|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 8.00 | ACUITE BB- | Stable | Assigned | - |
| Bank Loan Ratings | 57.00 | ACUITE BB- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 7.00 | - | ACUITE A4+ | Assigned |
| Bank Loan Ratings | 12.00 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 84.00 | - | - |
| Rating Rationale |
|
Acuité has reaffirmed the long-term rating of ‘ACUITE BB-’ (read as ACUITE double B minus) and the short-term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs.69.00 crore bank facilities of Sree Ayyanar Spinning and Weaving Mills Private Limited (SAM). The outlook is ‘Stable’.
Acuité has assigned the long-term rating of ‘ACUITE BB-’ (read as ACUITE double B minus) and the short-term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs.15.00 crore bank facilities of Sree Ayyanar Spinning and Weaving Mills Private Limited (SAM). The outlook is ‘Stable’. Rationale for rating The rating reflects SAM's business risk profile marked by its experienced promoters, long standing client relationship and improvement in the scale of operations and margins in FY2022. The rating also factors the ability of SAM to sustain the operating margin in FY2023 inspite of decrease in turnover. The rating, however, continues to remain constrained by the below average financial risk profile, low debt protection metrics, moderately intensive working capital operations and poor liquidity position. |
| About the Company |
|
Sree Ayyanar Spinning and Weaving Mills Private Limited (SAM) is one of the oldest companies in the Pioneer Group. SAM was incorporated in 1962 and is located at Virudhunagar district of Tamil Nadu. The company currently operates with an installed capacity of 67,744 spindles and 480 rotors for manufacturing cotton yarn. The company produces counts ranging from 40s to 100s with moderate presence in value-added products such as compact yarn. Over the years, SAM has invested steadily in windmills and it has an installed capacity of 11.25 MW as on date for captive use. Cotton fibre is procured from local ginning companies, traders in USA, Spain Turkmenistan, Israel, Egypt among others. The company sells both in domestic and export markets of European Union and South-East Asian countries. Export accounts for 30% of the total sales. The directors of the company are Mr. Sankaralingam Maheswaran, Mr. Sankaralingam Annamalai, Mrs Aruna Ashok, Mr. Pradeep Sankar Maheswaran, Mr. Krishnamoorthy Sathiavan and Mr. Balakrishnan Prabaharan.
|
| Analytical Approach |
|
Acuité has taken a standalone view of the business and financial risk profile of SAM to arrive at the rating.
|
Key Rating Drivers
| Strengths |
| Extensive experience of promoters in the industry.
SAM is managed by Mr. Sankaralingam Maheswaran, Mr. Sankaralingam Annamalai, Mrs Aruna Ashok, Mr. Pradeep Sankar Maheswaran, Mr. Krishnamoorthy Sathiavan and Mr. Balakrishnan Prabaharan. All the directors have experience of over two decades in the textile industry. This helped to build a healthy relationship with its suppliers and customers to ensure a steady raw material supply and repeat business. The revenues improved in FY2022 to Rs.113.18 crore from Rs.83.67 crore in FY2021. The company has achieved a turnover of Rs.86.01 crore for FY2023 (provisional) and decrease in the turnover is due to high fluctuations in raw cotton prices. Acuité believes that SAM's longstanding presence and experienced management is expected to support in sustaining the operations and business risk profile over the medium term. Improvement in the operating margins The operating margin of the company stood at 14.29 percent in FY2022 as against 9.91 percent in FY2021. In FY2023, inspite of decline in revenues, SAM has been able to maintain the operating margin at 14.40 percent. The improvement is driven by savings on power and fuel costs. SAM has captive windmill power generation capacity of ~11.25 megawatt, which supports about 50-55 percent of its power requirement. |
| Weaknesses |
| Below average financial risk profile
