| Established track record of operations along with experienced management
SDL has an established track record of operations dating back to more than a decade. Over the years, the company has established a strong position in the denim fabric manufacturing industry leading to healthy relationship established with their stakeholders. The experience of the management is reflected in the growing operations of the company. The denim fabric manufactured by the company is sold to various traders and readymade garment manufacturers at domestic and international markets like Bangladesh, Egypt, Sri Lanka amongst others.
Improving operating performance
The operating revenue of the company stood improved at Rs. 227.26 Cr. in FY26 (Prov.) as compared to Rs. 191.46 Cr. in FY25 and Rs. 167.44 Cr. in FY24, marking CAGR of 16.50 percent y-o-y over the past three years. The improvement in the revenue is attributable to increase in sales volumes owing to improving industry demands of denim fabrics while realisations continue to decline. However, the operating margin of the company also stood improved at 9.32 percent in FY26 (Prov.) as against 7.36 percent in FY25, on account of improving operating efficiencies and benefits derived from the captive power plant. Further, the company generated ~93.66 percent of its revenue in FY26 through domestic sales while ~6.34 percent of its revenue was derived from exports. Moreover, the company is currently setting up 4.34 MW of captive solar power plant at Vyara, Gujarat. Going forward, the operating performance of the company is anticipated to improve on account of expected improvement in sales realisations along with improvement in operating margin owing to commencement of solar power plant.
Moderate financial risk profile
The financial risk profile of the company is moderated marked by moderate net worth of Rs. 89.76 Cr. as on March 31, 2026 (Prov.) (Rs. 81.08 Cr. as on March 31, 2025), improved on account of accretion of profits to reserves. The net worth also includes unsecured loans from promoters and relatives treated as quasi equity amounting to Rs. 22.85 Cr. as on March 31, 2026, as per the undertaking received to maintain this amount in the business till the tenure of bank facilities. Moreover, the total debt of the company stood increased at Rs. 44.91 Cr. as on March 31, 2026 (Prov.) (Rs. 37.02 Cr. as on March 31, 2025) on account of increase in the working capital borrowings. However, the gearing (debt/equity) ratio stood healthy at 0.50 times in FY26 (Prov.) (0.46 times in FY25). Further, the debt protection metrics stood comfortable marked by interest coverage ratio of 5.92 times in FY26 (Prov.) and debt service coverage ratio of 1.52 times in FY26 (Prov.).
Going forward, the company is expected to avail long-term debt for installing solar power plant (amounting to Rs. 10.50 Cr. in FY27), however, owing to steady cash accruals, the financial risk profile of the company is expected to remain moderate.
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| Moderately intensive working capital operations
The working capital operations of the company are moderately intensive marked by gross current assets (GCA) of 155 days in FY26 (Prov.) (139 days in FY25), driven majorly by debtor and inventory levels. The company maintains inventory of almost two months with inventory levels at 59 days in FY26 (Prov.) (56 days in FY25). Further, the creditor days stood at 32 days in FY26 (Prov.) (31 days in FY25), and the debtor days stood at 64 days in FY26 (Prov.) and FY25. Going forward, the working capital operations of the company are expected to remain in the similar levels considering the nature of the business.
Susceptibility to fluctuations in raw material prices and highly competitive industry
SDL’s profitability margins are susceptible to fluctuations in the prices of raw material i.e., cotton yarn. Cotton being a seasonal crop, the production of the same is highly dependent upon the monsoon and the climatic conditions. Furthermore, any abrupt change in cotton prices due to supply demand scenario or government regulations of changes in minimum support price can lead to distortion of prices and affect the profitability of the company across the cotton value chain. Further, the company is operating in a fragmented textile industry and is exposed to intense competition from several players operating in the industry, which continues to remain key rating monitorable.
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