Rating Rationale
February 18, 2022 | Mumbai
Damodar Industries Limited
Ratings upgraded to 'F A- / Stable , CRISIL BBB- / Stable / CRISIL A3 '
 
Rating Action
Total Bank Loan Facilities RatedRs.270 Crore
Long Term RatingCRISIL BBB-/Stable (Upgraded from 'CRISIL BB+ / Stable')
Short Term RatingCRISIL A3 (Upgraded from 'CRISIL A4+ ')
 
Rs.40 Crore Fixed DepositsF A-/Stable (Upgraded from 'F B+ / Stable')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Damodar Industries Ltd (DIL) to 'CRISIL BBB-/Stable/CRISIL A3' from 'CRISIL BB+/Stable/CRISIL A4+'. Also, CRISIL Ratings has upgraded its rating on fixed deposits worth Rs 40 crore to 'FA-/Stable’ from ‘FB+/Stable’.

 

The upgrade reflects improvement in the business and financial risk profiles of the company. Revenue increased to Rs 654 crore in the 9 months of fiscal 2022 from around Rs 570 crore in fiscal 2021 backed by healthy demand, resulting in increased volumes and higher realisations. Steady enhanced realisations and increase in exports should ensure better revenue over the medium term. The operating margin of the company rose to around 7.2% in fiscal 2021 and 8.8% in the 9 months of fiscal 2022 from 5-6%, leading to higher-than-anticipated cash accrual and supporting in prepayment of term loans. Absence of major debt-funded capital expenditure (capex) plans and limited reliance on external debt should strengthen the financial risk profile particular debt protection metrics over the medium term.

 

The ratings reflect the established market position of the company, its efficient working capital management and moderate capital structure. These strengths are partially offset by average debt protection metrics, vulnerability to fluctuations in raw material prices and foreign exchange (forex) rates.

Analytical Approach

Unsecured loan of Rs 21.3 crore as on March 31, 2021, from the promoters has been treated as 75% equity and 25% debt as the loan has track record of non-withdrawal for the past five years and will remain in the business over the medium term. Intercorporate deposits (Rs 23 crore) have been treated as neither debt nor equity.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position: The marked position is marked by moderate scale of operations, diversified geography profile and customer base. Moderate scale of operations provides it an operating flexibility in an intensely competitive industry. DIL caters to wide customer base, both in India and Overseas, with revenue from the export market gradually increasing. Further, it also benefits from the promoters' experience of over four decades, their strong understanding of market dynamics, and healthy relations with customers and suppliers which will continue to support the business.

 

  • Efficient working capital management: The working capital is efficiently managed, reflected in gross current assets (GCAs) of 90-130 days for the three fiscals through 2021, driven by receivables of 40-60 days and inventory of 30-50 days. Receivables are expected to improve over the medium term, which remains a key rating sensitivity.

 

  • Moderate capital structure: Total outside liabilities to adjusted networth ratio of 2.21 times on an adjusted networth base of around Rs 112 crore as on March 31, 2021 represents moderate capital structure. Prepayment of the term debt and absence of any major debt funded capex plans, company’s capital structure is expected to improve over the medium term.

 

Weakness:

  • Average debt protection metrics: Debt protection metrics were average because of modest profit and sizeable interest outgo. Interest coverage and net cash accrual to total debt ratios were at 1.5 times and 0.06 time, respectively, in fiscal 2021, and are expected to improve significantly over the medium term.

 

  • Vulnerability to fluctuations in raw material prices and forex rates: Company’s operating margin has remained average in range of 5-6% for last 3 years through fiscal 2020. Prices of cotton, the key raw material as well as polyester are volatile and some are linked to crude oil prices. Limited possibility to fully pass on prices to customers due to intense competition in export segment subjects the company’s operating margin to fluctuation in material prices. However, this risk is partly mitigated by moderate inventory levels. Also, since majority of revenue comes from the international market, any sharp fluctuation in forex rates can affect realizations and accruals. While, operating margin has improved sustenance of the operating margin will be a key sensitivity.

Liquidity: Adequate

Cash accrual, expected over Rs 40 crore per annum in fiscals 2022 and 2023, will comfortably cover yearly term debt obligation of around Rs 20 crore. Bank limit utilisation was moderate at 72% on average for the 12 months through December 2021. Current ratio was adequate at 1.3 times as on March 31, 2021. The company has no major capex plans over the medium term. The promoters will likely extend support through equity and unsecured loans to meet working capital requirement and debt obligation.

