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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 45.51 | ACUITE BB+ | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 45.51 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating to ‘ACUITE BB+’ (read as ACUITE Double B plus) on the Rs.45.51 Cr bank facilities of VPN Textiles. The outlook is 'Stable'
Rating Rationale The rating factors the improvement in the performance of the firm in FY2023 (prov). The firm recorded operating income of Rs.171.23 crore in FY2023 (prov) and increase in the operating margin to 13.07 percent in FY2023 (prov) from 11.85 percent in FY2022 inspite of the fluctuation in cotton prices. The improvement in the operating margin is mainly due installation of solar panels aiding to reduction in the power costs. The rating also draws comfort from the experienced management, efficient working capital management and adequate liquidity. The rating however, remains constrained on account below average financial risk profile, susceptibility to changes in raw material prices and risks of withdrawal of capital by partners. |
| About the Company |
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Established in the year 2014, based at Coimbatore, Tamilnadu; VPN Textiles is engaged in manufacturing of cotton yarn. The firm is promoted by Mr. Premanand and Mrs. Sripriya Anand. Mr.Premanand boasts a decade of expertise in textile industry and Mrs. Sripriya Anand has 6 years of experience in textile industry. The current manufacturing capacity is around 50,544 spindles. The firm manufactures 46’s counts of count yarn. The main raw material is cotton bales, and the firm procures 75% of its raw material from Bhiwandi, Maharashtra and the remaining from Raichur, Karnataka. Few of the suppliers are VPN Textiles being SGM Ginning and Pressing Industry, Chimur Cotton Industry, N S Trading and Shri Balaji Fibers.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of VPN Textiles to arrive at this rating.
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Key Rating Drivers
| Strengths |
| Experienced management and improving business risk profile
VPN textiles is promoted by Mr. Prem Anand, managing partner who has a decade of experience in textile industry and Mrs. Sripriya Anand, has seven years of experience and expertise in textile industry. The extensive experience, coupled with a long track record of operations, has enabled the firm to forge healthy relationships with customers and suppliers. The experienced management have supported in improving the business risk profile of the firm. The firm reported revenue of Rs.171.23 Cr in FY2023 (prov) which is twenty-one percent higher than FY2022. This growth in revenue is primarily due to better production capacity utilisation. Firm achieved capacity utilisation of 88.20% in FY2023 (prov) as compared to 77.94% in FY2022. The operating margin of the firm stood at 13.07 percent in FY2023 (prov) as compared to 11.85 percent in FY2022. The reason for increase in the operating margins in FY2023 (prov) in spite of the fluctuation in cotton prices is due to installation of solar panels aiding to reduction in the power costs. However, the PAT margin of the firm declined and stood at (0.76) percent in FY2023 (prov) as compared to 4.19 percent in FY2022. The decline in the PAT margin because of the higher depreciation cost in FY2023. Acuité believes that VPN textiles will continue to benefit from the promoter's established presence in the textile industry and its improving business risk profile over the medium term. Efficient working capital management Working capital management of the firm is efficient marked by its GCA of 73 days as on March 31, 2023 (prov) improved from 77 days on March 31, 2022. Debtor days stood at 8 days as on March 31, 2023 (prov) against 16 days on March 31, 2022. The firm is maintaining very low debtor days and creditor days. The inventory levels are moderate and stood at 46 days as on March 31, 2023 (prov) against 35 days in March 31, 2022. Acuite believes that working capital management of VPN textiles will remain efficient and stable over the medium term. |
| Weaknesses |
| Below Average financial risk profile
