Established t rack record of operations and experienced management
TGKMPL is promoted by  Mr. T. K Ramasamy, Mr. T. K. Srinivasan, Mr. T. K. Ponraj and Mr, S. Rajasekar. The rating draws comfort from the long-standing experience of over 7 decades of the promoters of TGKMPL (ATK group) in textile and allied sectors, having started with cotton ginning, trading and allied business activities in 1950. The management has built a healthy relationship with suppliers over the years for procurement of raw materials at a competitive cost and good credit terms. TGKMPL exports majority of its overall sales to the USA health care sector, with the majority of sales from madeups such as surgical towels, cellular blankets and cotton bags.

The Company generated an operating income of Rs.510.95 Cr in FY2022 as against Rs.441.79 Cr in FY2021, while the margins declined to 9.86 percent from 14.21 percent for the same period. The Company has generated a revenue of Rs. 380 Cr in 9MFY23 and is expected to close the year in the range of Rs.500-550 Cr with an operating profitability of 9-10 percent.

Acuité believes that TGKMPL will benefit from the established presence in the textile industry and experienced management over the medium term.

Moderate Financial Risk Profile:
The financial risk profile of the company is moderate marked by moderate net worth, overall gearing and below average debt protection metrics. The net worth of the company stood at Rs.182.29cr as on March 31, 2022 as against Rs._441.79___ Cr as on March 31, 2021. This improvement is on account of  accretion of net profit to reserves. The gearing level of the company is moderate  at 1.31 times as on March 31, 2022 against 1.16 times in previous year. The total debt of the Company rose to Rs. 239.47 Cr as on March 31, 2022 primarily on account of increase in long term debt availed for the purpose of capex for machinery and enhancement in fund based short term debt. The total debt included Rs._85.18Cr of long term borrowing, Rs. _108.71 Cr of short term debtsas on March 31, 2022. Driven by increased debt levels and moderation in profitability margins, the debt protection metrics of the Company moderated. The Interest coverage ratio declined to  2.62 times as on March 31, 2022 from 4.03 times as on M arch 31, 2021. Debt service coverage ratio declined to 1.13 times as on March 31, 2022 from 1.71 times in previous year and TOL/TNW stood at 1.71 times as on March 31,2022. Debt- EBITDA deteriorated to 4.97 times as on March 31, 2022 from 3.25 times in FY21.

Acuite believes that the financial risk profile of the company will continue to remain moderate over the medium term in absence of any major debt funded capex plan.

Working capital intensive nature of operations:
The operations of the Company are working capital intensive marked by GCA days of 187 days as on March 31, 2022 as against 186 days as on March 31, 2021. The GCA days are driven by high inventory and debtor days which stood at 93 days and 65 days respectively as on March 31, 2022 as against 92 and 88 days respectively as on March 31, 2021. The Company receives a credit period of ~60 days from its suppliers. The average bank limit utlisation stood high  ~90 percent for  the past 12 months ending December 2022.

Acuite believes further elongation of working capital cycle will remain a key rating sensitivity. 

High Customer Concentration and Supplier concentration risk on the revenue profile:
TGKMPL is a vertically integrated textile player and sells its products in both international and domestic market. The top 10 customers of TGKMPL are contributing more than 90 percent of the revenue in FY22 and export customer has been contributing more than 65 percent of the total sales during FY22, this draws high customer concentration and foreign exchange risk on the revenue profile of the company. The top 10 suppliers are contributing more than 95 percent of the purchases and single supplier is contributing more than 45 percent of purchases in FY22. This draws high supplier concentration risk on the revenue profile of the company.
 
Acuité believes that there exists high customer and supplier concentration risk in the revenue profile of TGKMPL. However, the risk of concentration is mitigated to an extent on account of long standing relationship of the company and promoters with its major customers and supplier. TGKMPL also undertakes forward contracts to mitigate the risk to an extent.

Susceptibility to fluctuation in raw material prices
TGKMPL 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 TGKMPL’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.