Rating Rationale
April 05, 2021 | Mumbai
Ambika Cotton Mills Limited
Ratings reaffirmed at 'CRISIL A+ / Stable / CRISIL A1 '
 
Rating Action
Total Bank Loan Facilities RatedRs.455.55 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL has reaffirmed the rating on the bank facilities of Ambika Cotton Mills Limited (ACML) at ‘CRISIL A+/Stable/CRISIL A1’.

 

ACML’s business risk profile is supported by its strong pricing flexibility, aided by its premium positioning in the cotton yarn market and its adequate captive power facilities as reflected in a turnover of around Rs.550-650 crore over the last four fiscals ended March 2020.This had resulted in strong operating margin at 17-20%, over the same period.The revenues for fiscal 2021 is expected to decline marginally owing to impact of COVID-19 led disruptions in the first quarter of the fiscal.

 

Turnover for the 9 month ended December 2020 was at around Rs.438 crore as against Rs.480 crore for the same period during the previous fiscal, while sustaining the operating profitability at around 18%. Further the financial risk profile is expected to remain strong for fiscal 2021, supported by absence of major debt funded capital expenditure, minimal dependence on bank borrowings and steady accretions.

 

The ratings reflect extensive experience of the promoter, established market position in the finer cotton yarn segment, long-standing relationships with its key customers, healthy operating efficiency and strong financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and foreign exchange (forex) rates.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the finer count yarn segment: ACML benefits from its established market position and the global repute as a manufacturer of premium cotton yarn, supported by extensive experience of the promoters, long-standing supplier and customer relationships, and strong in-house operational capabilities. ACML specializes in manufacturing premium quality compact yarn by optimal blending of imported and indigenous cotton, primarily used for finer shirting requirements.

 

  • Healthy operating efficiencies: ACML has healthy operating efficiencies, supported by premium quality yarn. This has led to better price realisation, flexibility to pass on increases in raw material prices and adequate captive power facilities, resulting in reduced power costs. Additionally, prudent working capital management has resulted in healthy returns on capital employed of 15-20% over the four years through fiscal 2020.

 

  • Healthy financial risk profile: Financial risk profile remains healthy, backed by strong capital structure and healthy debt protection metrics. Networth and total outside liability to tangible networth (TOLTNW) were comfortable at Rs 524 crore and 0.10 time, respectively, as on September 30, 2020. Debt protection metrics are strong, with interest coverage and net cash accrual to total debt ratios of 37 times and 0.35 times, respectively, the 9 month ended December 2020. ACML's strong liquidity is marked by sparsely utilised bank lines and healthy cash accrual generation against no major debt obligation.

 

Weakness:

  • Susceptibility to volatility in raw material prices and forex rates: Cotton is a key raw material, accounting for most of the company's turnover. Cotton prices are volatile because they are dependent on the monsoon. Furthermore, the prices are largely affected by international demand. Volatility in availability and prices of cotton affects operating margin as reflected in the decline in margin in fiscals 2012, due to volatile raw material price movements. Exports account for around 75% of the ACML’s turnover, thereby exposing the company to considerable volatility in forex rates.

Liquidity: Surplus

ACML has surplus liquidity, supported by low utilisation of the bank limits and healthy accruals against which there are no repayment obligations. ACML’s working capital limits have been utilised at around 10 percent, over the last twelve months through February 2020. Cash accrual in excess of Rs.60-70 crore is expected to be generated over the medium term, against no maturing repayment obligations. Further, all future capital expenditure plans is expected to be funded out of internal accruals. ACML’s liquidity is expected to remain strong over the medium term.

Outlook: Stable

CRISIL believes ACML will maintain its business performance over the medium term, supported by its established market position in the textile segment and strong operating efficiencies.

Rating Sensitivity factors

Upward Factors

  • Improvement in cash accrual to more than Rs.100 crore
  • Stability in operating profitability while sustaining the share of revenues from fabric

 

Downward Factors

  • Deterioration in TOLTNW to more than 1.5 times
  • Decline in operating profitability, adversely impacting cash accrual

About the Company

ACML, incorporated as a private limited company in 1988, was reconstituted as a public company in 1994. The company spins cotton yarn primarily in the finer count range of 60s-100s and manufacturing fabric. While about 75% of the revenue is derived from exports, the rest is from domestic market. Mr PV Chandran is the Chairman and Managing Director of the company.ACML is listed on the National Stock Exchange and the Bombay Stock Exchange.

Key Financial Indicators

As on / for the period ended March 31

 Units

2020

2019

Operating income

Rs crore

623.

657.00

Reported profit after tax (PAT)

Rs crore

43

62.48

PAT margins

%

7.0

9.51

Adjusted Debt/Adjusted Net worth

Times

0.13

0.18

Interest coverage

Times

12.1

13.28

 

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Crore)

Complexity Levels

Rating Assigned with Outlook

NA

Composite Working Capital Limit

NA

NA

NA

395

NA

CRISIL A1

NA

Proposed Working Capital Facility

NA

NA

NA

60.5

NA

CRISIL A+/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 455.55 CRISIL A+/Stable / CRISIL A1   -- 01-09-20 CRISIL A+/Stable / CRISIL A1 22-10-19 CRISIL A+/Stable / CRISIL A1 03-10-18 CRISIL A/Positive / CRISIL A1 CRISIL A1 / CRISIL A/Stable
      --   --   -- 01-10-19 CRISIL A+/Stable / CRISIL A1 24-08-18 CRISIL A/Positive / CRISIL A1 --
      --   --   --   -- 18-07-18 CRISIL A/Positive / CRISIL A1 --
All amounts are in Rs.Cr.
 
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Composite Working Capital Limit Axis Bank Limited 110 CRISIL A1
Composite Working Capital Limit HDFC Bank Limited 125 CRISIL A1
Composite Working Capital Limit ICICI Bank Limited 75 CRISIL A1
Composite Working Capital Limit IDBI Bank Limited 35 CRISIL A1
Composite Working Capital Limit Kotak Mahindra Bank Limited 50 CRISIL A1
Proposed Working Capital Facility Not Applicable 60.55 CRISIL A+/Stable

This Annexure has been updated on 2-Sep-2021 in line with the lender-wise facility details as on 24-Aug-2021 received from the rated entity.

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 rating short term debt

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