Rating Rationale
February 26, 2020 | Mumbai
Aditya Spinners Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.12 Crore
Long Term Rating CRISIL BB/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BB/Stable' rating on the long-term bank facilities of Aditya Spinners Limited (ASL).

The rating continues to reflect the extensive experience of ASL's promoters and their funding support, efficient working capital management and moderate financial risk profile. These strengths are partially offset by the modest scale of operations in an intensely competitive industry, and susceptibility to volatility in raw material prices.

Analytical Approach

Unsecured loans of Rs 7.91 crore (as on March 31, 2019) from the promoters & related parties, have been treated as neither debt nor equity as these are expected to be retained in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths:
* Promoters' extensive experience in the polyester and viscose yarn industry: ASL was established in 1991 and taken over by the present management in 2005. Over the past 15 years, the management has turned around the company from a sick unit to a professionally run business, and has gained extensive experience in the man-made fibre segment. Further, need-based funding support from the promoters is expected to continue.
 
* Efficient working capital management: Working capital requirements are efficiently managed, with gross current assets, inventory, and debtors of 57, 23, and 26 days, respectively, as on March 31, 2019.
 
* Moderate financial risk profile: Financial risk profile is marked by a moderate capital structure, with networth and gearing expected at Rs 13.24 crore and 0.98 time, respectively, on March 31, 2020. Interest coverage ratio is expected at 2.2 times in fiscal 2020.
 
Weaknesses:
* Exposure to intense competition in the polyester and viscose yarn industry: Intense competition constrains bargaining power with customers. The large and fully integrated players command pricing power, while medium-sized and smaller players such as ASL are generally price followers and face risks related to decisions taken by larger players.
 
*Susceptibility to volatility in raw material prices: The textile industry's profitability is highly correlated with fluctuations in raw material prices. Raw material costs have accounted for 50-55% of ASL's revenue in the five fiscals ended 2019. Further, the company does not have any long-term contracts with suppliers with regard to either quantity or price.
Liquidity Adequate

Liquidity is expected to be adequate because of sufficient net cash accrual against maturing debt, modest capital expenditure and moderately utilised bank limit. Net cash accrual, expected at Rs 2.4-2.8 crore per annum should comfortably cover maturing debt of Rs 1.54 crore. Bank limit utilisation was moderately high at 86% over the 12 months through November, 2019.

Outlook: Stable

CRISIL believes ASL will continue to benefit from the extensive experience of its promoters, and established relations with customers.

Rating Sensitivity factors
Upward Factors:
* Revenue growth of 20-25% along with improvement in operating margin to 7.5-8.0%
* Significant improvement in financial risk profile, driven by equity infusion
 
Downward Factors:
* Decline in revenue and/or profitability lowering net cash accrual to below Rs 1.75 crore
* Significant stretch in working capital cycle mainly because of delays in realisation of receivables
About the Company

Chittoor (Andhra Pradesh)-based ASL was incorporated in 1991, and promoted by Mr K Vijay Kumar and Ms K V Naga Lalitha. It manufactures synthetic yarn. The company is listed on the Bombay Stock Exchange.

ASL reported profit after tax of Rs 99 lakh on revenue of Rs 43.46 crore in the first nine months ended December, 2019, as against net loss of Rs 12 lakh on revenue of Rs 46.15 crore in the corresponding period of the previous fiscal.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 61.32 54.14
Profit After Tax (PAT) Rs crore 0.91 0.04
PAT Margin % 1.5 0.07
Adjusted Debt/Adjusted Networth Times 0.98 0.8
Interest Coverage Times 2.21 2.24

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate Maturity date Issue size (Rs cr) Rating assigned with outlook
NA Cash Credit NA NA NA 5.0 CRISIL BB/Stable
NA Long Term Loan NA NA Apr-2023 4.56 CRISIL BB/Stable
NA Proposed Cash
Credit Limit
NA NA NA 0.75 CRISIL BB/Stable
NA  Proposed Long Term Bank Loan Facility NA NA NA 1.69 CRISIL BB/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  12.00  CRISIL BB/Stable          21-11-18  CRISIL BB/Stable  29-08-17  CRISIL BB/Stable  -- 
                31-08-18  CRISIL BB/Stable       
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 5 CRISIL BB/Stable Long Term Loan 6.99 CRISIL BB/Stable
Long Term Loan 4.56 CRISIL BB/Stable Proposed Long Term Bank Loan Facility .26 CRISIL BB/Stable
Proposed Cash Credit Limit .75 CRISIL BB/Stable Secured Overdraft Facility 4.75 CRISIL BB/Stable
Proposed Long Term Bank Loan Facility 1.69 CRISIL BB/Stable -- 0 --
Total 12 -- Total 12 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
Understanding CRISILs Ratings and Rating Scales

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