Extensive experience of promoters.
TRK is owned and managed by Mr. Saravanan S with around two decades of experience in the textile industry. Mrs. Sathya Saravanan Kandasamy is the other key Director. The extensive experience has enabled the company to establish healthy relationships with customers and suppliers, to ensure a steady raw material supply. Acuité believes that the promoter’s extensive experience in the textile industry and healthy relationship with customers and suppliers is expected to support its business risk profile over the medium term.

Subdued performance in FY23 due to industry headwinds; however, recovery is expected in FY24.
The company’s total revenue declined to Rs. 83.67 Cr. in FY2023 from Rs. 110.80 Cr. in FY2022. The steep fall in cotton candy rates from an all-time high of Rs. 1,15,000 per candy to ~Rs. 55,000 per candy in the span of the last 3 quarters of FY2023 led to lower demand levels for yarn during the year. Lower demand levels led to a fall in realization rates, which subsequently led to inventory loss. However, the company could mitigate a huge loss by shifting to producing 100’s count yarn, which is of a finer count and yields better realizations compared to coarser counts. This shift in yarn count undertaken, aided to protect profit margins from a significant decline. The operating profit margin stood at 13.96 percent in FY2023, although it declined from 17.82 percent in FY2022. Cotton candy rates stabilised during FY2024, which were in the range of Rs. 52,000 per candy to Rs. 57,000 per candy throughout the year. Stable cotton candy prices, along with improved demand levels as compared to FY2023 levels and resultant in increase in sale volumes resulted in growth in revenue in FY2024, which is estimated to be at ~Rs. 116.76Cr, while operating profit margin is estimated to improve to 15.73 percent for the year. The company has shifted back to producing its standard yarn count of 30’s in FY2024. Going forward, the company’s revenue is expected to grow at a stable rate as the export market is showing decent demand prospects.

Moderate financial risk profile:
The company’s risk profile is moderate, marked by moderate net worth, high gearing and debt protection metrics. The net worth of the company has improved marginally to Rs.26.56 Cr. as of March 31, 2023 from Rs.26.04 Cr. as of March 31, 2022 despite the net loss of Rs.0.22 Cr. in FY2023, due to equity infusion of Rs.2.00 Cr. in FY2023. The gearing levels deteriorated to 2.52 times as of March 31, 2023 from 2.05 times as of march 31, 2022 due to increase in total debt to Rs.66.88 crore in FY2023 which consist long term debt of Rs.27.43 Cr., unsecured loans of Rs.1.53 Cr. and short-term debt of Rs.37.86 Cr.  Total Outside Liabilities/ Tangible Net Worth (TOL/TNW) also deteriorated to 2.83 times as of March 31, 2023 from 2.40 times as of March 31, 2022. Interest coverage ratio (ICR) and debt service coverage ratio (DSCR) have deteriorated to 1.96 times and 0.85 times respectively as on March 31, 2023 from 3.12 times and 1.21 times respectively as of March 31, 2022. Debt to EBITDA also deteriorated to 5.57 times as of March 31, 2023. Going forward gearing and debt protection metrics are expected to improve on account of improving profitability and no plans of major debt-funded capex.

Working capital intensive operations:
The working capital operations of the company are intensive as reflected from Gross current asset (GCA) of 325 days in FY2023 against 197 days in FY2022. Elongation in GCA days is due to stretch in inventory days of 182 days in FY2023 against 61days in FY2022. The inventory consists of raw materials such as cotton, yarn, fabrics, etc. and finished goods such as cotton yarn and knitted fabric. The company maintains an inventory policy of 45 days for raw materials and 75 days for finished goods. The raw material procurement quantity would depend on the current prices and upcoming demand and supply scenarios.. Debtor days stood at 145 in FY2023, compared with 135 in FY2022. The company has insured its debtors through an insurance company. The company makes advance payments to or enjoys a credit period of 7–21 days from their suppliers. Acuité believes that the working capital cycle will continue to remain at similar levels over the medium term.