| Established track record and steady improvement in operations:
All the partners of the group have presence in the textile industry for nearly two decades. This has helped the group in building healthy relationships with its suppliers and customers to ensure a steady raw material supply and repeat orders from its customers. Sri Amman textiles, Sri Madura Textiles and Amman Sizing and weaving mills have well established brand name in Korea, China which has resulted in 90 percent of the exports worth Rs.136Cr to these countries followed by bangladesh. Overall the group has shown stable improvement in its revenue in FY23 with a revenue of Rs.633.17Cr for the year posting a growth of 9 percent against previous year revenue of Rs.596.54 Cr. This growth in revenue is mainly due to higher sale of quantity during the year. To capture the increasing demand of fabrics, the group has hired some looms for weaving which has resulted in lower operating margin in the range 3.95 to 4 percent coupled with low realisations.
Further , Amman group has continued its growth trend in the current year with revenue of Rs.351.18Cr till August 2023 and is expected to register revenue in the range of Rs.725Cr to 750Cr by the end of FY24. The improvement in revenue is mainly on account of capacity expansion of looms which was fully operational from March, 2023 and operating margin is expected to improve to 4.5 - 5 percent on account of savings from the captive power. Acuité believes that partners established presence in the textile industry will support the group’s business profile over the medium term.
Efficient working capital operations:
Working capital operations of the group are efficient which is reflected by the Gross current assets days ranging between 91-97 days during past 3 years supported by timely receipts from customers. The debtor days stood at 46 days for FY23. Generally, the group allows a credit period of 30-45 days to its customers. The group maintains raw material inventory for 1-2 months and finished goods inventory of 30 days. The group’s creditor days ranged between 30-35 days during past 3 years ending 2023. Moderate working capital operations has led to moderate dependency on its fund based working capital limits. The consolidated fund based limit utilisation stood at an average of ~71 percent during past 12 months ending August 2023. Acuite believes that working capital operations of the group will remain efficient over the medium term on account of timely receipts from debtors.
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| Moderate financial risk profile
Amman group’s financial risk profile is moderate, marked by moderate net worth, high gearing levels and moderate debt protection metrics. Group’s net worth stood at Rs. 64.23 Cr as on March 31, 2023 as compared to Rs. 42.85 Cr as on March 31, 2022. Improvement in net worth is on account of infusion of capital worth Rs.18.76Cr by the partners coupled by accretion for profits to reserves. Amman group's capital structure is moderate marked by high gearing levels and total outside liabilities to total net worth (TOL/TNW) of 3.33 times and 4.2 times respectively as on March 31, 2023 as against 2.71 times and 3.81 times as on March 31, 2022. The deterioration is on account of infusion of debt towards capex. (The debt in Sri Amman Sizing and Weaving Mills Private Limited of Rs.45Cr is supported by personal guarantee provided by all 6 promoters as well as corporate guarantee provided by Sri Amman Textiles, Sri Amman Sizing and Weaving Mills providing additional comfort towards repayment of debt). The gearing ratio is expected to improve from FY25 onwards as the group has incurred additional Rs.9.70Cr debt towards capex in FY24 The coverage indicators remained moderate with DSCR of 2.17 times as on March 31st 2023 as against 2.70 times as on March 31st 2022. Interest coverage stood at 1.13 times as on March 31st 2023 as against 1.05 times as on March 31st 2022. Debt to EBITDA deteriorated to 6.74 times during FY23 from 4.70 times during previous year. Acuite believes that financial risk profile will improve on account of its improving scale of operations and expected improvement in profitability.
Susceptibility to fluctuation in raw material prices:
Amman Group’s profitabilityis susceptible to fluctuations in the prices of major raw materials such as domestic cotton and Imported yarn. Cotton being a seasonal crop, the production of the same is highly dependent upon the monsoon. Thus, any situation of 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 the group’s business profile and financial risk 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.
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