Financial risk profile of VPN textiles is below average mainly marked by moderately high gearing (debt to equity ratio) and modest debt protection metrics. The gearing stood at 3.10 times as on March 31,2023 (prov) against 1.70 times as on March 31, 2022. The deteriorated gearing ratio is majorly due to the additional term loan availed and withdrawal of capital by the partners. The net worth of the firm stood at Rs.21.08 Cr as on March 31,2023 (prov) as against Rs.25.07 Cr as on March 31,2022. The firm incurred the loss of Rs.1.31 Cr in FY2023 (prov). The reduction of capital in FY2023 is Rs.3.99 Cr., which includes net loss, net drawings of Rs.2.69 Cr. Of the total debt of Rs.65.38 crore as on March 31, 2023 (prov), long-term debt stood at Rs.39.48 crore, short-term debt stood at Rs.19.13 crore and CPLTD stood at Rs.6.70 crore. The firm's debt has significantly increased from Rs.42.50 Cr as on March 31, 2022 and Rs.32.08 Cr as on March 31, 2021. The increase is primarily on account of additional debt availed to fund the capex incurred towards solar power capacity and increase in working capital utilisation. Of the total capex cost of Rs.35.00 crore, VPN textiles have availed Rs.25.00 Cr of term loan and balance was funded vide internal accruals. The Interest Coverage Ratio (ICR) and Debt Service Coverage Ratio (DSCR) stood at 3.55 times and 1.97 times respectively in FY2023 (prov) as against 4.44 and 1.78 times respectively in the previous year. TOL/TNW stood at 3.42 times as on March 31, 2023 (prov) and NCA/TD (Net cash accruals to total debt) stands moderate at 0.25 times in FY2023 (prov). Acuite believes the firm ability to improve its financial risk profile over the medium term will remain a key rating monitorable. Risks associated with partnership constitution Entity, being a partnership firm, is exposed to adverse capital structure risk, where any substantial capital withdrawal could negatively impact its net worth and capital structure and the liquidity position. The partners withdraw Rs.2.69 Cr in FY2023 (prov). Susceptible to changes in raw material prices The operating margins are susceptible to changes in cotton and yarn prices which are highly volatile and commoditized product. 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. VPN Textiles is engaged in manufacture of fine counts, which provides some protection from raw material price fluctuations. Acuite believes that VPN Textiles will be able to maintain its profitability around similar margins regardless the volatility in raw material prices. |
| Rating Sensitivities |
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| All Covenants |
| Not applicable |
| Liquidity Position: Adequate |
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VPN Textiles has adequate liquidity as reflected by sufficient net cash accruals to its maturing debt obligations. The firm generated net cash accruals of Rs.16.48 crore in FY2023 (prov), while its maturing debt obligations stood of Rs.5.18 crore during the same period. The cash accruals of the VPN textiles are estimated to remain around Rs.19.10 – 21.57 crore during 2024-26, while its repayment obligations are estimated to be around Rs.7.12 - 6.98 crore over the same period. The current ratio stood average, 1.06 times ended with March 31, 2023 (prov). Unencumbered cash and bank balances stood at Rs.0.04 crore as on March 31, 2023 (prov) and liquid investments stood at Rs.0.83 crore as on March 31, 2023 (prov). The Bank limit utilisation remains highly utilized at 98.96 percent for last 6 months ended August, 2023. Acuité believes that the liquidity position of the firm is likely to remain adequate over the medium term on account of adequate cash accruals against its debt repayments obligation over the medium term.
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| Outlook: Stable |
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Acuité believes that VPN Textiles will continue to benefit over the medium term due to its experienced management and established relation with its suppliers and customers. The outlook may be revised to 'Positive' if the maintains growth in its revenues at current levels while maintaining its margins and capital structure. Conversely, the outlook may be revised to 'Negative' in case the firm registers lower than expected revenues and profitability or larger-than-expected debt-funded capex leading to deterioration in its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 171.23 | 141.24 |
| PAT | Rs. Cr. | (1.31) | 5.92 |
| PAT Margin | (%) | (0.76) | 4.19 |
| Total Debt/Tangible Net Worth | Times | 3.10 | 1.70 |
| PBDIT/Interest | Times | 3.55 | 4.44 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
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None
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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