Pavathal Spinning Mills Private Limited

Transcription

1 Ratings Pavathal Spinning Mills Private Limited December 27, 2017 Amount (Rs. crore) Ratings 1 Remarks Long-term Bank (reduce from 11.11) CARE BB+; Stable (Double B Plus; Outlook:Stable) Reaffirmed Short term Bank 0.50 CARE A4+ (A Four Plus) Reaffirmed Total (Rupees ten Crore ninety two lakhs only) Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities of Pavathal Spinning Mills Private Limited (PSMPL) continue to be constrained by small scale operation with marginal decline in Total Operating Income, working capital intensive nature of operations, the susceptibility of margins to raw material price movements and the intense competition in a highly fragmented yarn industry. The ratings also factor in improved profitability margin albeit marginal decline in total operating income during FY17 (refers to the period April 1 to March 31). The ratings, however, continue to derive strength from the experience of the promoters for more than three decades, the availability of captive power capacity and comfortable capital structure and debt coverage indicators of the company. Going forward, the ability of PSMPL to scale up the operations, improve the profit margins and capital structure would be the key rating sensitivities. Detailed description of the key rating drivers Key Rating Weakness Small scale of operations and marginal decline in Total Operating Income (TOI): The total operating income (TOI) of PSMPL marginally declined to Rs crore in FY17 as against Rs crore in FY16. Despite the industrial slowdown, the company was able to maintain the stable income on back 1 Complete definitions of the ratings assigned are available at and in other CARE publications. 1 Credit Analysis & Research Limited

2 of better prices for yarn and the stable productivity. The average price of yarn stood at Rs /kilogram in FY17 (Rs.240- Rs.250/kilogram in FY16). PSMPL derives 99% of revenues from sale of yarn and the remaining from the sale of waste and scrap generated during the process. It has a production capacity of around 1.8 lakh tonnes of yarn/annum. In 6MFY17 (provisional), the company has achieved the total operating income of Rs crore with PBT of Rs.2.6 crore in 1HFY18. Working capital intensive nature of operations PSMPL purchases viscose fibre from Grasim Industries Limited (GIL) against 100% advance payment (GIL being significantly bigger supplier, PSMPL has low bargaining power) resulting in low average creditors days. PSMPL provides credit period upto 2 months to its customers. The company is also required to keep viscose fibre inventory to cater to days requirement, whereas, it also maintains around 3 month s stock of finished goods. To meet the working capital requirement, PSMPL relies on working capital facility. The average utilization of the working capital facility is 90% in the last 12 months ended November, With marginal increase in average collection and average inventory period, the operating cycle stood moderately elongated to 112 days in FY17 compared to 93 days in FY16. Susceptibility of margins to raw material price movements Prices of cotton bales which are dependent upon the prices of raw cotton are volatile in nature and depend upon various factors. Any wide fluctuation in the price of its key raw material and inability to timely pass on the complete increase in the prices to its customers is affecting the company s profitability margins. Highly fragmented yarn industry Textile is a cyclical industry and closely follows the macroeconomic business cycles. High competitive intensity in the textile industry, volatility of cotton prices and sluggish demand outlook from developed markets are the major cause of concern for the Indian textile industry. Key Rating Strengths Improved profitability margin The PBILDT margin of the company improved by 30bps to 8.50% in FY17 over FY16 on account of reduction in power and fuel costs from Rs crore in FY16 to Rs.2.73crore in FY17 due to improvement in captive wind power generation. However, the company also purchased electricity from Cauvery Power Generation Chennai Private Limited to manage its power requirements. In FY17 the profit margin has improved marginally due to increases in the employee cost to 27% over FY16 due to salary and wages revision. The PAT margin also marginally improved by 21 bps to 1.33% in FY17 over FY16 on account of improvement in PBILDT along with reduction in the interest costs and depreciation provisions. Cash accruals marginally declined by 7% to Rs crore in FY17 over FY16 due to increases in the deferred tax. 2 Credit Analysis & Research Limited

