Press Release

Press Release

June 19, 2024

SRI KANNAPIRAN MILLS LIMITED
Rating Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	133.20	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative	-
Bank Loan Ratings	42.80	-	ACUITE A3+ \| Reaffirmed
Total Outstanding	176.00	-	-

Rating Rationale

Acuité has reaffirmed the long-term rating to ‘ACUITE BBB’ (read as ACUITE triple B) and the short-term rating to 'ACUITE A3+' (read as ACUITE A three plus) on the Rs.176.00 crore bank facilities of Sri Kannapiran Mills Limited (SKML). The outlook is revised to ‘Negative' from 'Stable’.

Rationale for reaffirmation and revision of outlook:
The reaffirmation of rating and revision in outlook of Sri Kannapiran Mills Limited (SKML) factors in moderation in operating performance and stretch in liquidity position. During FY2024, SKML’s operating revenues marginally declined, however, operating profit was significantly impacted due to slowdown in the textiles industry resulting in contraction of spreads between raw material prices and finished goods realizations (yarn and fabrics). Consequently, the company’s cash accruals were inadequate to meet the maturing debt obligations. However, the same was managed through funding support from promoters and efficient working capital management. Further, the company operates with a buffer of around 8-10 Cr. in working capital limits to manage any contingency. Going forward, SKML ability to grow its scale of operations along profitability margins and improve its liquidity position will remain a key monitorable.

About the Company

Sri Kannapiran Mills Limited (SKML), incorporated in 1946 is engaged in manufacturing of cotton yarn, gloves and fabrics. Mr. Seenivasahan, Mr. Ayyalusamy Velusamy, Mr. Vidyasankar Bhuvaneshwari, Mr. Balakrishnan Srihari, Mr. Balakrishnan Sriramulu, Mr. Kokku Bhaskara Nagendra Murthy, Mr. Vanithamani, Mr. Bakthavathsalam, Mr. Govindaswamynaidu Balakrishnan, Mr. Gobichettipalayam Periasamy Muniappan are the directors of the company. The registered office of the company is in Coimbatore, Tamil Nadu.

Unsupported Rating

Not Applicable

Analytical Approach

Acuite has considered standalone business and financial risk profile of Sri Kannapiran Mills Limited(SKML).

Key Rating Drivers

Strengths

Established track record of operations and experienced management in textile industry:
SKML is engaged in manufacturing of cotton yarn and fabrics for more than 45 years. SKML is presently managed by Mr. K G Balakrishnan (Chairman), Mr. B Sriramulu (Managing Director) and Mr. B Srihari (Managing Director). Currently, SKML has 4 spinning units, 1 glove making unit 1 reeling and TFO unit and 1 weaving plant. The Major raw materials of the include Cotton, Waste cotton, Polyester and other man-made fibres. The company procures cotton and Cotton waste from suppliers in Tamil Nadu, Andhra Pradesh, Karnataka, Madhya Pradesh and Maharashtra regions. Manmade fibres from Reliance, Grasim etc. Company has extensive relationship with its long term customers and suppliers to ensure steady raw material supply and repeat business. Company also has long term power purchase agreement (PPA) with private power suppliers to meets its power requirements at lower price per unit than power supplied by power utilities. Acuite believes that SKML may continue to benefit from its established track record of operations and longstanding relationship with its customers and suppliers.

Moderate financial risk profile:
SKML’s financial risk profile remained moderate despite of subdued operating performance. SKML financial risk profile is primarily supported by healthy net worth, comfortable gearing and moderate debt protection metrics. The net worth of the company improved to Rs.121.40 Cr. as of March 31, 2023, from Rs.114.69 Cr. as of March 31, 2022, due to the accretion of profits to reserves for FY2023. The gearing remained comfortable at 1.08 times as of March 31, 2023 against 1.12 times as of March 31, 2022, despite the high debt levels comprising long-term debt of Rs.46.45 Cr. and short-term debt of Rs.84.02 Cr. Total outside Liabilities/Tangible Net Worth (TOL/TNW) remained comfortable at 1.85 times as of March 31, 2023 against 2.12 times as of March 31, 2022. Interest coverage ratio (ICR) and debt service coverage ratio (DSCR) deteriorated to 1.94 times and 0.98 times respectively, as of March 31, 2023 from 3.45 times and 1.58 times respectively, as of March 31, 2022. Debt to EBITDA also deteriorated to 3.92 times as of March 31, 2023. The deteriorated in debt protection metrics is primarily due to decline in operating profits in FY2023. Further, the gearing and debt protection metrics are expected to deteriorate marginally for FY2024, on account of debt infusion towards capex.
Going ahead, ability of the company to maintain its moderate financial risk profile amidst reducing accruals will remain a key monitorable in the near term.

