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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 10.00 | - | ACUITE A4+ | Assigned |
| Bank Loan Ratings | 10.73 | ACUITE BB+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 18.93 | - | ACUITE A4+ | Reaffirmed |
| Bank Loan Ratings | 53.59 | ACUITE BB+ | Stable | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 93.25 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long term rating to ‘ACUITE BB+’ (read as ACUITE double ‘B plus’) and has reaffirmed its short term rating of ‘ACUITE A4+’ (read as ACUITE A four ‘plus’) on the Rs.29.66 Cr bank facilities of Shristi Cotspin Private Limited (SCPL) .
Further, Acuité has assigned its long-term rating of ‘ACUITE BB+’ (read as ACUITE double 'B plus') and the short term rating of ACUITE A4+ (Read as ACUITE A four 'plus') on the Rs. 63.59 Cr bank facilities of SCPL. The outlook is 'Stable'. Rationale for the Rating The ratings continue to be supported by the experienced management and moderate financial risk profile. The rating is, albeit, constrained by its working capital intensive operations and exposure to supplier concentration risk and intense competition. |
| About the Company |
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Shristi Cotspin Private Limited (SCPL), a Coimbatore based company incorporated in 1995, is engaged in manufacturing of cotton yarn and fabrics. The promoters of the company were previously engaged in trading of hosiery yarn from 1970. The company has 16,800 spindles and 720 rotors and produces yarn of count ranging from 30’s to 50’s.
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| Analytical Approach |
| Acuité has taken the standalone view of the business and financial risk profile of SCPL to arrive at the rating. |
Key Rating Drivers
| Strengths |
SCPL was incorporated in 1995 as a private limited company. The company has established presence in the cotton yarn manufacturing business of more than two decades leading to longstanding relations with its customers and suppliers. The promoters of the company, Mr. Shyamlal Agarwala, Mr. Manoj Kumar Jhajharia, Mr. Arun Kumar Jhajharia and Mr. Pramod Kumar Jhajharia are in the textile segment since 1970’s as they initially started with trading of hosiery yarn. The extensive experience of the promoters has helped company to grow, which is well evident through increase in revenues in FY2022 which stood at Rs. 347.57 Cr as against Rs. 103.62 crore in FY2021. Acuité believes the company will benefit from the experienced management and establish presence in textile industry.
The company has moderate financial risk profile is marked by moderate net worth, high gearing and healthy debt protection metrics. The net worth of the company stood at Rs.36.38 Cr and Rs.20.90 Cr as on March 31, 2022 and 2021 respectively. The improvement in net worth is due to accretion of reserves. The gearing of the company has been deteriorating over the last 2 years ending March 31, 2022. It stood at 2.45 times as on March 31, 2022 against 1.88 times as on March 31, 2021. The deterioration is on account of increase in short term limits and low net worth. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 7.28 times and 3.3 times as on March 31, 2022 respectively as against 4.41 times and 2.36 times as on March 31, 2021 respectively. TOL/TNW stood at 3.07 times and 2.51 times as on March 31, 2022 and 2021 respectively. The debt to EBITDA of the company stood at 2.97 times as on March 31, 2022 as against 4.09 times as on March 31, 2021. Acuité believes the financial risk profile of the company will be moderate backed by improving scale of operations and moderate level of debt funded capex plan.
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| Weaknesses |
The working capital management of the company remained moderate with GCA days at 118 days as on March 31, 2022 as against 199 days as on March 31, 2021. The improvement in GCA days is on account of improvement inventory days. Inventory days stood at 30 days as on March 31, 2022 as against 93 days as on March 31, 2021. Subsequently, the payable period stood at 19 days as on March 31, 2022 as against 38 days as on March 31, 2021 respectively. The debtors day stood at 65 days as on March 31, 2022(Prov.) as against 88 days as on March 31, 2021. Further, the average bank limit utilization in the last six months ended September, 2022 remained at ~13.41 percent for fund based. Cotton is available seasonally; however, manufacturing and sales operations are carried out throughout the year. Hence, Acuité believes that the operations shall continue to be working capital intensive over the medium term.
SCPL profitable 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 the company’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.
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| Rating Sensitivities |
Positive
Negative
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| Material covenants |
| None |
| Liquidity Position: Adequate |
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The company’s liquidity is adequate marked by adequate cash accruals in the range of Rs.19.56 Cr in FY2022 as against its maturing long - term debt obligations in the range of Rs.5.57 Cr for the same period. The current ratio stood at 1.45 times as on March 31, 2022 against 1.33 in previous year. Unencumbered cash and bank balances stood at Rs. 0.77 Cr as on March 31, 2022. SCPL is expected to generate NCA in range of Rs.2.33-2.53 Cr against modest maturing debt obligations in range of Rs.19.55-20.66 Cr over the medium term. Acuité believes that the liquidity of the company will improve supported by increase in accruals in the medium term.
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| Outlook: Stable |
| Acuité believes that SCPL will continue to benefit over the medium to long term on account of long track record of operations, experienced management in the industry, decent unexecuted order book and capex underway for upgradation of machinery. The outlook may be revised to 'Positive', in case of sustainable improvement in scale of operations and improvement in volumes and per unit realizations of the products offered by the company leading to higher-than-expected revenues and profitability with improvement in financial risk profile. Conversely, the outlook may be revised to 'Negative' in case SCPL registers lower-thanexpected revenues and profitability or any significant stretch in its working capital management or largerthan-expected debt- funded capital expenditure leading to deterioration of its financial risk profile and liquidity. |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 347.57 | 103.62 |
| PAT | Rs. Cr. | 15.47 | 3.66 |
| PAT Margin | (%) | 4.45 | 3.54 |
| Total Debt/Tangible Net Worth | Times | 2.45 | 1.88 |
| PBDIT/Interest | Times | 7.28 | 4.41 |
| Status of non-cooperation with previous CRA (if applicable) |
| India Ratings, vide its Press Release dated 09th September, 2022, had reaffirmed SCPL to IND-RA BB/A4+; Issuer Not Cooperating. |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.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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