| Experience of partners and established t rack record of operations
All the partners of the group have presence in the textile industry for nearly two decades. This has helped in building healthy relationships with its suppliers and customers to ensure a steady raw material supply and repeat business. Sri Amman textiles and Amman Sizing and weaving mills has well established brand name in Korea and made exports worth Rs 88.17Cr in FY22. Sri Madura textiles mainly do exports for Bangladesh region. Acuité believes that partners established presence in the textile industry will support the group’s business profile over the medium term.
Significant improvement in revenue for FY22
The group has shown significant improvement in revenue for FY22 as the group reported Rs.596.44Cr (Job work ~Rs.150Cr) in FY22 against Rs.337.60Cr in FY21. This growth is mainly contributed by increased realisations, improved production. However, EBITDA margins have seen decline to 3.94 percent in FY22; this is due to dependency on job work. In order to capture the increasing demand, the group has hired some looms for weaving. This has impacted the operational margins in FY22. The group has reported revenue of ~Rs.395Cr as on September 31,2022 (YTD figures). The group is currently (FY23) incurring capex of Rs.23.4Cr for additional looms in Sri Murguan Textiles, which is funded by Rs.17Cr bank loans and balance from promoters. Acuite believes that the capex will increase the production capacity of the group and expected to reduce dependency on job work, which is further expected to improve margins in medium term.
Efficient working capital Management
Amman Group’s working capital operations are efficient as evident from Gross Current Assets days of (GCA) of 76 days as on March 31, 2022 against 91 days as on March 31, 2021. Debtor days Improved to 34 days as on March 31, 2022 from 38 days in March 31, 2021. Inventory days stood at 27 days as on March 31, 2022. Current ratio stood at 1.36 times as on March 31, 2022. 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 gearing has improved but stood high at 2.72 times as on March 31,2022 against 3.21 times as on March 31,2021. Group’s Net worth is moderate at Rs.42.75Cr as on March 31, 2022 against Rs.26.63Cr for previous year. Total outside liabilities to total tangible net worth (TOL/TNW) stood high as on March 31, 2022 at 3.82 times against 4.26 times in previous year. Debt protection metrics of the group are moderate marked by interest coverage ratio, Debt service coverage ratio and Net cash accruals to total debt (NCA/TD) of 2.70 times, 1.26 times and 0.13 times respectively as on March 31, 2022 against 2.34 times, 1.36 times and 0.09 times as on March 31, 2021. Acuite believes that financial risk profile of the group will improve in the medium term.
Susceptibility to fluctuation in raw material prices:
Amman Group’s profitable margins are susceptible to fluctuations in the prices of major raw materials such as domestic cotton and Import yarn. 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 the group’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.
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