Weaknesses

Marginal decline in operating revenues; albeit significant decline in profit margins:
SKML has reported marginal moderation in operating revenues in FY2024 against FY2023 levels. The company recorded revenue of Rs.492 Cr. during FY2023 against Rs.494 Cr. in FY2022 and is estimated to record revenues in the range of Rs.460-470 Cr. during FY2024. The company has registered operating profit margin of 6.14 percent in FY2023, lower than previous year on account of adverse movement of raw material prices. Further, the operating profit margins in FY2024 are expected to be slightly lower than FY2023 due to contraction of spreads between raw material prices and finished good prices. Going ahead, company’s ability to improve its revenues and profitability will remain a key monitorable.

Moderately intensive nature of working capital operations
SKML’s operations are working capital operations moderately managed as reflected by its gross current asset (GCA) days of around 135 days during FY2023 against 143 days of FY2022. The elongation in GCA days is due to higher inventory holding period of 81 days during FY2023, which is in line with the other players inventory holding period across yarn manufacturing industry. Debtors ageing stood below 41 days for FY2023, which helped in maintaining the cushion in working capital limits, which were utilized at an average of 85 percent during the past 12 months ending April, 2024. Acuité believes that the working capital cycle will continue to remain at similar levels over the medium term due to cyclical nature of the cotton industry.

Susceptible to volatility in raw material prices:
SKML’s profitable margins are susceptible to fluctuations in the prices of major raw materials such as domestic and imported cotton, blent and polyester. The main raw material purchased by the company is cotton. Cotton being an agricultural commodity by nature, the margins are susceptible to changes in cotton prices. Cotton availability and price of the same is highly dependent on agro-climatic conditions. Despite the prevalence of Minimum Support Price (MSP), the purchase price depends on the prevailing demand-supply situation, which limits bargaining power with the suppliers as well. As a result, the business is exposed to fluctuations in the commodities prices.

Rating Sensitivities

Improvement in scale of operations along with profitability.
Elongation in working capital cycle leading to deterioration in liquidity.

Liquidity Position : Stretched

SKML’s liquidity position is stretched with marked by insufficient net cash accruals (NCA) against the maturing debt obligations. The company has registered NCA of Rs.14.23 Cr. in FY2023 against the repayment obligation of Rs.14.98 Cr. Further, in FY2024 the company is expected to register insufficient NCA against the repayment obligations, on account of expected decline in operating profits. However, with the cushion in working capital limits which were utilized at an average of 85 percent and expected support from the promoters through infusion of funds, the company is expected to manage its liquidity position in the near term.

Outlook: Negative

Acuite has revised the outlook to 'Negative' on account of decline in scale of operations along with profitability levels leading to deterioration in liquidity position. The rating may be 'downgraded' if SKML registers lower-than expected growth in revenue along with profitability or any further infusion of higher than expected debt impacting the financial risk profile. The outlook may be revised to 'Stable' if the company registers improvement in operating profits and improvement in liquidity.

Other Factors affecting Rating

None

Key Financials

Particulars	Unit	FY 23 (Actual)	FY 22 (Actual)
Operating Income	Rs. Cr.	491.95	494.33
PAT	Rs. Cr.	6.71	26.76
PAT Margin	(%)	1.36	5.41
Total Debt/Tangible Net Worth	Times	1.08	1.12
PBDIT/Interest	Times	1.94	3.45

Status of non-cooperation with previous CRA (if applicable)

Not Applicable

Any other information

None

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.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

