CRISIL has upgraded its rating on the long-term bank facilities of Nithin Textiles Pvt Ltd (Nithin) to ‘B+/Stable’ from ‘B/Stable’, while reaffirming its rating on the company’s short-term facility at ‘P4’.

The upgrade reflects Nithin’s strong operating performance in 2010-11 (refers to financial year, April 1 to March 31), marked by significant growth in revenues and healthy profitability and cash accruals, resulting in improvement in its debt protection metrics. For the nine months ended December 31, 2010, Nithin posted revenue of Rs.480 million, up from Rs.400 million for 2009-10; Nithin’s operating margin remained comfortable at around 18 per cent for the nine months ended December 31, 2010. Nithin’s healthy business performance has been driven largely by the favourable movement in cotton yarn prices. Consequent to the improvement in its operating margin and cash accruals, the company’s net cash accruals to total debt and interest coverage ratios improved to 0.21 times and 3.52 times, respectively, for the nine months ended December 31, 2010, from 0.08 times and 2.38 times, respectively, for 2009-10.

The ratings reflect Nithin’s weak financial risk profile, marked by high gearing, and its exposure to risks related to volatility in raw material prices and to power shortage. These weaknesses are partially offset by the benefits that the company derives from its promoters’ experience in the textile business.

Outlook: Stable
CRISIL believes that Nithin will maintain its market position over the medium term on the back of its promoters’ industry experience. The outlook may be revised to ‘Positive’ if the company sustains its revenue growth and margins and improves its capital structure significantly. Conversely, the outlook may be revised to ‘Negative’ if Nithin’s profitability and volumes decline steeply, or if it undertakes a large, debt-funded capital expenditure programme.

About the Company
Set up in 2006 by Mr. K Jaikumar and his wife, Mrs. J. Vanitha, Nithin commenced commercial operations in 2008. The company undertakes spinning of cotton and viscose yarn at its unit at Dindigul (Tamil Nadu), which has a capacity of 23,808 spindles. Nithin posted a profit after tax of Rs.1.1 million on net sales of Rs.396 million for 2009-10, as against a net loss of Rs.11 million on net sales of Rs.210 million for 2008-09.