| DCM Nouvelle Limited | ||||||
| Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Rating has reaffirmed its ratings on the bank loan facilities of DCM Nouvelle Limited (DNL) at 'CRISIL BBB/Stable/CRISIL A3+’.
CRISIL Ratings had on March 21, 2023, downgraded its ratings on the bank facilities of DNL to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB+/Stable/CRISIL A2’.
The rating continues to reflect extensive experience of the promoters in the cotton industry and comfortable financial risk profile. These strengths are partially offset by vulnerability to fluctuations in raw material prices and exposure to demand risks in key operating countries. |
Key Rating Drivers & Detailed Description Strengths: Established position in the cotton industry and strong relationships with customers: The promoter family has been operating the textiles unit since 1991, which has enabled them to understand market dynamics and establish healthy relationships with customers and suppliers. The company exports to China, Bangladesh, Portugal, Mauritius and Singapore. Resultantly, company was able to attain the revenue of Rs ~255 crores in first quarter of 2024, with the revival of demand from the international market, it is expected that company will be able to attain more than 1000 crores of revenue in fiscal 2024. Established market position and healthy clientele would continue to aid business risk profile over the medium term as well.
Comfortable financial risk profile The financial risk profile of DNL is comfortable as indicated by low expected total outstanding liabilities to adjusted net worth of 0.9-1 time supported by a large networth of Rs 320-325 crores expected as on March 31, 2023. Debt protection metrics are also likely to be comfortable, with interest coverage ratio of 4.8-5.0 times in fiscal 2023; however, net cash accrual to adjusted debt (NCAAD) ratio is likely to be weak at 0.10-0.13 time on account of operating losses in the second and third quarters of fy23. However, the NCAAD ratio is expected to improve to 0.25-0.29 time over the medium term. Absence of sizeable debt funded capital expenditure over the medium term, and expected business revival, will further aid the financial risk profile over the medium term.
Weakness: Vulnerability to fluctuations in raw material prices impacting operating margin Since cotton is an agricultural commodity, its availability depends on monsoon. Furthermore, government interventions and fluctuations in global cotton output may result in sharp movement in cotton prices, thereby impacting the profitability of spinning mills. On account adverse market condition leading to moderation in cotton-yarn spread, operating profitability for fiscal 2023 declined to around 3.9%. In the first quarter of fiscal 2024, company has attained the operating profitability of around 3.8%. Though operating profitability is expected to improve in the coming quarters of the current fiscal and thereafter, its steady improvement, amid volatility related to cotton-yarn spread, will remain a key monitorable. Nevertheless, the operating profitability for fiscal 2024 are expected to perform better in compared to fiscal 2023, however, lower than the CRISILs previous anticipation. Any further moderation in the same, leading to weakening to debt protection metrics will remain a key rating sensitivity factor.
Exposure to demand risks Exports account for 50-60% of total sales, majority of which are to Europe, China and Bangladesh. Bangladesh is one of the largest exporters of textiles in the world, and any economic disturbance there could adversely affect the business risk profile of DNL. In the Q2 of Fiscal 2024, it is expected the company will be able to record export sales contribution of around 50-55% (in line with the previous years) with the upliftment of lockdown in China and situations getting stabilized in Europe resulting revived demand. Although, the lower demand from international market due to the Russia-Ukraine war and other geopolitical factors was compensated with the domestic sales as it has well established customer base in India, this resulted in lower profitability. However, the sustainability of demand from overseas market will remain a key monitorable over the medium term. |
Liquidity: Adequate Bank limit utilisation was moderate at 37% on average for the 12 months through June 2023. Cash accrual, expected at Rs 59-60 crore for fiscal 2024 and Rs 66-68 crore for fiscal 2025, will sufficiently cover yearly term debt obligation of Rs 25-28 crore over the medium term. The surplus will cushion liquidity. Current ratio is expected to remain healthy at 1.7-1.8 times as on March 31, 2023. |
Outlook: Stable DNL will continue to benefit from its established market position in the cotton industry, strong relationships with customers and strategic location of the plant |
Rating Sensitivity Factors Upward factors
Downward factors
|
About the Company DNL is a Hissar-based cotton yarn manufacturer with spindle capacity of 115,000. Its textile unit has been operational since 1991. Till March 31, 2019, the unit was part of DCM Ltd, post which it was demerged into DNL through a National Company Law Tribunal order.
DNL is listed on National Stock Exchange and Bombay Stock Exchange. Mr Hemant Bharat Ram is looking after daily operations. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|