Rating History

Date	Name of Instruments/Facilities	Term	Amount (Rs. Cr)	Rating/Outlook
28 Mar 2023	Bank Guarantee (BLR)	Short Term	0.12	ACUITE A3+ (Assigned)
	Bank Guarantee (BLR)	Short Term	0.68	ACUITE A3+ (Assigned)
	Bank Guarantee (BLR)	Short Term	0.50	ACUITE A3+ (Assigned)
	Bank Guarantee (BLR)	Short Term	0.20	ACUITE A3+ (Assigned)
	Bank Guarantee (BLR)	Short Term	0.30	ACUITE A3+ (Assigned)
	Cash Credit	Long Term	4.00	ACUITE BBB \| Stable (Assigned)
	Cash Credit	Long Term	10.50	ACUITE BBB \| Stable (Assigned)
	Cash Credit	Long Term	11.73	ACUITE BBB \| Stable (Assigned)
	Cash Credit	Long Term	19.08	ACUITE BBB \| Stable (Assigned)
	Cash Credit	Long Term	5.65	ACUITE BBB \| Stable (Assigned)
	Cash Credit	Long Term	9.50	ACUITE BBB \| Stable (Assigned)
	Covid Emergency Line.	Long Term	4.94	ACUITE BBB \| Stable (Assigned)
	Covid Emergency Line.	Long Term	0.29	ACUITE BBB \| Stable (Assigned)
	Covid Emergency Line.	Long Term	5.08	ACUITE BBB \| Stable (Assigned)
	Covid Emergency Line.	Long Term	1.74	ACUITE BBB \| Stable (Assigned)
	Covid Emergency Line.	Long Term	3.79	ACUITE BBB \| Stable (Assigned)
	Covid Emergency Line.	Long Term	2.40	ACUITE BBB \| Stable (Assigned)
	Covid Emergency Line.	Long Term	8.44	ACUITE BBB \| Stable (Assigned)
	FBN/FBP/FBD/PSFC/FBE	Short Term	1.20	ACUITE A3+ (Assigned)
	FBN/FBP/FBD/PSFC/FBE	Short Term	6.00	ACUITE A3+ (Assigned)
	FBN/FBP/FBD/PSFC/FBE	Short Term	1.80	ACUITE A3+ (Assigned)
	Letter of Credit	Short Term	4.50	ACUITE A3+ (Assigned)
	Letter of Credit	Short Term	4.64	ACUITE A3+ (Assigned)
	Letter of Credit	Short Term	7.50	ACUITE A3+ (Assigned)
	Letter of Credit	Short Term	3.00	ACUITE A3+ (Assigned)
	Letter of Credit	Short Term	1.50	ACUITE A3+ (Assigned)
	Letter of Credit	Short Term	1.21	ACUITE A3+ (Assigned)
	Proposed Long Term Bank Facility	Long Term	21.06	ACUITE BBB \| Stable (Assigned)
	Term Loan	Long Term	8.89	ACUITE BBB \| Stable (Assigned)
	Term Loan	Long Term	1.53	ACUITE BBB \| Stable (Assigned)
	Term Loan	Long Term	1.90	ACUITE BBB \| Stable (Assigned)
	Term Loan	Long Term	9.33	ACUITE BBB \| Stable (Assigned)
	Working Capital Demand Loan (WCDL)	Long Term	5.00	ACUITE BBB \| Stable (Assigned)
	Working Capital Demand Loan (WCDL)	Long Term	5.00	ACUITE BBB \| Stable (Assigned)
	Working Capital Demand Loan (WCDL)	Long Term	3.00	ACUITE BBB \| Stable (Assigned)

