| Established track record of operations and experienced management
Incorporated in 1917, The Ruby Mills Limited (TRML) is a Maharashtra based composite textile manufacturing company engaged in manufacturing of various types of cotton and synthetic fabrics. The company is also engaged in development, sale and renting of commercial space. The company is promoted by Shah family and presently run and managed by the 3rd Generation Promoter Director Mr Hiren M Shah, Chairman; Mr Bharat M Shah, Managing Director; and Mr. Viraj M Shah, Managing Director and 4th Generation Promoter Director Mr. Purav H Shah, Executive Director, CEO and CFO; and Mr. Rishabh V Shah, President who has vide experience in textile and real estate industry. The operations of the company are managed by qualified and well experienced senior management team who are ably supported by a strong line of mid-level managers. The experienced of promoters and long track record of operations in the textile industry has helped the company to maintain healthy and long-term relationships with both its customers and suppliers.
Acuité believes that TRML will continue to benefit from their established presence in the industry backed by promoters’ vintage and established track record of operations.
Improvement in scale of operations; albeit deteriorating profitability
The scale of operations of the company has seen a healthy improvement with a Y-o-Y growth of 30.43 percent. The operating income of the company stood at Rs. 259.65 crore for FY23 as against Rs.199.08 crore for FY22. The improvement in operating income comes at the back of steady demand of the products along with price realisation. The revenue of the company majorly comprises of income from its textile segment followed by real estate segment. The income from real estate comprises of lease rent income and share of the company in the sale of property. The income from real estate segment of the company has reduced on account of lower sales of property in FY23.
The profitability of the company has deteriorated in FY23 majorly on account of decreased lease rent income. Further, the power and fuel cost of the company increased significantly on account of increased coal prices. The operating profit margins of the company have thereby deteriorated and stood at 19.86 percent in FY23 (Prov.) as against 27.54 percent. The PAT margins have also deteriorated and stood at 13.57 percent in FY23 (Prov.) as against 15.59 percent in FY22.
Acuite believes that going forward the ability of the company to sustain its scale of operations while improving its profitability will remain a key rating sensitivity.
Healthy financial risk profile
The financial risk profile of the company is healthy marked by a healthy networth, low gearing and healthy debt protection metrics. The tangible networth of the company stood at Rs. 555.11 crore as on March 31, 2023 as against Rs. 524.69 crore as on March 31, 2022. Improvement in networth is on account of increased accretion of profits to reserves. The total debt of the company stood at Rs. 240.53 crore as on March 31, 2023 as against Rs. 279.89 crore as on March 31, 2022. The debt profile of the company includes Rs. 13.50 crore of short-term debt and Rs. 227.03 crore. The management has a conservative financial policy reflected by its peak gearing levels of 0.79 times as on March 31, 2021. The gearing of the company has improved since at 0.53 times as on March 31, 2022 as against 0.43 times as on March 31, 2023. The TOL/TNW of the company has also improved at 0.72 times as on March 31, 2023 as against 0.83 times as on March 31, 2022. The debt protection metrics of the company after considering the finance cost which gets directly charged to dues form developers in the balance sheet also remain healthy. The adjusted DSCR remains healthy at 2.90 times for FY23 as against 1.25 times for FY22. The adjusted interest coverage ratio also stood at 4.91 times for FY23 as against 1.48 times for FY22.
Acuité expects TRML’s financial risk profile to remain healthy over the medium term on account of likely improvement in operating performance.
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| Susceptibility of timely receipt of dues form developers coupled with the inherent cyclicality of the real estate industry
The company had entered into a development agreement with Mindset Estates Pvt Ltd to develop a commercial space i,e ‘The Ruby tower’ at Dadar, Mumbai. The Ruby tower is a 40-floor skyscraper (basement + podium + 3 upper levels of parking and 36 upper floors). The land is owned by TRML and the company had taken bank loans on behalf of the developer to fund the development of commercial space thereby leading to huge outstanding dues receivable from developers of Rs.535.92 crore as on 31st March 2023. Further, occupancy certificate for the said property has been received in a phased manner in 2011 and 2022. The company is yet to receive occupancy certificate for the top floor in the tower. The company has however been able to recover ~99 crore in FY23 and the outstanding from developers stood at Rs. 535.92 crore as on March, 2023. Acuite observes that the receipt of the dues from the developer has remained much slower in the past and the recovery of these advances has been sporadic.
Timely recoverability of such dues from developer remain susceptible to the inherent cyclicality of the real estate company and will remain a key rating sensitivity.
Intensive working capital operations
The working capital operations of the company remain driven by the inventory holding period along with other current assets. The GCA days of the company stood at 384 days for FY23 as against 301 days in FY22. The inventory maintained by the company are backed by orders at hand. The inventory holding period of the company remained in line with the previous year at 90 days for FY23 as against 92 days in FY22. The debtor collection period of the company has improved at 38 days for FY23 as against 47 days for FY22. The other current assets of the company stood at Rs. 197.77 crore as on March 31, 2023 including cash and cash equivalents as against Rs. 110.46 crore as on March 31, 2022. Other current assets as on March 31, 2023 majorly includes current portion of dues from developers and cash and cash equivalents. The reliance of the company on bank limits is low marked by average bank limit utilization of ~30 percent for 6 months ended May 2023.
Acuité believes that the working capital management of the company will continue to remain a key rating sensitivity going ahead.
Susceptibility to volatility in prices of key raw materials
Cotton, Viscose and Polyester are the key raw materials for the company. Prices of such raw materials have exhibited considerable volatility in the recent past due to various reasons, such as government policies, effects of monsoon, demand-supply scenario, etc. The Profitability margins of textile manufacturers are exposed to adverse movement in prices of these raw materials thus any unprecedented increase in the raw material going forward, may impact the profitability margins of TRML.
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