| Le Merite Exports Limited | ||||
| Rating reaffirmed at 'CRISIL BBB-/Negative' | ||||
| Rating Action | ||||
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| 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 Ratings has reaffirmed its ‘CRISIL BBB-/Negative’ rating on the bank facilities of Le Merite Exports Limited (LMEL, part of Le Merite group)
The rating continues to reflect the extensive experience of the promoter in the yarn manufacturing and trading business, along with comfortable capital structure. These strengths are partially offset by exposure to intense competition, and moderate working capital cycle and subdued debt protection metrics led by the moderation in operating margins. |
Analytical Approach Unsecured loans of Rs. 1.3 crores on March 31, 2024 extended by the promoters have been treated as debt
For arriving at its ratings, CRISIL Ratings has consolidated the business and financial risk profiles of Le Merite Exports Limited with its subsidiary Le Merite Laxmi Spinning Private Limited, together known as Le Merite group. CRISIL considers that the subsidiary is strategically important to, and have a significant degree of operational integration with Le Merite Exports Limited.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoter: The promoters of the company have more than a decade of experience in the textile industry, which has helped them understand the business and industry dynamics and has also enabled them overcome business cycles. Long standing presence has also developed healthy relationships with customers and suppliers. The company has achieved revenues of Rs. 297 Crores in H1 of fiscal 2025 with an estimated revenue of Rs 600 crores in fiscal 2025 (Rs 486 crores in fiscal 2024) backed by the steady order flow from the customers. The business profile of the company will continue to be supported by the extensive experience of the promoters.
Comfortable capital structure: The financial risk profile is marked with a net worth of Rs 96 crores as on March 31, 2024, led by the steady accretion to the reserves and equity infusion (in fiscal 2023 and 2022). The improvement in net worth has led to the improvement in capital structure leading to the gearing and total outside liability to adjusted net worth ratio of 0.92 times and 1.06 times as on March 31, 2024 (0.86 times and 1.11 times a year ago). The capital structure is expected to improve over the medium term backed by the accretion to the reserves amidst the growing scale of operations. The company is currently evaluating setting up a manufacturing unit to expand its current manufacturing capacities, for which it might take debt which can impact the capital structure of the group and hence remains monitorable.
Weaknesses: Subdued debt protection metrics led by moderation in the operating margins: The operating margins of the company have moderated in the current fiscal year 2024 to around 1.4% from 2.8% in the last fiscal year 2023 which has continued to be at similar range for H1 of fiscal 2025. The moderation is on account of the moderation in the cotton yarn prices leading to the fall in realizations as the manufacturing segment of the group continues to be impacted because of the same. This has in turn impacted the debt protection metrics with interest cover moderating to around less than 1.5 times in fiscal year 2024 from 3.2 times a year ago and it is currently around 2 times for H1 of fiscal 2025. With the expected stability in cotton yarn prices in the current fiscal year 2025 and the group venturing into the manufacturing of margin remunerative specialized products for defense sector operating margins should bounce back with subsequent improvement in debt protection metrics which remains a key monitorable.
Moderate working capital requirement: The working capital cycle of the company is moderately in working capital intensive as reflected in the gross current assets of 103 days as on March 31, 2024. This is driven by moderate debtors and low inventory of around 73 days and 13 days respectively as on March 31, 2024 (as compared to 98 and 17 days, a year ago). Although the receivables is large due to the high credit period extended to customers, inventory remains low and generally order backed. Receivables may remain high due to the elongated credit period provided to customers and hence working capital cycle is expected to remain moderate over the medium term.
Exposure to intense competition and volatility in raw material prices: The cotton trading industry is marked by huge fragmentation, given the low entry barriers. Furthermore, the yarn trading industry is fragmented because of the presence of several players at different points in the value chain. The presence of several small players catering to price-sensitive customers intensifies competition and restricts bargaining power with customers and supplier, and hence, profitability. This can be reflected in the decline of operating margins to around 1.4% in fiscal 2024 (similar range for H1 of FY 2025) from 2.8% in fiscal 2023. Operating margins are further susceptible to volatility in yarn prices. Limited ability to pass on increases in the prices to customers due to intense competition could further affect the business profile of the company and remains a key monitorable over the medium term. |
Liquidity: Adequate Cash accrual of Rs 6 to 8 crore per fiscal in 2025 and 2026, would be sufficient against the minimal yearly term debt of Rs 0.25 crore. Bank limit utilization averaged 87% during the 6 months through October 2024. Strong cash and bank balance of around Rs. 56 crores as on Sept 2024, out of which Rs 10 to Rs 15 crores is unencumbered and will support liquidity. Moderate cash accruals and healthy cash balance will continue to support debt service obligations and working capital requirement over the medium term. |
Outlook: Negative CRISIL Ratings believes credit risk profile of Le Merite Exports Limited may weaken in the medium term due to the moderation in operating performance, though financial risk profile is expected to sustain. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Group Incorporated in 2003 by the promoter, Mr Abhishek Lath, LMEL trades in cotton yarn and fabric. The Mumbai-based company derives bulk of its revenue from exports. Since June 2020, the company started manufacturing cotton yarn in its leased unit. Manufacturing facilities are located in Nagpur, Dhamangaon and Nanded (all in Maharashtra)
Le Merite Laxmi Spinning Private Limited is a 51% owned subsidiary of Le Merite Exports Limited engaged in the manufacturing of cotton yarn in its leased unit. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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