Rating Rationale
February 19, 2024 | Mumbai
Ambika Cotton Mills Limited
Rating outlook revised to 'Stable'; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.455.55 Crore
Long Term RatingCRISIL A+/Stable (Outlook revised from 'Positive'; Rating reaffirmed)
Short Term RatingCRISIL A1 (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 Ambika Cotton Mills Limited (ACML) to ‘Stable’ from ‘Positive' while reaffirming the rating at CRISIL A+’. Short term rating has been reaffirmed at CRISIL A1’.

 

The revision in outlook reflects the moderation in operating performance of the company on account of volatility in raw material prices and lower realizations. The weakening in operating performance stems from a sharp correction in cotton and yarn prices and hence realisations. Moreover, the demand for premium export yarn has been sluggish in the preceding quarters resulting in higher execution of domestic orders. The company reported revenues of Rs.617.67 crores and operating profitability of 12.77% for the nine months through December 2023. With anticipated recovery in demand in coming quarter, the margins would see a gradual increase. However, the extent of recovery in the operating performance would remain key rating monitorable.

 

The rating also factors in a strong financial risk profile and robust liquidity of the company. The interest coverage is estimated at over 19.21 times for fiscal 2024 and the gearing would remain at less than 0.20 times as on March 31, 2024. The company also maintains cash balances to the tune of Rs. 191.55 crores as on December 2023 which enhance the liquidity profile.

 

The rating continues to reflect extensive experience of the promoter and established market position in the finer count yarn segment, healthy operating efficiencies and healthy financial risk profile. These strengths are partially offset by the susceptibility to volatility in raw material prices and foreign exchange (forex) rates.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoter and established market position in the finer count yarn segment: ACML benefits from its promoter’s extensive industry experience of more than three decades. The same has helped in building an established market position and the global repute as a manufacturer of premium cotton yarn leading to 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 realization, 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 operating margin over the four years through fiscal 2023.

 

  • Healthy financial risk profile: Financial risk profile remains healthy, backed by strong capital structure and healthy debt protection metrics. Net worth and total outside liability to tangible net worth (TOLTNW) were comfortable at Rs.816.62 crore and 0.2 time, respectively, as on March 31, 2023 and is estimated to be over Rs.924 crore and 0.10 times respectively for fiscal 2024. Debt protection metrics are strong, with interest coverage 26 times for FY2023 and estimated to be over 19.21 times for fiscal 2024. ACML's strong liquidity is marked by sparse to no utilized 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 nine months of fiscal 2024, due to volatile raw material price movements. Exports account for around~ 60%-75% of the ACML’s turnover, thereby exposing the company to considerable volatility in forex rates.

Liquidity: Strong

Bank limit utilization is low at around 44% percent for the past twelve months ended December 2023. Cash accruals are expected to be over Rs 70 - 90 crore which are sufficient against nil term debt obligation over the medium term.

 

The current ratio is healthy at 4.13 times on March 31, 2023. High cash and bank balance of around Rs.191.55 crore as on December 31, 2023. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings 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

  • Healthy revenue growth rate and operating margins over 19%.
  • Sustenance of financial risk profile and liquidity.

 

Downside Factors

  • Large debt funded capex or stretch in working capital resulting in TOLTNW of more than 1.5 times.
  • Decline in revenue or operating profitability, 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 more than 60% of the revenue is derived from exports, the rest is from the 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 Exchang.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

847.47

908.64

Reported profit after tax

Rs.Crore

111.89

179.89

PAT margins

%

13.20

19.80

Adjusted Debt/Adjusted Networth

Times

0.07

0.18

Interest coverage

Times

23.84

114.12

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 Instrument

Date of

Allotment

Coupon

Rate (%)

Maturity

Date

Issue Size

(Rs.Crore)

Complexity

Level

Rating Assigned with

Outlook

NA

Composite Working Capital Limit

NA

NA

NA

50

NA

CRISIL A1

NA

Composite Working Capital Limit

NA

NA

NA

110

NA

CRISIL A1

NA

Composite Working Capital Limit

NA

NA

NA

35

NA

CRISIL A1

NA

Composite Working Capital Limit

NA

NA

NA

125

NA

CRISIL A1

NA

Composite Working Capital Limit

NA

NA

NA

75

NA

CRISIL A1

NA

Proposed Working Capital Facility

NA

NA

NA

60.55

NA

CRISIL A+/Stable

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/ST 455.55 CRISIL A+/Stable/ CRISIL A1   -- 28-08-23 CRISIL A+/Positive / CRISIL A1 30-06-22 CRISIL A+/Positive / CRISIL A1 05-04-21 CRISIL A+/Stable / CRISIL A1 CRISIL A+/Stable / CRISIL A1
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Composite Working Capital Limit 50 Kotak Mahindra Bank Limited CRISIL A1
Composite Working Capital Limit 110 Axis Bank Limited CRISIL A1
Composite Working Capital Limit 35 IDBI Bank Limited CRISIL A1
Composite Working Capital Limit 125 HDFC Bank Limited CRISIL A1
Composite Working Capital Limit 75 ICICI Bank Limited CRISIL A1
Proposed Working Capital Facility 60.55 Not Applicable CRISIL A+/Stable
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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