Key Rating Drivers & Detailed Description

Strengths:

Establish market position: DIL has established marked position 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 over 60% of revenue from the export market. 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.

Moderate working capital cycle: DILs moderate working capital cycle is reflected in its gross current assets (GCA) in range of 92-109 days for three years through March 31, 2020. Working capital requirements are driven by moderate debtors (40-60 days) and inventory (30-50 days). However, realisation of debtors more than 6 months to remain monitorable.

Weakness:

Average financial profile: DIL has below average financial profile marked by total outside liabilities to adjusted networth (TOL/ANW) of 3.21 times for year ending on 31st March 2020 on back of significant debt funded capex done during last 3 years through fiscal 2019. Debt protection metrics is also subdued on back of average profit and significant interest outlay. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 1.35 times and 0.03 times for fiscal 2020. While DIL debt protection measures are expected to remain at similar level in fiscal 2021, it will improve over medium term.

Vulnerability operating performance to fluctuation 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 accrual. 

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