Acuité has consolidated the business and financial risk profiles of Veebee Yarnntex Private Limited (VBYTPL) and Subburaaj Cotton Mill Private Limited (SCMPL) together referred to as the ‘SCM Group’. The consolidation is in the view of common management, strong operational and financial linkages between the entities

­Promoters’ extensive experience in cotton yarn manufacturing segment; established track record of operations in Tamil Nadu and Telangana:
Subburaaj Group is a family-owned business with the existence of more than four decades in the cotton yarn spinning industry. SCMPL was established with a spinning capacity of 12,000 spindles in 1980 by Mr. K. Venkatasamy as a partnership firm. In 2002, SCMPL was acquired by Mr. A. Saravanakumar (Grandson of Mr. K. Venkatasamy) in family settlement with nearly 20,000 spindles capacity. Over the years, Mr. Saravanakumar established the brand name of “Subburaaj” in both domestic and international markets and has actively taken part in the day-to-day operations of the group. In 2004, Mr. Saravanakumar incorporated VBYTPL for production of cotton yarn of finer counts. With a long track record of operations in Rajapalayam, SCM Group is one of the renowned cotton yarn manufacturer with a total spinning capacity of 1,97,088 spindles and 3,030 rotors along with 39.26 megawatt (MW) solar power for captive consumption. The promoter's extensive industry experience and established existence has helped the SCM Group to establish along-standing relationship with its key suppliers and customers. Acuite believes that established track record of operations and long-standing relationship with customers and suppliers will continue to benefit the group over the medium term.

Improvement in profitability albeit decline in revenue:
SCM group registered revenue of Rs.429.69 Cr. in FY2025 (Prov.) against Rs.445.26 Cr. in FY2024. This moderation in revenue is due to changes in production lot to finer counts. Further, during the Q1FY2026, SCM group reported total revenue of Rs.132 Cr. (incl. intercompany), which is ~16 percent higher than Rs.113.52 Cr. registered in Q1FY25 and estimated to close the year with the revenue of Rs.445 Cr. to Rs.455 Cr. Despite, the moderation in revenue operating profit margin has improved to 16.60 percent in FY2025 (Prov.) against 12.22 percent in FY2024, due to lower raw material costs and benefits from captive power, which has been fully operational from FY2025. In Q1FY2026 the group registered EBITDA of Rs.20 Cr, approximately 15.2 percent of net sales during the period. PAT margin also improved to 3.24 percent in FY2025 (Prov.) compared to 1.38 percent in FY2024. Acuite believes that, the ability of the group to improve its revenue while maintaining its profitability will remain a key rating sensitivity.

Moderate financial risk profile:
SCM group’s financial risk profile improved and overall stood moderate, marked by moderate net worth, healthy capital structure and debt protection metrics. The group’s net worth stood at Rs.153.37 Cr. as on March 31, 2025 (Prov.) as compared to Rs.139.47 Cr. as on March 31, 2024. The improvement in net worth is due to accretion of profits to reserves during the period. The SCM group’s overall debt level decreased to Rs.229.95 Cr. as on March 31, 2025 (Prov.) from Rs.276.76 Cr. as on March 31, 2024. Consequently, the gearing and total outside liabilities to tangible net worth (TOL/TNW) levels improved to 1.50 times and 1.81 times as of March 31, 2025 (prov.) respectively compared to 1.98 times and 2.26 times as on March 31, 2024 respectively. The debt protection metrics stood moderate with DSCR and ICR of 1.38 times and 3.69 times respectively as on March 31, 2025 (Prov.) against 1.02 times and 2.66 times respectively as on March 31, 2024. Debt to EBITDA improved to 2.99 times as on March 31, 2025 (Prov.) from 4.71 times as on March 31, 2024. Acuite believes that the financial risk profile of the group will improve further in absence of major debt funded capex over the medium term.

Moderately intensive nature of working capital operations:
The working capital operations of the group are moderately intensive as reflected by the gross current assets (GCA) days of 140 days during FY2025 (Prov.) against 134 days in FY2024. The elongation in GCA days is due to high inventory days of around 84 days in FY2025 (prov.). The group generally maintains high inventory levels required for 45-60 days to ensure the quality of the cotton, resulting in higher inventory days. The debtor days of the group stood in the range of 25-40 days during past 3 years. The creditors days stood at 36 days in FY2025 (Prov.) as against 23 days in FY2024. The moderate working capital operations have led to moderate utilization of the fund based working capital operations at ~62 percent during the past 12 months ending April 2025. Acuité believes that the working capital cycle will continue to remain in the similar range over the medium term on account of the nature of industry.

Susceptibility to fluctuation in raw material prices: 
SCM Group’s profitability margins are susceptible to fluctuations in the prices of major raw materials such as domestic cotton (DCH 32, MCU 5) and Import cotton (Giza, Pima and Supima). 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 group’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.