Outlook Stable

CRISIL Ratings believes DIL will continue to benefit from the extensive experience of the promoters and established relationships with clients.

Rating Sensitivity factors

Upward factors

  • Sustained increase in revenue while maintaining operating margin above 9% leading to cash accrual above Rs 50 crore and net cash accruals to repayment ratio of over 2.5 times
  • Improvement in the financial risk profile and sharp reduction in debtors above six months.

 

Downward factors

  • Decline in revenue or operating margin below 6% leading to sharp drop in net cash accruals
  • Large, debt-funded capex or increase in working capital requirement, weakening the capital structure and liquidity

About the Company

DIL was incorporated in 1987 by Mr Arun Biyani, Mr Ajay Biyani and Mr Anil Biyani. The company was reconstituted as a public limited company on March 20, 1992. It manufactures synthetic blended yarn and sells its products under the brand Damodar. It is also a merchant exporter of cotton yarn.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

569.97

769.59

Profit after tax (PAT)

Rs crore

(6.20)

(6.94)

PAT margin

%

(1.1)

(3.0)

Adjusted debt / adjusted networth

Times

2.57

2.78

Interest coverage

Times

1.5

1.35

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 crore)

Complexity

level

Rating assigned 

with outlook

NA

Fixed deposits

NA

NA

NA

40

Simple

FA-/Stable

NA

Bank guarantee

NA

NA

NA

2

NA

CRISIL A3

NA

Cash credit

NA

NA

NA

124

NA

CRISIL BBB-/Stable

NA

Foreign exchange facility

NA

NA

NA

3

NA

CRISIL A3

NA

Letter of credit

NA

NA

NA

9

NA

CRISIL A3

NA

Term loan

NA

NA

Mar-27

132

NA

CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 259.0 CRISIL BBB-/Stable / CRISIL A3   -- 09-03-21 CRISIL BB+/Stable / CRISIL A4+   -- 05-12-19 Withdrawn (Issuer Not Cooperating)* CRISIL BBB+/Stable / CRISIL A2
      --   --   --   -- 22-11-19 CRISIL BB+ /Stable / CRISIL A4+ (Issuer Not Cooperating)* --
      --   --   --   -- 30-07-19 CRISIL A3+ / CRISIL BBB/Stable --
Non-Fund Based Facilities ST 11.0 CRISIL A3   -- 09-03-21 CRISIL A4+   -- 05-12-19 Withdrawn (Issuer Not Cooperating)* CRISIL A2
      --   --   --   -- 22-11-19 CRISIL A4+ (Issuer Not Cooperating)* --
      --   --   --   -- 30-07-19 CRISIL A3+ --
Fixed Deposits LT 40.0 F A-/Stable   -- 09-03-21 F B+/Stable 28-12-20 F B+ /Stable(Issuer Not Cooperating)* 05-12-19 F B+ /Stable(Issuer Not Cooperating)* F A-/Stable
      --   -- 05-03-21 F B+/Stable   -- 22-11-19 F B+ /Stable(Issuer Not Cooperating)* --
      --   --   --   -- 30-07-19 F A-/Stable --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
 
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 2 State Bank of India CRISIL A3
Cash Credit 52 State Bank of India CRISIL BBB-/Stable
Cash Credit 5 YES Bank Limited CRISIL BBB-/Stable
Cash Credit 21 HDFC Bank Limited CRISIL BBB-/Stable
Cash Credit 30 Kotak Mahindra Bank Limited CRISIL BBB-/Stable
Cash Credit 16 Bank of Baroda CRISIL BBB-/Stable
Foreign Exchange Facility 3 State Bank of India CRISIL A3
Letter of Credit 4 State Bank of India CRISIL A3
Letter of Credit 5 YES Bank Limited CRISIL A3
Term Loan 62 State Bank of India CRISIL BBB-/Stable
Term Loan 60 YES Bank Limited CRISIL BBB-/Stable
Term Loan 10 Kotak Mahindra Bank Limited CRISIL BBB-/Stable

This Annexure has been updated on 29-Dec-2021 in line with the lender-wise facility details as on 13-Dec-2021 received from the rated entity.

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

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