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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 30.00 | ACUITE BBB- | Stable | Assigned | - |
| Bank Loan Ratings | 30.00 | ACUITE BBB- | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 60.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long-term rating at ‘ACUITE BBB-’ (read as ACUITE triple B Minus) on the Rs. 30.00 Cr bank facilities of the Sri Salasar Balaji Agro Tech Private Limited (SSBATPL or Sri Salasar Balaji group).
Acuité has also assigned its long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B Minus) on the Rs. 30.00 Cr bank facilities of the Sri Salasar Balaji Agro Tech Private Limited (SSBATPL or Sri Salasar Balaji group). The outlook is 'Stable'. Rationale for Rating The rating reflects satisfactory operating performance of Sri Salasar Balaji Group’s in FY2022 and expectations of stable performance in FY 2023, its comfortable financial risk profile and efficient working capital operations, the extensive experience of promoters and location-specific advantage by being in proximity to the cotton growing areas of Mahabubnagar (Telangana). The above rating strengths are partly mitigated by intense competition in the industry and vulnerability of its margins to fluctuating raw material and yarn prices. |
| About Company |
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Incorporated in 2003, Sri Salasar Balaji Agro Tech Private Limited (SSBATPL) is a Hyderabadbased company engaged in the business of FP Bales (full pressed bales) and cotton yarn. Mr. Dhiraj Kumar Khetan and his family members are the promoters of the company.
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| About the Group |
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Sri Salasar Balaji Textiles Private Limited
Incorporated in November 2017, Sri Salasar Balaji Textiles Private Limited (SSBTPL) is engaged in manufacturing of cotton yarn. Mr.Dhiraj Kumar Khetan is the promoter of the company. The plant is located in Adilabad, Telangana with an installed capacity of 48,000 spindles. SSBTPL started commercial operations July, 2019. Shyam Cotton Trading Company Shyam Cotton Trading Company (SCTC) is a proprietorship concern, established in 2003 by Ms. Manju Khetan. SCTC is based in hyderabad (Telangana) engaged in trading of cotton. |
Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has considered consolidated financials of Sri Salasar Balaji Agrotech Private Limited (SSBATPL), its wholly owned subsidiary - Sri Salasar Balaji Textiles Private Limited (SSBTPL) and Shyam Cotton Trading Company (SCTC), together referred to as the Sri Salasar Balaji Group. The consolidation is on account of strong operational, financial and managerial linkages.
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Key Rating Drivers
| Strengths |
| Extensive experience of promoters and long operational track record of operations
Sri Salasar Balaji Textiles Private Limited (SSBTPL) belongs to Sri Salasar Balaji Group, which has presence in the cotton textile industry for more than three decades. Mr. Dhiraj (Managing director) is actively engaged in managing the day to day operations of the company along with adequate support from other family members who also have been associated with the cotton Industry. The manufacturing facility of the company is strategically located in Mahboobnagar district, which is a hub for horticultural. Raw cotton being the major raw material is available abundantly in close proximity of the unit. Further, the promoters have long and established relationship with the farmers as well as traders which augurs well for the company. The promoters have established long relationships with various stakeholders across the value chain, aiding in repeat orders from key customers. Acuité believes that Sri Salasar Balaji group will continue to benefit from the extensive experience of its promoters, and established relationships with clients will improve its business risk profile over the medium term. Improved Operating Performance The group recoreded an revenue of Rs.1300.13 Cr in FY2022 as against Rs.723.70 Cr in FY2021 which is a growth of ~80 percent and has achieved this on account of high demand with higher volumes, favourable pricing environment and addition of new customer base across all locations and business diversification along with continued international demand and competitive pricing. Salasar Group’s revenue grew at a CAGR of 64 % during FY20-FY22. The group EBITDA margins stood at 1.95 percent in FY2022 as against 3.20 percent in FY2021 on account of volatility in raw material costs. Also, the company undertook trading activity along with the manufacturing activities in SSBTPL to safeguard the revenue profile in FY2022. Further the margins were impacted because of lower realization (per MT) in the manufacturing division. For, 10MFY2023, the Group has reported revenue of Rs.643.93 Cr and expected to sustain its EBITDA margins at 4%- 5% in the medium term, considering a likely moderation in raw material costs with improved realisations in cotton yarn segment. Acuité believes that Group’s scale will improve over the medium and operating margins remaining stable. Efficient Working capital operations The working capital management of the group is efficient marked by GCA days of 53 days in FY2022 as against 68 days in FY2021. The inventory days stood at 20 days in FY2022 as against 20 days in FY2021. Generally, the group has an inventory holding period of 30-45 days. The debtor days stood at 25 days in FY2022 as against 15 days in FY2021. The group generally deals on a 100% cash basis but sometimes it gives credit period of 15-20 days to its customers. The Creditor days stood at 23 days in FY2022 as