| Extensive experience of promoters and long operational track record of operations
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 Mahabubnagar 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.
Moderation in operating performance
The Group recorded operating income of Rs. 512.49 crore in FY2024 as against Rs. 553.76 crore in FY2023. Operating margin improved to 2.68 per cent in FY2024 from 0.82 per cent in FY2023, supported by stable raw material costs. SSBTPL’s trading activities alongside manufacturing help safeguard revenue. However, PAT margins remained negative at 0.32 per cent in FY2024, compared to negative 0.60 per cent in FY2023, due to high interest and depreciation costs. For consolidated FY2025, EBITDA margins are estimated at approximately 3.85- 3.90 per cent, driven by moderated raw material costs and better realizations in the cotton yarn segment, with PAT margins expected at approximately 0.15- 0.20 per cent. Acuite believes, the operating performance of the group would remain moderate on account of inherent cyclicality in the industry.
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| Moderately Intensive Working Capital Operations
The group’s working capital management is moderately intensive, reflected in Gross Current Asset (GCA) of 149 days in FY2024, up from 104 days in FY2023. Inventory days increased to 58 in FY2024 from 43 in FY2023, with the group typically maintaining an average inventory holding period of 40-45 days. Debtor days rose to 73 in FY2024 from 43 in FY2023. While the group generally operates on a 100 per cent cash basis, it occasionally extends a credit period of 15-20 days to customers. Creditor days stood at 40 in FY2024, compared to 22 in FY2023, with suppliers typically offering a credit period of 20-30 days. The average utilisation of working capital facilities stood at approximately 76.65 per cent for the six months ended March 2025.
Acuite believes, the operation of the group would remain working capital intensive on account of nature of operations.
Average Financial Risk Profile
The group’s financial risk profile remains average, characterized by modest net worth, high gearing, and moderate debt protection metrics. Tangible net worth stood at Rs. 40.81 crore as on 31 March 2024, compared to Rs. 42.45 crore as on 31 March 2023. Total debt amounted to Rs. 144.06 crore, comprising Rs. 30.36 crore of long-term debt, Rs. 9.80 crore of CPLTD, Rs. 1.76 crore of unsecured loans, and Rs. 102.14 crore of short-term debt as on 31 March 2024. Gearing remained high at 3.53 times as on 31 March 2024, against 3.52 times in the previous year. The Interest Coverage Ratio stood at 1.39 times for FY2024, compared to 1.43 times in FY2023, while the Debt Service Coverage Ratio (DSCR) stood at 0.90 times as on March 31, 2024 compared to 0.75 times as on March 31, 2023.
Acuite believes, the financial risk profile would remain average on account of higher maturing debt obligations.
Susceptibility of profitability to volatility in raw material prices in a highly Competitive and Fragmented Industry
Cotton, a kharif crop sown in June and harvested by October, makes the ginning business seasonal, typically operating from October to March. Its availability is highly dependent on monsoon conditions, and fluctuations in production, government policies, and global output have historically caused sharp price volatility, impacting operating margins. The Salasar Group’s operating margins have ranged between 2-4 per cent over FY2022–24. Inadequate rainfall can disrupt raw cotton supply, affecting operations. The cotton industry is highly competitive, with low entry barriers and intense pressure from both organised and unorganised players.
Acuité believes that the entire value chain ginners and spinners remains exposed to raw material price volatility, which, along with the low value-added nature of the business, results in thin profit margins for the group.
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