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Complexity Level	Rating
Indian Bank	Not avl. / Not appl.	Bank Guarantee (BLR)	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	1.50	Simple	ACUITE A3+ \| Reaffirmed
South Indian Bank	Not avl. / Not appl.	Bank Guarantee (BLR)	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	0.20	Simple	ACUITE A3+ \| Reaffirmed
Central Bank of India	Not avl. / Not appl.	Bank Guarantee (BLR)	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	0.30	Simple	ACUITE A3+ \| Reaffirmed
Punjab National Bank	Not avl. / Not appl.	Bank Guarantee (BLR)	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	0.12	Simple	ACUITE A3+ \| Reaffirmed
HDFC Bank Ltd	Not avl. / Not appl.	Bank Guarantee (BLR)	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	0.68	Simple	ACUITE A3+ \| Reaffirmed
Punjab National Bank	Not avl. / Not appl.	Cash Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	19.08	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Central Bank of India	Not avl. / Not appl.	Cash Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	11.50	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Union Bank of India	Not avl. / Not appl.	Cash Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	11.73	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
South Indian Bank	Not avl. / Not appl.	Cash Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	4.00	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Indian Bank	Not avl. / Not appl.	Cash Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	17.50	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
HDFC Bank Ltd	Not avl. / Not appl.	Cash Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	10.65	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Indian Bank	Not avl. / Not appl.	Covid Emergency Line.	Not avl. / Not appl.	Not avl. / Not appl.	12 Feb 2026	0.29	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Indian Bank	Not avl. / Not appl.	Covid Emergency Line.	Not avl. / Not appl.	Not avl. / Not appl.	31 Dec 2027	6.38	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
South Indian Bank	Not avl. / Not appl.	Covid Emergency Line.	Not avl. / Not appl.	Not avl. / Not appl.	31 Mar 2027	1.18	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Central Bank of India	Not avl. / Not appl.	Covid Emergency Line.	Not avl. / Not appl.	Not avl. / Not appl.	28 Feb 2028	1.80	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Union Bank of India	Not avl. / Not appl.	Covid Emergency Line.	Not avl. / Not appl.	Not avl. / Not appl.	28 Feb 2028	1.31	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Punjab National Bank	Not avl. / Not appl.	Covid Emergency Line.	Not avl. / Not appl.	Not avl. / Not appl.	31 Mar 2028	3.98	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
HDFC Bank Ltd	Not avl. / Not appl.	Covid Emergency Line.	Not avl. / Not appl.	Not avl. / Not appl.	31 Aug 2028	2.94	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Union Bank of India	Not avl. / Not appl.	FBN/FBP/FBD/PSFC/FBE	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	3.00	Simple	ACUITE A3+ \| Reaffirmed
HDFC Bank Ltd	Not avl. / Not appl.	FBN/FBP/FBD/PSFC/FBE	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	3.00	Simple	ACUITE A3+ \| Reaffirmed
Punjab National Bank	Not avl. / Not appl.	FBN/FBP/FBD/PSFC/FBE	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	3.00	Simple	ACUITE A3+ \| Reaffirmed
Central Bank of India	Not avl. / Not appl.	FBN/FBP/FBD/PSFC/FBE	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	2.50	Simple	ACUITE A3+ \| Reaffirmed
South Indian Bank	Not avl. / Not appl.	FBN/FBP/FBD/PSFC/FBE	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	2.00	Simple	ACUITE A3+ \| Reaffirmed
Indian Bank	Not avl. / Not appl.	FBN/FBP/FBD/PSFC/FBE	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	11.50	Simple	ACUITE A3+ \| Reaffirmed
Indian Bank	Not avl. / Not appl.	Letter of Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	5.25	Simple	ACUITE A3+ \| Reaffirmed
South Indian Bank	Not avl. / Not appl.	Letter of Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	2.00	Simple	ACUITE A3+ \| Reaffirmed
Central Bank of India	Not avl. / Not appl.	Letter of Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	3.50	Simple	ACUITE A3+ \| Reaffirmed
HDFC Bank Ltd	Not avl. / Not appl.	Letter of Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	1.50	Simple	ACUITE A3+ \| Reaffirmed
Punjab National Bank	Not avl. / Not appl.	Letter of Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	1.00	Simple	ACUITE A3+ \| Reaffirmed
Union Bank of India	Not avl. / Not appl.	Letter of Credit	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	1.75	Simple	ACUITE A3+ \| Reaffirmed
Not Applicable	Not avl. / Not appl.	Proposed Long Term Bank Facility	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	9.09	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Indian Bank	Not avl. / Not appl.	Term Loan	Not avl. / Not appl.	Not avl. / Not appl.	31 Oct 2025	4.02	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
South Indian Bank	Not avl. / Not appl.	Term Loan	Not avl. / Not appl.	Not avl. / Not appl.	30 Sep 2027	6.56	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Union Bank of India	Not avl. / Not appl.	Term Loan	Not avl. / Not appl.	Not avl. / Not appl.	15 Dec 2027	1.53	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
HDFC Bank Ltd	Not avl. / Not appl.	Term Loan	Not avl. / Not appl.	Not avl. / Not appl.	27 Jun 2028	1.90	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Indian Bank	Not avl. / Not appl.	Term Loan	Not avl. / Not appl.	Not avl. / Not appl.	31 Mar 2028	3.76	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
HDFC Bank Ltd	Not avl. / Not appl.	Working Capital Demand Loan (WCDL)	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	5.00	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
Indian Bank	Not avl. / Not appl.	Working Capital Demand Loan (WCDL)	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	5.00	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative
South Indian Bank	Not avl. / Not appl.	Working Capital Demand Loan (WCDL)	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	4.00	Simple	ACUITE BBB \| Negative \| Reaffirmed \| Stable to Negative

Contacts

Analytical Details	Contact Details
Mohit Jain Senior Vice President - Rating Operations Tel: 022–49294017 mohit.jain@acuite.in Katta Akhil Analyst - Rating Operations Tel: 022-49294065 akhil.katta@acuite.in	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating.