Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 10.00 - ACUITE A4+ | Upgraded
Bank Loan Ratings 12.07 ACUITE BB | Stable | Upgraded -
Bank Loan Ratings 8.00 ACUITE BB | Stable | Assigned -
Total Outstanding Quantum (Rs. Cr) 30.07 - -
Total Withdrawn Quantum (Rs. Cr) 0.00 - -
 
Rating Rationale

­Acuite has upgraded its long term rating to ACUITE BB (read as ACUITE double B) from ACUITE B+ (read as ACUITE B plus) and short term rating to ACUITE A4+ (read as ACUITE A four Plus) from ACUITE A4 (read as ACUITE A four) on the Rs.22.07Cr bank facilities of Sri Murugan Textiles (SMT) and assigned its long term rating of ACUITE BB (read as ACUITE double B) to the additional Rs.8.00Cr bank facilities of SMT (Part of Amman group). the out look is 'Stable'.

Rationale for the rating
The rating upgrade is owning to the change in the analytical approach from standalone to consolidation. The rating action takes into account the partners extensive industry experience, significant improvement in revenue for FY22 and efficient working capital management. However, rating is constrained by moderate financial risk profile and its suseptibility to fluctuations in raw material prices.


About Company

­Established in 2014, Sri Murugan Textiles (SMT) is a partnership firm based out of AnnurCoimbatore (Tamil Nadu) engaged in sizing and manufacturing of Rayon Fabrics. The firm has installed capacity of 130 Airjet looms and with an average weaving capacity of 45500 meters of Rayon cloth per day. The firm is s managed by Mr. K. Manojkumar, Ms. S. Madhumitha, Mr. A Kalisamy, Mr. S. N. Swaminathan, Mr. S. N. Nithyandhan and Mr. M. Suchittra.

 
About the Group

Sri Amman Group has 4 partnership firms and one company namely – Sri Amman textiles, Sri Amman Sizing and Weaving Mils, Sri Madura Textiles, Sri Murugan Textiles and Sri Amman Sizing and weaving mils Private Limited. The group is currently managed by 6 partners named Nityanandan, Swaminandan, kaliswami, manoj Kumar, Gokul, Suchitra. Al the partners are family members. The group is into production of grey fabrics. The process involves purchase of yarn (Viscous yarn and cotton Yarn) and improving the strength of these yarns by sizing and fina ly production of grey fabrics by weaving of these yarns in Air jet looms. The group has established Sri Amman Sizing and Weaving Mils Private Limited in FY20. The company was established as an SPV for the solar project as the group is currently undergoing solar capex of 12MW worth Rs.64.25Cr (Rs. 45Cr of bank loans and Rs.19.25Cr promoter’s contribution). The capex is expected to be operational from December 2022. SASWMPL wil supply necessary power to its group firms. The capex wil be captively consumed. Currently, the power consumption of the group is 10MW sourced from Electricity board (EB) and other third party sources.

 

Analytical Approach

Extent of Consolidation
•Full Consolidation
Rationale for Consolidation or Parent / Group / Govt. Support

For arriving at this rating, Acuité has consolidated the business and financial risk profiles of al the firm in the Amman Group (Sri Amman textiles, sri Amman Sizing and weavig ils, Sri Murugan Textiles, Sri Madura Textiles, Sri Amman Sizing and weaving mils Private Limited) . The consolidation is in the view of similar line of business, common management, strong operational and financial linkages between the firms

Key Rating Drivers

Strengths

Experience of  partners and established track  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 mils has wel 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 wil 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 wil 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 wil remain efficient over the medium term on account of timely receipts from debtors.

Weaknesses

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 wil 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 rainfal 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.

Rating Sensitivities
  • ­Sustainable improvement in Profitability, Leverage and Solvency position of the group.

  • Sustainability of revenue and profitability through dependency on job work.

  • Any deterioration in financial risk profile of the group.

 
Material Covenants

­None

 
Liquidity : Adequate

The liquidity position of the group is adequate. Group has adequate NCA of Rs.14.65Cr in FY22 against debt repayment obligation of Rs.9.76Cr. The group is expected to generate adequate NCA’s in the range of Rs.20Cr to Rs.25Cr with repayment obligations of Rs.12.00Cr17.5Cr in the medium term. Unencumbered cash and bank balances stood at Rs.0.26Cr as on March 31, 2022 with current ratio of 1.35 times. The cash credit remained highly utilized at an average of 85 percent on consolidated basis of over the past 9 months ending September 2022. Acuite believes that the liquidity of the group wil remain adequate in the medium term.

 
Outlook: Stable

Acuité believes that Amman Group wil continue to benefit over the medium to long term on account of long track record of operations, experienced management in the industry. The outlook may be revised to 'Positive', in case of sustainable improvement in sales volumes and realizations of superior quality of cotton yarn produced by the group leading to higher-than expected revenues and profitability with improvement in financial risk profile. Conversely, the outlook may be revised to 'Negative' in case Amman group registers lower-than-expected revenues and profitability or any significant stretch in its working capital management or larger-than-expected debt- funded capital expenditure leading to deterioration of its financial risk profile and liquidity.

 
Other Factors affecting Rating
­None
 

Particulars Unit FY 22 (Actual) FY 21 (Actual)
Operating Income Rs. Cr. 596.44 337.60
PAT Rs. Cr. 2.66 1.03
PAT Margin (%) 0.45 0.31
Total Debt/Tangible Net Worth Times 2.72 3.21
PBDIT/Interest Times 2.70 2.34
Status of non-cooperation with previous CRA (if applicable)

­None

 
Any Other Information

­None

 
Applicable Criteria
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
• Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm
• Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm
• Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm
• Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.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.

 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
04 May 2022 Working Capital Demand Loan Long Term 0.50 ACUITE B+ ( Issuer not co-operating*)
Working Capital Term Loan Long Term 0.78 ACUITE B+ ( Issuer not co-operating*)
Term Loan Long Term 6.25 ACUITE B+ ( Issuer not co-operating*)
Term Loan Long Term 1.14 ACUITE B+ ( Issuer not co-operating*)
Proposed Bank Facility Long Term 1.95 ACUITE B+ ( Issuer not co-operating*)
Letter of Credit Short Term 10.00 ACUITE A4 ( Issuer not co-operating*)
Term Loan Long Term 1.45 ACUITE B+ ( Issuer not co-operating*)
19 Feb 2021 Cash Credit Long Term 5.00 ACUITE B+ | Stable (Assigned)
Working Capital Term Loan Long Term 0.78 ACUITE B+ | Stable (Assigned)
Term Loan Long Term 1.14 ACUITE B+ | Stable (Assigned)
Term Loan Long Term 6.25 ACUITE B+ | Stable (Assigned)
Proposed Bank Facility Long Term 1.95 ACUITE B+ | Stable (Assigned)
Term Loan Long Term 1.45 ACUITE B+ | Stable (Assigned)
Working Capital Demand Loan Long Term 0.50 ACUITE B+ | Stable (Assigned)
Letter of Credit Short Term 10.00 ACUITE A4 (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
Canara Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 2.00 Simple ACUITE BB | Stable | Upgraded
Canara Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 8.00 Simple ACUITE BB | Stable | Assigned
Canara Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 10.00 Simple ACUITE A4+ | Upgraded
Not Applicable Not Applicable Proposed Long Term Bank Facility Not Applicable Not Applicable Not Applicable 2.39 Simple ACUITE BB | Stable | Upgraded
Canara Bank Not Applicable Term Loan Not available Not available Not available 6.00 Simple ACUITE BB | Stable | Upgraded
Canara Bank Not Applicable Term Loan Not available Not available Not available 1.68 Simple ACUITE BB | Stable | Upgraded

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