Financial risk profile of SAM is below average marked by high gearing (debt to equity ratio), low net worth and moderate debt protection metrics. The gearing stood at 3.75 times as on March 31, 2022 as against 5.88 times as on March 31, 2021. TOL/TNW stood at 4.08 times as on March 31, 2022 against 6.86 times as on March 31, 2021. Tangible net worth of the company stood low at Rs.16.82 crore as on March 31, 2022 (quasi equity of Rs.18.52 crore) against Rs.10.61 crore as on March 31, 2021 (quasi equity of Rs.14.00 crore). The low net worth is majorly due to PAT losses. (reserves is at (7.45) Cr as on March 31,2022). Of the total debt of Rs.63.00 crore as on March 31, 2022, long-term debt stood at Rs.20.48 crore, short-term debt stood at Rs.32.04 crore, and CPLTD stood at Rs.10.49 crore. Debt protection metrics of interest coverage ratio and net cash accruals to total debt stood low at 0.94 times and 0.10 times respectively in FY2022; while DSCR stood at 0.90 times in FY2022. Acuité believes SAM’s ability to improve its financial risk profile over the medium term will remain a key rating monitorable. Working capital intensive operations SAM’s working capital operations have improving but are still intensive marked by Gross Current Asset (GCA) days of 143 days in FY2022 against 174 days in FY2021. The inventory days stood at 97 days in FY2022 against 112 days in FY2021. The company’s inventory holding policy depends on next season’s expectations / visibility for the next 6 months’ / order book position. The debtors days stood at 36 days in FY2022 against 43 days in FY2021. The credit period given to customers is around 30-45 days. The creditors days stood at 6 days in FY2022 against 49 days in FY2021. the fund based limits remains highly utilized at 91.40 percent for last 6 months ended March, 2023. Acuité believes that the Working capital is expected to remain intensive over the medium term. Susceptibility to fluctuation in raw material prices SAM’s profitable margins are susceptible to fluctuations in the prices of major raw material i.e.Raw cotton. Cotton being a seasonal crop, the production of the same is highly dependent upon the monsoon. Thus, inadequate rainfall affects the availability of cotton in adverse weather conditions. Furthermore, any abrupt change in cotton prices due to supply-demand scenario and government regulations of changes in Minimum Support Price (MSP) can lead to distortion of prices and affect the profitability of players across the cotton value chain. Acuité believes that SAM's business profile and financial profile can be adversely impacted on account of presence of inherent risk of susceptibility of volatility in raw cotton prices, since the industry is highly commoditized. |
| Rating Sensitivities |
|
| Material covenants |
| None |
| Liquidity Position: Poor |
|
SAM's liquidity position is poor as reflected by insufficient net cash accruals to its maturing debt obligations and intense utilization of fund based working capital limits. SAM generated cash accruals of Rs.6.48 crore and Rs.0.83 in FY2022 and FY2021 respectively while its maturing debt obligations stood at Rs.10.49 crore and Rs. 8.00 crore during the same period. The cash accruals of the SAM's are estimated to remain around Rs.5.31 crore to Rs.7.42 crore during 2023-25, while its repayment obligations are estimated to be around Rs.6.96 crore to Rs.6.45 crore over the same period. The funding gap of the company is met through infusion of funds by group companies .The Group companies investment stands at Rs.18.53 crore and Rs.28.88 crore in FY2022 and FY2023 respectively. However, liquidity is constrained by its fund based working capital limits which are highly utilized at about 91.40 percent for the last twelve months ended March, 2023. The current ratio stood weak, stood less than 1.00 times during last 3 years ended with March 31, 2022. Unencumbered cash and bank balances stood at Rs.0.06 crore as on March 31, 2022 and liquid investments stood at Rs.0.33 crore as on March 31, 2022.
|
| Outlook: Stable |
|
Acuité believes that SAM will maintain a ‘Stable’ outlook over the medium term owing to its experienced management and improving profitability. The outlook may be revised to 'Positive' if the company demonstrates substantial and sustained growth in its revenues from the current levels while maintaining its margins. Conversely, the outlook may be revised to 'Negative' in case the company registers lower than expected growth in revenues and profitability or deterioration in its working capital management or larger-than-expected debt-funded capex leading to deterioration in its financial risk profile and liquidity.
|
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 113.18 | 83.67 |
| PAT | Rs. Cr. | 1.68 | (3.76) |
| PAT Margin | (%) | 1.49 | (4.49) |
| Total Debt/Tangible Net Worth | Times | 3.75 | 5.88 |
| PBDIT/Interest | Times | 2.29 | 1.03 |
| Status of non-cooperation with previous CRA (if applicable) |
| Crisil vide its press release dated 24-02-2023 had rated the company to CRISIL B+/CRISIL A4/Stable : Issuer Not Cooperating |
| Any other information |
| None |
| Applicable Criteria |
|
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
|
In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
|
|
| |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |
|
Contacts |
| Analytical | Rating Desk |
| About Acuité Ratings & Research |
