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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 7500.00 | ACUITE AAA | Stable | Assigned | - |
| Bank Loan Ratings | 25000.00 | ACUITE AAA | Stable | Reaffirmed | - |
| Commercial Paper (CP) | 7500.00 | - | ACUITE A1+ | Assigned |
| Total Outstanding | 40000.00 | - | - |
| Total Withdrawn | 0.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE AAA’ (read as ACUITE triple A) on the Rs. 25,000.00 Cr. bank facilities of The Cotton Corporation of India Limited (CCI). The outlook is ‘Stable’.
Further, Acuité has assigned long-term rating of 'ACUITE AAA' (read as ACUITE triple A) on the Rs. 7,500 Cr. bank facilities of The Cotton Corporation of India Limited (CCI). The outlook is ‘Stable’. Further, Acuité has assigned short-term rating of 'ACUITE A1+' (read as ACUITE A one plus) on the Rs.7,500 Cr. proposed commercial paper facilities of The Cotton Corporation of India Limited (CCI). Rationale for reaffirmation The rating is driven by CCI’s complete shareholding by the Government of India (GOI) and the strategic importance of the entity in procurement of cotton in the country. Further, while GOI has discontinued the issuance of letter of comfort, it continues to extend its commitment to CCI through the arrangement of financial assistance towards reimbursement of losses in minimum support price (MSP) operations for the cotton procured by the corporation. These strengths are partially offset by susceptibility of the operating volumes to the demand and supply dynamics of cotton. Acuité understands that the current enhancement in the working capital limits is to support the increase in procurement volumes and prices in the FY 2024-25 cotton season. |
| About the Company |
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The Cotton Corporation of India Limited (CCI) was established on July 31, 1970 under the administrative control of Ministry of Textiles, Government of India (GOI) as a Public Sector Undertaking. The major role of CCI is to undertake price support operations, whenever the market prices of cotton fall below the minimum support prices (MSP) announced by GOI, without any quantitative limit. Besides MSP operations, CCI undertakes commercial purchase operations to fulfil the raw material requirement of the domestic textile industry particularly in the lean season. The corporation is having pan India presence through its headquarters at CBD Belapur, Navi Mumbai (Maharashtra), with 19 branches and more than 500 cotton procurement centres in all the major cotton growing states.
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| Unsupported Rating |
| Not Applicable. |
| Analytical Approach |
| Acuité has considered the standalone credit profile of CCI and has duly factored in the benefits received under the ownership of GOI and arrangement for financial assistance received by GOI to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
| Nodal agency to undertake price support operations for cotton with strong operational & financial assistance from GOI
CCI is a cotton trading organization under the administrative control of Ministry of Textiles, GOI. The major role of CCI is to undertake MSP operations on behalf of the GOI as and when the prices of Fair Average Quality (FAQ) grade seed cotton fall below the MSP level, without any quantitative limit. CCI procures FAQ grade cotton offered by the cotton farmers in various Agricultural Produce Market Committee yards at MSP rates. CCI procures about 5 percent to 35 percent of the total production in the country, which entirely depends on the domestic crop outlook and the global prices prevailing in that year. CCI is having a well-established network in the cotton belt of India to conduct MSP and commercial operations and ensuring remunerative prices to the cotton farmers. The procurement operations are carried out through more than 500 procurement centres under 17 procurement branches. Besides undertaking MSP operations, CCI also undertakes commercial operations of seed sales by leveraging on its existing MSP infrastructure and to recover part of the overhead expenses. The commercial operations are in addition to the main role of price support and often a tool to ensure optimal utilization of its resources and also to support its regular customers. CCI is fully owned by the GOI and the latter has also provided a financial assistance to reimburse the losses arising out of the MSP operations, which depicts Government’s commitment to CCI. CCI’s role as an implementation agency for MSP based cotton procurement is critical for the government since it strives to protect the interests of the cotton farmers; further, it also facilitates the availability of cotton to the spinning mills at fair prices. The strong parentage is in the form of the sovereign ownership and the pronouncements in the form of loss reimbursement have enabled CCI to raise funds at competitive pricing from the financial institutions. Acuité believes that CCI will continue play a pivotal role in government’s support to the cotton farmers and will benefit from the ownership of Government of India. |
| Weaknesses |
| Susceptibility of operating volumes to the demand supply dynamics of cotton
Currently, for the cotton season 2024-25, CCI has procured 56 lakh bales starting from the 2nd week of November with a total procurement amounting to Rs.21,675 Cr. till 31st December 2024. The current average buying price ranges between Rs.6,600 to 7,500/quintal as against procurement at Rs.6950/quintal during the cotton season FY 2023-24. Further, considering the expected increase in cotton production for the season of FY 2024-25, it is anticipated that CCI will procure a total of 125 lakh bales throughout this season at an estimated total procurement cost of Rs. 40,000 Cr. During cotton season 2023-24, CCI had immensely supported the cotton farmers and procured 32.84 lakh bales valuing Rs. 11,712 Cr. under MSP operations, benefitting about 7.25 lakh cotton farmers in all cotton growing states. Cotton prices in the global markets are largely influenced by the demand-supply situation in major producing and consuming countries like China, US and others. Since, cotton exports from India come under Open General License, in the event of prices going above MSP, farmers will prefer to sell in the open market limiting the role for agencies like CCI. The volumes of CCI are therefore highly susceptible to the production of cotton and the volatility of cotton prices in India. Seed cotton is exposed to agro climatic risks, and the production is also highly dependent upon the monsoon and the climatic conditions. Higher temperature in already hot areas may hinder cotton development and fruit formation resulting in reduced yields. Acuité believes CCI will continue be exposed to volatility in its revenues and profitability as it undertakes the MSP operations whenever the market prices of cotton fall below the MSP. However, this risk is mitigated as losses incurred by CCI arising out of the MSP operations are reimbursed by GOI. |
| Rating Sensitivities |
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| Liquidity Position |
| Strong |
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CCI holds significant working capital limits from banks, the utilization whereof depends on the cotton procurement in that season. The short term borrowings for the company stood high at Rs.9,500 crore as on 31st March, 2024 due to the procurement season and the bank limit utilisation stood at an average of 88.51 percent for the past 12 months ended 31st December, 2024. The company had unencumbered cash and bank balances of Rs.22.00 crore as on March 31st 2024 against Rs.87.31 crore as on March 31st 2023. Further, the ownership and company’s strategic importance to the government strongly supports its ability to raise additional debt at a competitive rate from its lenders, thereby mitigating any liquidity risks.
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| Outlook: Stable |
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| Other Factors affecting Rating |
| None. |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 3458.34 | 166.23 |
| PAT | Rs. Cr. | 38.91 | (55.54) |
| PAT Margin | (%) | 1.13 | (33.41) |
| Total Debt/Tangible Net Worth | Times | 29.10 | 0.01 |
| PBDIT/Interest | Times | 1.38 | (38.61) |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable. |
| Any other information |
| None. |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Commercial Paper: https://www.acuite.in/view-rating-criteria-54.htm • Trading Entities: https://www.acuite.in/view-rating-criteria-61.htm |
| Note on complexity levels of the rated instrument |
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