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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1.00 | - | ACUITE A3 | Reaffirmed |
| Bank Loan Ratings | 52.00 | ACUITE BBB- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 55.00 | ACUITE BBB- | Stable | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 108.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long-term rating to ‘ACUITE BBB-’ (read as ACUITE triple B minus) and short term rating of ‘ACUITE A3’ (read as ACUITE A three) on the Rs. 53.00 Cr bank facilities of V.P. Tex Private Limited (VPTPL). Acuité has assigned its long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) on the Rs. 55.00 Cr bank facilities of (VPTPL). The outlook is 'Stable'.
Rationale for the rating The ratings continue to be supported by the experienced management and moderate financial risk profile. The rating is, albeit, constrained by its working capital intensive operations and exposure to supplier concentration risk and intense competition.
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| About the Company |
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Incorporated in 2011, V.P. Tex Private Limited (VPTPL) is an Erode (Tamil Nadu) based company VPTPL is a closely held private limited company, promoted by Mr. Velappan Srinvasan, Mr. Vasudevan Velappan, Mr. Velappan Sengodan, Mr. Manoj Kumar Srinivasan. VPTPL manufactures varieties of fabrics in Viscose / Micro Modal / Flax / Cotton Linen / Cotton Flax/ Rayon Linen/Viscose / Modal/Cotton Viscose/Cotton Modal/ Rayon Creap/Linen in its manufacturing facility located at Pallipalayam at Erode (Tamil Nadu). It has 130 airjet looms and 360 power looms for weaving to produce 30 lakh meters of cloth) per month.
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| Analytical Approach |
| Acuité has taken a standalone view of the business and financial risk profile of VPTPL to arrive at the rating. |
Key Rating Drivers
| Strengths |
VPTPL’s promoters’ have an established presence in the textile industry for nearly two decades with a competent management supported by a team of qualified and experienced second line personnels. This has helped VPTPL in building healthy relationship with its suppliers and customers to ensure a steady raw material supply and repeat business. The company’s revenue has remained moderate at about Rs.140 Cr to Rs. 268 Cr over the past three years through FY2022. VPTPL's revenue is expected to improve over the medium term driven by enhanced capacity from 80 airjet looms to 130 airjet looms in FY2022. Acuité believes that VPTPL is expected to benefit from its experienced management, established relations with its stakeholders andlocal presence.
VPTPL’s financial risk profile has remained moderate with moderate capital structure and debt protection metrics. The net worth of the company stood at Rs.40.91 Cr and Rs.28.90 Cr as on March 31, 2022 and 2021 respectively. The gearing of the company has been improving over the last 2 years ending March 31, 2022 as a result of lower debt and increase in net worth levels. It stood at 1.39 times as on March 31, 2022 against 1.59 times as on March 31, 2021. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 5.41 times and 2.14 times as on March 31, 2022 respectively as against 6.22 times and 2.73 times as on March 31, 2021 respectively. The decline in debt protection metrics is on account of increase in interest expense. The detoriation in DSCR ratio is on account of increase in repayment portion and increase in interest expense. TOL/TNW stood at 2.90 times and 3.60 times as on March 31, 2022 and 2021 respectively. Acuité believes that the company will maintain its financial risk profile on account of its improving scale of operations, stable operating matrices and no additional debt funded capex plans over the medium term.
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| Weaknesses |
VPTPL’s operations are working capital intensive in nature as reflected by its gross current asset (GCA) days of 140 days as on March 31, 2022 as against 227 days as on March 31, 2021. The improvement in GCA days is on account of improvement in debtors days and inventory days. Inventory days stood at 25 days as on 31st March, 2022 as against 63 days as on 31 March, 2021. Subsequently, the payable period stood at 97 days as on March 31, 2022 as against 125 days as on March 31, 2021 respectively. The debtors day stood at 96 days as on March 31, 2022 as against 129 days as on March 31, 2021. Further, the average bank limit utilization in the last twelve months ended August, 22 remained at ~74.74 percent for fund based. Acuité expects that VPTPL operations are expected to be the working capital intensive over the medium term.
As more than 90 percent of the raw material requirement (viscose fibre) is procured from Mothi spinner private limited (rated ACUITE A-/Stable/CRISIL A2+'), VPTPL is exposed to significant supplier risk concentration. However, longstanding relationship with the supplier mitigates this risk. Intense competition in the textile industry because of many unorganised players restricts pricing flexibility and bargaining power with customers and suppliers. The operating profitability of VPTPL is exposed to volatility in key raw material prices, including polyester and viscose, as it has relatively limited pricing flexibility in a fragmented industry.
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| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position: Adequate |
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The company has generated adequate net cash accruals to service its debt obligations. The net cash accruals stood at Rs.18.81 Cr in FY2022 as against the repayment of Rs.8.95 Cr for the same period and expected to generate cash accruals in the range of Rs.24-31 Cr. against current portion of long term debt (CPLTD) of Rs.6.3- 8.43 Cr. over the medium term. Unencumbered cash and bank balances stood at Rs. 1.41 Cr as on March 31, 2022. The current ratio of the company stood at 1.12 times as on March 31, 2022. Acuité believes that VPTPL’s liquidity will remain sufficient over the medium term backed by repayment of its debt obligations and improving accruals.
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| Outlook: Stable |
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Acuité believes that VPTPL will maintain a 'Stable' outlook over the medium term from its promoter's entrepreneurial experience. The outlook may be revised to ‘Positive’ in case the company registers higher than-expected growth in revenues while achieving sustained improvement in operating margins, capital structure and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of a decline in the company’s revenues or profit margins, or any significant debt-funded capex leading to deterioration of its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 268.40 | 137.13 |
| PAT | Rs. Cr. | 6.70 | 3.28 |
| PAT Margin | (%) | 2.50 | 2.39 |
| Total Debt/Tangible Net Worth | Times | 1.30 | 1.59 |
| PBDIT/Interest | Times | 5.41 | 6.22 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- 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 |
| 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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