Rating Rationale
January 30, 2024 | Mumbai
Amarjothi Spinning Mills Limited
Rating outlook revised to 'Negative'; Rating Reaffirmed; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.55 Crore (Enhanced from Rs.10 Crore)
Long Term RatingCRISIL BBB+/Negative (Outlook revised from 'Stable'; Rating Reaffirmed)
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1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Amarjothi Spinning Mills Limited (ASML) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB+’.

 

The outlook revision factors in the moderation in performance of the company in fiscal 2023 and 2024 as well; owing to weak demand prospects for cotton yarn due to a sluggish market and hike in raw material prices. Operating income has declined to Rs. 210 crores in FY2023 compared to Rs. 257 crores in FY2022 & same is further expected to decrease this fiscal due to subdued demand & lower volume. This has led to less than expected net cash accruals despite stable margin of over 15 – 16%. Timely stabilization of operations and improvement in margins will remain key rating sensitivity factors.

 

The ratings continue to reflect ASML's established market position in the mélange yarn segment supported by the extensive experience of its promoters and their established customer relationships and it also factor in the above-average financial risk profile. These strengths are partially offset by the working capital-intensive operations and moderate scale of operations and susceptibility of operating performance to volatility in raw material prices.

Analytical Approach

For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of ASML and its subsidiaries. This is because all the entities, collectively referred to as the Amarjothi group, have a common management and have business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the mélange yarn segment supported by the extensive experience of promoters and their established customer relationships: The group benefits from the extensive experience of Mr N Rajan, Mr R Premchander and Mr R Jaichander of nearly three decades, in the mélange yarn segment. Supported by the extensive experience of the promoters, the group has been able to command a premium position in the mélange yarn segment, resulting in established relationship with customers and suppliers. CRISIL Ratings believes ASML shall continue to benefit from its established market position over the medium term.

 

  • Above-average financial risk profile: Networth and total outside liabilities to tangible networth ratio (TOLTNW) were comfortable at Rs.180.87 crore and 0.49 times respectively as on March 31, 2023. The gearing is expected to remain comfortable over the medium term, aided by the absence of major debt funded capital expenditure (capex). Interest coverage and net cash accruals to total debt ratio were at around 4.40 times and 0.28 times respectively for fiscal 2023.

 

Weaknesses:

  • Working capital-intensive operations: Operations are working capital intensive with high gross current assets (GCA) of 199 days as on March 31, 2023, driven by sizeable inventory and moderate debtors of around 127 days and 60 days respectively. Ability of the group to liquidate this high inventory, remains a key sensitivity factor.

 

  • Moderate scale of operations and susceptibility to volatility in input prices: The yarn industry is fragmented and dominated by numerous small, un-organized players and a few large players.  With operating income of Rs.210.01 crore in fiscal 2023, scale remains moderate. Group's key raw material, cotton, is a seasonal commodity; the input costs of spinners usually align themselves to variations in the cotton yarn realizations with a significant time lag rendering margins vulnerable to volatility in input costs.

Liquidity: Adequate

Bank limit utilization is low at around 17 percent for the past twelve months ended November 2023. Cash accrual are expected to be over Rs 17 – 20 crore which are sufficient against term debt obligation of Rs 1 – 2 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company.

 

Current ratio are healthy at 2.86 times on March 31, 2023. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations.

Outlook: Negative

CRISIL Ratings believes ASML’s scale of operation is likely to recover given recent moderation in raw material prices and will remain key monitorable.

Rating Sensitivity factors

Upward Factors:

  • Improvement in revenue and operating margin leading to cash accruals more than Rs.40 cr
  • Improvement in working capital cycle, resulting in better GCA days

 

Downward Factors:

  • Decline in operating income or operating profitability to less than 15 percent
  • Any other large debt funded capital expenditure, adversely impacting the financial risk

About the Company

Incorporated in 1987, ASML is currently managed by its chairman, Mr N Rajan. The group manufactures value-added mélange yarn from which entire revenue is derived. The manufacturing unit is based in Tirupur, Tamil Nadu.

Key Financial Indicators

As on / for the period ended March 31

Unit

2023

2022

Operating income

Rs crore

210.01

257.52

Reported profit after tax

Rs crore

10.30

21.77

PAT margins

%

4.90

8.45

Adjusted Debt/Adjusted Net worth

Times

0.35

0.58

Interest coverage

Times

4.30

5.72

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit / Overdraft facility NA NA NA 15 NA CRISIL BBB+/Negative
NA Cash Credit / Overdraft facility NA NA NA 10 NA CRISIL BBB+/Negative
NA Cash Credit / Overdraft facility NA NA NA 30 NA CRISIL BBB+/Negative

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Amarjothi Spinning Mills Limited

100%

Parent company

Amarjothi Power Generation and Distribution Company Ltd

100%

Subsidiary with operational fungibilities

South West Wind Farms Limited

100%

Subsidiary with operational fungibilities

North East Wind Farms Limited

100%

Subsidiary with operational fungibilities

Amarjothi Wind Farms Limited

100%

Subsidiary with operational fungibilities
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 55.0 CRISIL BBB+/Negative   -- 13-02-23 CRISIL BBB+/Stable 07-02-22 CRISIL BBB+/Stable 29-11-21 CRISIL BBB+/Stable CRISIL BBB+/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit / Overdraft facility 15 The Karur Vysya Bank Limited CRISIL BBB+/Negative
Cash Credit / Overdraft facility 10 The Karur Vysya Bank Limited CRISIL BBB+/Negative
Cash Credit / Overdraft facility 30 HDFC Bank Limited CRISIL BBB+/Negative
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Cotton Textile Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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