against 13 days in FY2021. The group generally allows a credit period of 20-30 days from its suppliers. Acuité believes that ability of the group is to maintain its efficient working capital cycle over the medium term will remain a key rating sensitivity factor. Moderate financial risk profile The financial risk profile of the group stood moderate marked by modest net worth, moderate gearing, and moderate debt protection metrics. The tangible net worth of the group stood at Rs.68.64 crore as on 31 March 2022 as against Rs.56.92 crore as on 31 March, 2021. The total debt of the group stood at Rs.128.14 crore includes Rs.57.79 crore of long-term debt, Rs.11.81 crore of CPLTD, Rs.5.12 crore of Unsecured loans and Rs.53.41 crore of short-term debt as on 31 March, 2022. The gearing (debt-equity) stood at 1.87 times as on 31 March 2022 as compared to 2.26 times as on 31 March, 2021. Interest Coverage Ratio stood at 2.34 times for FY2022 as against 2.10 times for FY2021. Debt Service Coverage Ratio (DSCR) stood at 1.46 times in FY2022 as against 1.99 times in FY2021. Total outside Liabilities/Total Net Worth (TOL/TNW) stood at 3.21 times as on 31 March, 2022 as against 2.85 times as on 31 March, 2021. Acuité believes that with moderate accruals and no significant debt-funded capex plans, the financial risk profile is expected to moderate over the medium term. |
| Weaknesses |
| Highly competitive and fragmented industry
Cotton is a ‘kharif crop’, sowed in June and harvested in October. Therefore, the ginning activities also commence in October and last till March every year, making the business seasonal. Availability of cotton is highly dependent on monsoon. Cotton production, government interventions and fluctuations in global cotton output have resulted in sharp fluctuations in cotton prices in the past and impacted the operating margins of players. Sustenance of the operating margin amid the volatility in cotton price will remain a key sensitivity factor. Operating margins of Salasar Group have oscillated in the range of 1.74 -4.68 percent over FY2020-22. Cotton, which is the main raw material required for ginning, is a seasonal crop and production of the same is highly dependent upon monsoon. Thus, inadequate rainfall may affect the availability of raw cotton in adverse weather conditions. The cotton industry is highly competitive with multiple players coupled with low entry barriers resulting in intense competition from both the organised as well as unorganised players. Acuité believes that operating margins of the entire value chain - ginners and spinners continue to be exposed to the volatile raw material prices and impacts on profitability. Also, the low value-additive nature of the business results in thin profit margins for the group. |
| Rating Sensitivities |
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| Material Covenants |
| None. |
| Liquidity Position |
| Adequate |
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The group’s liquidity position is adequate, marked by healthy net cash accruals against its maturity debt obligations. The group generated net cash accruals in the range of Rs.5.70-Rs.18.44 Crore from FY 2020- 2022 against its maturity repayment obligations in the range of Rs.7.87-Rs.11.81 crore in the same tenure. In addition, it is expected to generate sufficient cash accrual in the range of ~Rs.20-Rs.25 crores against the maturing repayment obligations of Rs.11-13 crore over the medium term. The working capital management of the group is efficient marked by GCA days of 53 days in FY2022 as against 68 days in FY2021. The average utilization of the working capital facilities stood at ~50%-60% of the sanctioned amount for past 10 months ended January 2023. The group maintains unencumbered cash and bank balances of Rs.2.12 crore as on March 31, 2022. The current ratio of the group stands at 1.23 times as on March 31, 2022 as against 1.57 times as on 31 March, 2021.
Acuité believes that though cash accruals are adequate, howbeit, managing the working capital efficient operations will remain a key rating sensitivity factor. |
| Outlook: Stable |
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Acuite believes that Sri Salasar Balaji group will continue to benefit over the medium term due to its “established market position and established relations with its customers. The outlook may be revised to “Positive”, if the group demonstrates substantial and sustained growth in its operating margins from the current levels while improving its capital structure through equity infusion. Conversely, the outlook may be revised to “Negative”, if Group’s generates lower-than-anticipated cash accruals, most likely as a result of sharp decline in operating margins, or further stretch in its working capital cycle, or larger-than expected debt-funded capex thereby impacting its financial risk profile, particularly its liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 1300.33 | 723.70 |
| PAT | Rs. Cr. | 11.01 | 5.77 |
| PAT Margin | (%) | 0.85 | 0.80 |
| Total Debt/Tangible Net Worth | Times | 1.87 | 2.26 |
| PBDIT/Interest | Times | 2.34 | 2.10 |
| Status of non-cooperation with previous CRA (if applicable) |
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None
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| Any Other Information |
| None. |
| Applicable Criteria |
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• 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 • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm |
| Note on Complexity Levels of the Rated Instrument |
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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.
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