| DCM Nouvelle Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB / Stable / CRISIL A3+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of DCM Nouvelle Limited (DNL) at ‘CRISIL BBB/Stable/CRISIL A3+’.
The ratings continue to reflect promoter’s extensive experience in cotton industry, proximity of manufacturing facilities to raw material location and comfortable financial risk profile. These strengths are partially offset by the vulnerability to fluctuation in raw material prices. The ratings also continue to factor in the understanding that there is no financial support expected to be extended to DCM Limited (rated ‘CRISIL D/CRISIL D’) from DNL in the long term. |
Key Rating Drivers & Detailed Description Strengths: *Company’s established presence in cotton industry and established relations with customers The textile unit has continued to be operated by the same family members since its inception in 1991. Long track record of presence in the cotton textile industry has helped promoters to not only understand the dynamics of various markets (both domestic and export) but also establish relations with its customers and suppliers. This is reflected in length of relationship with few customers ranging beyond 2 decades. CRISIL Ratings believes such an extensive experience of promoters will continue to support business risk profile of DNL over the medium term.
*Strategic location of manufacturing unit DNL’s manufacturing unit is located in Hissar which is a major cotton-growing belt. DNL procures majority of its raw material requirements from various traders and ginners situated locally which help it reduce the logistics cost and also ensure timely availability of raw materials for continuous business operations.
*Comfortable financial risk profile Financial risk profile is comfortable as reflected in estimated networth and total outside liabilities to tangible networth (TOLTNW) of Rs 162 crore and 1.30 times as on March 31, 2021. Further debt protection metrics are also expected to remain comfortable with interest coverage and net cash accrual to adjusted debt (NCAAD) of around 3.6 times and 0.14 times respectively for fiscal 2021.
CRISIL Ratings believes financial risk profile should remain comfortable despite DNL’s plans of debt funded capex in the near to medium term.
Weakness: *Vulnerability to fluctuation in raw material prices DNL's operating margins are susceptible to the volatility in the cotton prices. Moreover, cotton is an agricultural commodity and hence its availability is highly dependent on monsoon. Furthermore, government interventions and fluctuations in global cotton output have resulted in sharp fluctuations in cotton prices. Such sharp fluctuations in cotton prices are likely to impact the margins of spinning mills. |
Liquidity: Adequate Overall liquidity profile of DCM is adequate as reflected by cash credit limit utilization and packing credit limit utilization at an average of 35% and 68% respectively in last 12 months ending January 2021. Further cash accrual generation of at least Rs 24 crore in fiscal 2021 and over Rs 30 crore annually over the medium term is expected to remain sufficient with scheduled repayments of Rs 14.5 crore in fiscal 2021 and Rs 18-20 crore for fiscal 2022 and 2023.
Further, to support any cash flow mismatches because of 21 day lockdown announced by Govt. of India effective March 25, 2020, DNL availed emergency credit line of Rs 14.2 crore from its banker, however, DNL paid the entire limits by end of October, 2020. |
Outlook: Stable CRISIL Ratings believes DNL will continue to benefit from promoters' extensive industry experience. |
Rating Sensitivity factors Upward Factors * Significant growth in revenue along with improvement in operating margin, leading to net cash accrual of more than Rs 50 crore * Sustenance of higher than expected return on capital employed averaged annually
Downward factors * NCA/repayment reducing to less than 1.5 times for fiscal 2022 * Large unanticipated debt funded capex deteriorating fin risk profile |
About the Company DNL is a Hissar based cotton yarn manufacturer with spindle capacity of 1,15,000. This textile unit has been operational since 1991. Till March 31, 2019 the unit was part of DCM Limited (rated CRISIL D/CRISIL D) post which it was demerged into DCM Nouvelle Limited via NCLT order.
DNL is listed on both National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Mr. Hemant Bharat Ram is looking after day to day operations of DNL. |
Key Financial Indicators
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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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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