low gearing and healthy debt protection metrics. The tangible net worth stood at Rs. 427.78 Cr. as on March 31, 2024 as against Rs. 394.42 Cr. as on March 31, 2023 on account of accretion of reserves. The total debt of the company increased to Rs. 136.96 Cr. as on March 31, 2024 as against Rs. 108.52 Cr. as on March 31, 2023 on account of availment of term loan of Rs 23.00 Cr. and increase in short term debt in form of packing credit loan and foreign bill discounting. The gearing (debt to equity) but stood comfortable at 0.32 times as on March 31, 2024 as against 0.28 times as on March 31, 2023. The interest coverage ratio stood (ICR) remained flat at 13.56 times in FY2024 as against 13.80 times in FY2023. The DSCR of the company improved which stood at 3.04 times in FY2024 owing to healthy accruals and repayment of debt obligations during FY2024 as against 2.54 times in FY2023.
Acuité expects the financial risk profile of the group to remain healthy over the medium term on account of healthy accretion to reserves, absence of significant debt-funded capex and healthy profitability margins.
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Working capital intensive nature of business
The operations of the group are working capital intensive as reflected by high gross current assets (GCA) of 193 days in FY2024 as against 170 days in FY2023. The GCA is majorly dominated by higher inventory days of 95 days and 109 days during FY2024 and FY2023 respectively. The company has to maintain a high level of raw material inventory due to dependence on imports. Further, since more than 50 percent of company's revenue is derived from overseas clientele SPFL has to extend some credit period which is backed by letter of credit of upto 90 to 120 days alleviating the risk of uncollectible receivables. The debtor days for FY2024 stood at 89 days as against 58 days in FY2023. The creditors days for FY2024 stood at 65 days as against 53 days in FY2023. The average bank limit utilization (fund and non-fund based) are 48.98 percent for the five-month ended with December 2024. Acuité believes that, working capital operations of the group will remain working capital-intensive back by high inventory and collection days and any further deterioration will remain as a key rating monitorable.
Susceptibility of profitability to input prices and volatility in forex rates
The cost of production and profit margin of the company is directly linked to crude oil prices. The raw material cost constituted around 56 percent in FY2023 and FY2024 against ~52 percent of the total revenue in FY2022. The fluctuation in raw material cost can be attributed to the changes in crude oil price, resultant the operating margins (EBITDA) have remained fluctuating ranging in 14.67 percent in FY2023 to 15.14 percent in FY2024 as against 20.19 percent in FY2022.
Further, the profit margin is also susceptible to foreign exchange fluctuation risk. In FY2024 there is net gain of Rs 0.19 Cr. in foreign currency transaction and translation as on March 31, 2024 as against the net loss of Rs 4.22 Cr. in March 31, 2023. However, the forex risk is naturally hedged to some extent as company also imports raw materials. The foreign inflows include exports that accounts for 56 percent of the revenue and outflows include raw material imports to the extent of 25-30 percent of revenue along with debt repayment against foreign currency loan, thereby creating a natural hedge. Additionally, the company maintains adequate forward cover to hedge the exposure in foreign currency which serves as a mitigation against the forex risk.
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