­Promoters’ extensive experience in Yarn manufacturing industry; Established regional player in Andhra Pradesh 
SSMPL is promoted by Mr. Anjaneyulu Kancherla, Mr. Kancharla Amar and other family members. Mr. Anjaneyulu Kancherla has been associated with SSMPL since its inception; this has helped SSMPL to establish strong market presence in the state of Andhra Pradesh. Mr. Kancharla Amar looks after the day-to-day operations of SSMPL and is assisted by team of  experienced professionals down the line. Mr. Anjaneyulu has more than 45-years of experience in multiple businesses. Mr. Amar has more than 10 years of experience in textile industry. 

Moderate financial risk profile:
The financial risk profile of the company remained moderate in FY24, marked with moderate net worth, moderate gearing levels and debt protection metrics. The net worth of the company has declined to Rs.39.95 Cr. as of March 31, 2023 from Rs.43.07 Cr. as of March 31, 2022 due to deduction of prior period item worth Rs.4.24 Cr. in FY2023. The gearing deteriorated marginally to 1.64 times as of March 31, 2023 from 1.16 times of March 31, 2022 due to decline in net worth coupled by increase in total debt which consist of long-term debt of Rs.6.34 Cr, unsecured loans of Rs.18.82 Cr. and short-term debt of Rs.40.37 Cr. Total outside Liabilities/Tangible Net Worth (TOL/TNW) deteriorated to 2.28 times as of March 31, 2023 against 1.45 times as of March 31, 2022. Interest coverage ratio (ICR) and debt service coverage ratio (DSCR) stood at 2.37 times and 1.45 times respectively, as of March 31, 2023 against 4.94 times and 4.16 times respectively, as of March 31, 2022. Debt to EBITDA deteriorated to 9.00 times as of March 31, 2023 from 2.59 times as of March 31, 2022. However, the deterioration in few metrics is majorly attributable to reduced absolute operating profit level.. Going forward, gearing and debt protection metrics are expected to improve on account of improvement in net worth and no plans for major debt-funded capex.

­Decline in scale of operations:
SSMPL has reported revenue of Rs.201.49 Cr. during FY2023 by posting a negative growth rate of 53 percent on previous year’s revenue of Rs.430.51 Cr. The company minimized the trading activity during FY2023 on account of unfavourable market conditions led to decline in revenue for the year. However, the revenue is estimated to decline further in FY2024 in the range of Rs.150-155 Cr. due to non-availability of capacity and shift in production to compact yarn. The company has undertaken capex during FY2023, towards expansion of blow room capacity and modernisation of machinery (change of ring frames) to comply with the compact yarn production. However, an unforeseen delay in delivery of machinery coupled with change in product to compact yarn is expected to influence the revenue for FY2024. The operating profit margin of the company stood at 3.49 percent in FY2023 as against 4.34 percent of FY2022, further it is estimated to improve in the range of 7-7.5 percent due better realizations for compact yarn during the year. Going forward, SSMPL aims to return to revenue levels of Rs.180-200 Cr. from FY2025 onwards, as the entire production capacity will be available throughout the year. Additionally, the company’s inventory, stocked up during the last quarter of FY2024 when candy rates were Rs.55,000-57,000 per candy, will play a role. Further, in Q1FY2025, candy rates are projected to be in the range of Rs.64,000-67,000 per candy, which is expected to  positively impact operating profitability.

Moderate working capital operations:
Working capital operations of the company are moderately intensive, as evident from the gross current assets (GCA) of 181 days in FY2023 against 69 days in FY2022. The elongation in GCA days is due to the stretch in inventory days, which mostly consist of raw materials (cotton).  The season for cotton is between the months of October and March, so the group stocks up cotton in the last quarter of the financial year, resulting in a higher inventory-holding period of 121 days in FY2023. Debtor days stood at 38 in FY2023, against 36 days in FY2022. The company’s reliance on bank limits remained moderately high, as reflected by an average utilisation of 82 percent in the past 12 months ending March 2024. The creditor days of the company stood at 53 in FY2023, against 10 days in FY2022. Acuité believes that the working capital cycle will continue to appear moderately intensive over the medium term due to cyclical nature of the cotton industry.

Susceptible to volatility in raw material prices and regulatory risks
SSMPL profitability  margins are susceptible to fluctuations in the prices of major raw material i.e. Raw cotton. 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 SSMPL’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.