Rating Rationale
June 11, 2019 | Mumbai
Cheviot Co Ltd
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.32 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A+/Stable/CRISIL A1+' ratings on the bank facilities of Cheviot Co Ltd (CCL).

The ratings continue to reflect CCL's strong business and financial risk profiles. These strengths are partially offset by exposure to risks related to regulated nature of jute industry and easy availability of cheaper substitutes.

Key Rating Drivers & Detailed Description
Strengths
* Strong financial risk profile

Networth is robust estimated at Rs 520 crore as on March 31, 2019  (including revaluation of Rs 61.8 crore in the year) Rs 408.13 crore as on March 31, 2018, supported by healthy accretion to reserve, sizeable revenue, and healthy profitability ( ~15.1% in fiscal 2019 from 16% in the previous fiscal). Peak gearing over the five fiscals was low, at 0.05 time as on March 31, 2015 and 0.01 time as on March 31, 2018, due to healthy cash accrual, limited working capital requirement, and low debt-funded capital expenditure (capex). Capex for technology upgrade and replacement of old machinery is generally through internal funding. Moreover, modernisation of facilities enhances productivity and increases cash generating ability.

* Robust business risk profile
The business risk profile is supported by a diversified product profile, wide reach, healthy operating efficiency, and the experience of the promoters. Since the current promoter family took over the company in 1976, it started manufacturing various speciality jute products, such as yarn and superior-quality hessian and fabrics. This diversifies revenue and limits the risk of any one product becoming obsolete. Besides processing jute, the company also produces high-yielding, value-added products such as yarn, hessian, and superior hessian cloth. Its yarn and superior hessian have wide acceptance in the international market, and generate high profitability. Business risk profile should remain healthy over the medium term, driven by strong market position, an increasing awareness for ecofriendly products, a diversified product profile, and a wide distribution network.

* Efficient working capital management: Operations are managed efficiently, as reflected in gross current assets of 121 days as on March 31, 2018, (107 days a year before), owing to receivables and inventory of 38 and 70 days, with negligible credit of 10 days from suppliers. Working capital cycle are estimated to be at similar level in fiscal 2019 as well.

Weaknesses
* Exposure to risks related to regulated nature of jute industry and easy availability of cheaper substitutes

The domestic jute industry is highly regulated by the Government of India, especially in key areas such as pricing and trading. Minimum support price (MSP) for raw jute has been announced by the Cabinet Committee on Economic Affairs to prop up jute prices and ensure security for farmers. MSP, which varies from state to state and with jute variety, influences the end-price of jute products. Also, the government, under the aegis of the jute packaging material (compulsory use in packaging commodities) Act, 1987, has made it mandatory to use 90% of jute bags for packaging food grains for consignments of 10-100 kilogram (kg), and 20% of jute bags for packaging sugar for a consignment of 25-100 kg. This regulation is the key growth driver for the jute industry. Consumer packs of 25 kg and below for sugar, 10 kg and below for food grains, and packaging for export of commodities are exempted from this act.

However, the JPMA Act has been provisionally revised to 100% for food grains till the end of June 2019, post which, the government will take a decision. This decision will be a key sensitivity factor. Regulated nature of the industry makes the company susceptible to any adverse change in policies.
Liquidity

Liquidity will continue to be supported by investments in debt and equity, unencumbered cash balances.  CCL has unencumbered cash balance of around Rs 8.93 crore as on March 31, 2019 (Rs 9 crore as on March 31, 2018), and investments of around Rs 277 crore (267.98 crore as on March 31, 2018), in debt and equity mutual funds, government securities, equities of listed companies, and gold exchange traded funds. Total investments is estimated to improve further going forward. Capex plans entail an outgo of Rs 18 crore in fiscal 2020 which will be funded through current accruals without hurting liquidity and thereafter annually around Rs 6-7 crore per annum for up gradation of machinery and improving infrastructure at the manufacturing facilities (including accommodation for staff and workers).

Outlook: Stable

CRISIL believes CCL will continue to benefit from strong business and financial risk profiles, experience of the promoters, diversified product profile, and wide distribution network. The outlook may be revised to 'Positive' if there is substantial increase in revenue and profitability. Conversely, the outlook may be revised to 'Negative' if any large, debt-funded capex, stretched working capital cycle, or adverse regulatory change weakens financial risk profile.

About the Company

CCL, incorporated in 1897, is the flagship company of the Cheviot group, which operates in the jute, tea, and leather industries. The company's name was changed to the current one in 1976, when Mr B D Kanoria took over. After his retirement, his son, Mr H V Kanoria, became the chairman and managing director. CCL manufactures high-value jute yarn and fabrics, such as precision-wound fine jute yarn, sacking cloth, hessian cloth and bags, sacking bags (for packing food grains and other allied purposes), and superior hessian cloth. The company added jute shopping bags to its existing product lines. It caters to both the global and domestic markets. It has two manufacturing units in West Bengal: one in Budge Budge and one in the Falta Special Economic Zone (export-oriented unit).

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 375.52 390.23
Profit after tax (PAT) Rs crore 53.8 48.83
PAT margin % 14.3 12.5
Adjusted debt/adjusted networth Times 0.01 0.04
Interest coverage Times 78.42 180.52

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 10 CRISIL A+/Stable
NA Letter of credit
 
NA NA NA 15 CRISIL A1+
NA Proposed Long
Term Bank Loan
Facility
NA NA NA 7 CRISIL A+/Stable
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  17.00  CRISIL A+/Stable      13-08-18  CRISIL A+/Stable  28-07-17  CRISIL A+/Stable/ CRISIL A1+  21-04-16  CRISIL A+/Stable/ CRISIL A1+  CRISIL A+/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST  15.00  CRISIL A1+      13-08-18  CRISIL A1+  28-07-17  CRISIL A1+  21-04-16  CRISIL A1+  CRISIL A1+ 
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 10 CRISIL A+/Stable Cash Credit 15 CRISIL A+/Stable
Letter of Credit 15 CRISIL A1+ Letter of credit & Bank Guarantee 15 CRISIL A1+
Proposed Long Term Bank Loan Facility 7 CRISIL A+/Stable Long Term Loan .38 CRISIL A+/Stable
-- 0 -- Proposed Long Term Bank Loan Facility .55 CRISIL A+/Stable
-- 0 -- Term Loan 1.07 CRISIL A+/Stable
Total 32 -- Total 32 --
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 Criteria for rating short term debt

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