3 Long track record of the company and experienced promoters in manufacturing cotton yarn The promoters of the company have long experience of three decades in the yarn manufacturing and the company has long track record of more than a three decade in the manufacturing of cotton yarn with established relationship with domestic customers. Availability of captive power generated from windmill The power generated by WTGs accounted for about 49% of the total power requirement of the company in FY17 (as against 34% in FY16 and 43% in FY15). The increase in electricity consumption through captive source resulted in reduction of power cost from Rs.4.03 crore in FY16 to Rs.2.73 crore in FY17. However, the company also purchased electricity from Cauvery Power Generation Chennai Private Limited to manage its power requirements. Improved capital structure and debt coverage indicators The capital structure of the company marked by debt equity ratio and overall gearing continued to remain below unity and stood comfortable during FY17. Debt equity ratio improved from 0.20x as on March 31, 2016 to 0.14x as on March 31, 2017 on back of reduction in the long term debt associated with scheduled repayment of term loans installments. However, overall gearing marginally deteriorated to 0.83x as on March 31, 2017 from 0.72x as on March 31, 2016 on back of increased utilization of working capital facilities. Furthermore, the debt coverage indicators of the company also stood comfortable in FY17 similar to FY16 levels. The interest coverage ratio improved from 2.84x in FY16 to 2.96x in FY17 on back of reduction in the interest costs and improvement in PBILDT. TD/GCA deteriorated to 6.52x in FY17 from 5.02x in FY16 due to increase in the total debts (based on the higher utilization of fund-based working capital facilities in FY17) Analytical Approach: Standalone Applicable Criteria: Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition Financial ratios Non-Financial Sector Criteria for Short Term Instruments About the Company Pavathal Spinning Mills Private Limited (PSMPL) was established in 1982 as Palani Karthik Spinning Mills Private Limited and was taken over by the promoters of PSMPL in The company has expanded its operations over the years and currently has spinning installed capacity of 14,112 spindles. The company also 3 Credit Analysis & Research Limited

4 has captive electricity source through wind turbine generators (WTGs) with total installed capacity of MW as on November, The manufacturing facility of the company is located in Dindigul, Tamil Nadu. Earlier, the company was engaged in manufacturing and sale of polyester viscose (PV) yarn. However, PSMPL shifted to manufacturing and sale of only viscose yarn ranging from 18 s counts to 40 s count due to market demand. The company also sells 240 s count viscose yarn which is produced by the process of doubling of 40 s count yarns and the same is also outsourced in case of excess orders. PSMPL generates sales of its products predominantly from Tamil Nadu state. Brief Financials (Rs. crore) FY16 (A) FY17 (A) Total operating income PBILDT PAT Overall gearing (times) Interest coverage (times) A: Audited; Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact Name: Mr Manish Kumar Tel: Cell: manish.kumar@careratings.com **For detailed Rationale Report and subscription information, please contact us at About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. 4 Credit Analysis & Research Limited

5 Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/ Name of the Instrument Fund-based - LT-Term Loan Fund-based - LT-Cash Credit Non-fund-based - ST- Bank Guarantees Date of Issuance Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook - - March CARE BB+; Stable CARE BB+; Stable CARE A4+ Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank 1. Fund-based - LT-Term Loan Type Current Ratings Amount Rating Outstanding (Rs. crore) LT 0.42 CARE BB+; Stable Rating history )CARE BB+; Stable (23-Dec-16) )CARE BB+ (15-Oct-15) 2)CARE BB (24-Apr-15) Fund-based - LT-Cash Credit LT CARE BB+; Stable - 1)CARE 1)CARE BB+ BB+; Stable (15-Oct-15) (23-Dec-16) 2)CARE BB (24-Apr-15) - 3. Non-fund-based - ST- Bank Guarantees ST 0.50 CARE A4+ - 1)CARE A4+ 1)CARE A4+ (23-Dec-16) (15-Oct-15) 2)CARE A4 (24-Apr-15) - 5 Credit Analysis & Research Limited

6 CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: Cell: meenal.sikchi@careratings.com ankur.sachdeva@careratings.com Ms. Rashmi Narvankar Mr. Saikat Roy Cell: Cell: rashmi.narvankar@careratings.com saikat.roy@careratings.com CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: deepak.prajapati@careratings.com BENGALURU Mr. V Pradeep Kumar Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , pradeep.kumar@careratings.com CHANDIGARH Mr. Anand Jha SCF No , First Floor, Phase 11, Sector 65, Mohali Chandigarh Cell: / Tel: / 01 anand.jha@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Tel: / pradeep.kumar@careratings.com JAIPUR Mr. Nikhil Soni 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: pratim.banerjee@careratings.com CIN - L67190MH1993PLC HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: ramesh.bob@careratings.com 6 Credit Analysis & Research Limited