Rating Rationale
February 11, 2021 | Mumbai
Ashwini Traders
Rating reaffirmed at 'CRISIL A / Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.35.5 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A/Stable' rating on the long-term bank facilities of Ashwini Traders (AT; part of Radhalakshmi group).

 

The rating continues to reflect the benefits derived from the extensive experience of the group’s promoters in the cotton trading industry, steady cash flow from windmill business, prudent risk management policies, and strong financial risk profile. These strengths are partially offset by susceptibility to volatility in cotton prices and business cycles and exposure to risks inherent in operating wind-energy assets.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Shree Radhalakshmi Cotton Pvt Ltd (SRCPL), AT, Shree Siddhivinayaka Cotton Corporation (SSCC), Sri Balaji and Co (SBC), and Shree Tirupati Cotton Corporation (STCC), together referred to as ‘Radhalakshmi group'. This is because all the companies, have common promoters, are in the same line of business, and have strong operational linkages 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:

  • Extensive experience of the promoters in the cotton ginning: The Ganatra family has been engaged in cotton trade for over five decades. Established network of ginners (suppliers), facilitates effective procurement, while healthy relationships with spinners (customers), assure repeat sales. The group has maintained its strong market position in the cotton trading business, with revenues in the range of Rs. 300-500 crore over the past four fiscals ended fiscal 2020.

 

  • Steady cash flow from windmill business: The group has also diversified into windmill power generation in 2004, and has set up 31.8 MW of windmills across Maharashtra, Gujarat, and Tamil Nadu. With long-term power purchase agreements (PPAs) signed for all windmills and healthy plant load factor reported in past few fiscals, there is stability in cash flows.

 

  • Prudent risk management policies: The group follows efficient risk management practices, as reflected in low inventory and credit extended to customers. Average inventory of 30-60 days has been maintained for the past three years. The group has a large customer base, with the top 10 customers contributing around 40% of revenue that offsets counter party risk to a large extent. Back-to-back arrangement with suppliers and customers limits exposure to inventory and price risks commonly faced by trading entities.

 

  • Strong financial risk profile: Financial risk profile is marked by a strong networth of Rs 258.31 crore, and low gearing and total outside liabilities to adjusted networth (TOLANW) ratios of 0.16 time and 0.21 time, respectively, as on March 31, 2020. Debt protection metrics were comfortable, with net cash accrual to total debt and interest cover ratios at 0.31 time and 3.31 times, respectively, in fiscal 2020. Group’s controlled reliance on external debt and absence of any major capital expenditure plans over the medium term should continue to support the financial risk profile.

 

Weaknesses:

  • Vulnerability to volatility in cotton prices and changes in demand-supply dynamics: Scalability and profitability of the group's operations remain susceptible to changes in the cotton crop pattern, demand scenario, extent of competition, and regulatory intervention to control cotton prices. Although, firm’s prudent risk policies has protected sharp volatility in profitability, operating margin has remained volatile in range of 4.0-6.4% over the past four fiscals ended fiscal 2020. Further, intense competition in the cotton trading business, which has numerous small players, constrains the operating margin.

 

  • Exposure to risks inherent in operating wind-energy assets: Variation in wind speed and pattern could reduce the operating PLF, thus impacting the cash flows from this segment. There are delays observed in payment from counterparty, i.e. state electricity boards in the near past. Any further delay in receipt of payment from counterparty, could lead to higher dependence on debt and impact the credit profile of the group.

Liquidity: Strong

The group enjoys strong liquidity driven by expected cash accruals of more than Rs. 20 crores per annum in fiscal 2021 and 2022, against no term debt onligations. Cash and cash equivalents were strong at Rs. 126.44 crore, as on March 31, 2020. It also has access to fund-based limits of Rs. 186 crore, utilized to the tune of 20% in the last 12 months ended December 2020. The group does not have any capex plans over the medium term. With a gearing of 0.16 times, group has sufficient gearing headroom, to raise additional debt to meet its incremental working capital requirements. Deployment of the cash and liquid surplus will remain a rating monitorable.

Outlook Stable

CRISIL Ratings believes the Radhalakshmi group will continue to benefit from its established market position as a cotton trader, and steady revenue from windmills.

Rating Sensitivity factors

Upward Factors

  • Sustained growth in revenue, while sustaining operating margins, leading to cash accruals of more than Rs. 35 crores
  • Improvement in working capital cycle with no major capital expenditure, strengthening the financial risk profile

 

Downward Factors

  • Significant decline in revenue or operating margin, leading to cash accruals less than Rs. 10 crores
  • Weakening of financial risk profile, because of sizeable, debt-funded capital expenditure or stretch in working capital cycle, or large capital withdrawals

About the Group

The Radhalakshmi group, promoted by the late Mr Shivdas Ganatra, commenced operations in 1981 in Mumbai. SRCPL, the group's flagship entity, was originally set up as Radhalakshmi Cotton Corporation, a partnership firm. It was reconstituted as a private limited company, with the present name in 1997.

 

SRCPL, and other group entities - SBC (in 1994), STCC (1995), AT (1998), and SSCC (1999), trade in cotton bales. The group also has 31.8 MW of windmills under SBC, AT and SSCC, for which it has long term PPAs with state electricity boards.

 

Mr. Atul Ganatra manages the group's operations, along with his wife, Ms Deepali Ganatra, brother, Mr Nitin Ganatra, and daughters, Dr Anvi Ganatra and Ms. Karuna Ganatra.

 

The Radhalakshmi group has its corporate office in Mumbai, and branches in Gujarat, Maharashtra, Andhra Pradesh, and Madhya Pradesh.

Key Financial Indicators*

Particulars

Unit

2020

2019

Revenue

Rs.Crore

317.71

489.66

Profit After Tax

Rs.Crore

8.39

18.02

PAT Margin

%

2.6

3.7

Adjusted Debt/Adjusted Networth

Times

0.16

0.30

Interest coverage

Times

3.31

6.20

*Consolidated numbers

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

Complexity levels

Issue

Size

(Rs.Cr)

Rating Assigned  with Outlook

NA

Cash Credit

NA

NA

NA

NA

20

CRISIL A/Stable

NA

Secured Overdraft against term deposits

NA

NA

NA

NA

15.5

CRISIL A/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Shree Tirupati Cotton Corporation

Full

All the entities are in similar line of business and have common business and management team.

Shree Siddhivinayaka Cotton Corporation

Full

All the entities are in similar line of business and have common business and management team.

Ashwini Traders

Full

All the entities are in similar line of business and have common business and management team.

Shree Radhalakshmi Cotton Private Limited

Full

All the entities are in similar line of business and have common business and management team.

Sri Balaji and Co

Full

All the entities are in similar line of business and have common business and management team.

 

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 35.5 CRISIL A/Stable   --   -- 13-11-19 CRISIL A/Stable 31-12-18 CRISIL A/Stable CRISIL A/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 20 CRISIL A/Stable Cash Credit 20 CRISIL A/Stable
Secured Overdraft against term deposits 15.5 CRISIL A/Stable Secured Overdraft against term deposits 15.5 CRISIL A/Stable
Total 35.5 - Total 35.5 -
Links to related criteria
Criteria for rating trading companies
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings
Rating Criteria for Cotton Textile Industry
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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