| Madura Coats Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| 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 AA-/Stable/CRISIL A1+’ ratings on the bank facilities and short-term debt programme of Madura Coats Private Limited (MCPL).
The reaffirmation reflects strong business risk profile of the company, driven by market leading position in the sewing threads segment in India, large distribution network, diversified customer base, marketing & operational support from parent, Coats Group PLC. It also considers the healthy financial risk profile driven by debt-free nature of operations, adequate internal accruals and healthy liquidity. These strengths are partially offset by financial impact of the parent’s repatriation policy, exposure to risks related to volatility in raw material prices and to competition from the unorganised sector.
Performance of MCPL remains healthy with revenue growth of ~10% in CY 2022 driven by healthy demand from end-users like ready-made garment industry and footwear players. Revenue is expected to grow at moderate level at cross Rs 1,800 cr in CY 2023 with operating margin in range of 7-8% as export demand picks up. The financial risk profile remains healthy with nil debt and adjusted interest cover of over 13 times in CY 2022. Liquidity continues to remain strong at over Rs 150 cr as on 31st May 2023. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the support from Coats Group PLC to MCPL. |
Key Rating Drivers & Detailed Description Strengths: Healthy market position and well-diversified clientele MCPL has a leading position in the sewing threads segment in India, with a wide product range for both domestic and industrial applications, large distribution network, and diversified customer base. Clientele includes domestic garment manufacturers, garment exporters, retail consumers, as well as group companies across the world.
Strong support from the parent The company enjoys strong management, marketing, technical & procurement support from the parent. It leverages the strength of Coats Group’s relationship with global consumer brands to secure domestic orders of the global brands. MCPL is strategically important to Coats Group, given that the latter has identified India as a key global manufacturing base for grey yarn and finished products.
Healthy financial risk profile Financial risk profile is driven by strong cash generation ability, nil debt obligations, and strong liquidity. MCPL had nil outstanding debt and liquidity in the form of cash and equivalents over Rs. 150 cr. as on May 31, 2023. Networth remained at comfortable level at over Rs 300 cr.
Cost-efficient production process The company outsources processes such as yarn spinning for lower-end grey yarn and winding of finished products into retail packages. Its steam generator plant in Ambasamudram (Tamil Nadu) has been reducing power costs. With the installation of a reverse osmosis plant and zero discharge unit, the company has reduced its water consumption by over 75%, thus achieving cost efficiency. Operating efficiency is likely to remain healthy over the medium term driven by cost-efficient production processes
The financial risk profile is expected to remain healthy due to nil debt, comfortable debt protection metrics and strong liquidity. Capital expenditure (capex) over the medium term would be financed through internal accruals and hence the company is expected to maintain its debt free status and strong liquidity.
Weakness: High financial impact of pay-out to parent The parent, Coats, has a policy of repatriating excess liquidity held by its operating entities, including MCPL, in the form of dividend. MCPL may, therefore, continue to regularly repatriate surplus profit to parent. This restricts improvement in net worth, thereby limiting financial flexibility. Coats, additionally receives royalty and management fees from its subsidiaries based on services rendered during the year.
Volatility in raw material prices Susceptibility to fluctuations in the prices of key raw materials - polyester fibre, synthetic filament, and cotton fibre - persists. The prices of polyester fibre and filament are closely linked to crude oil rates, which remain volatile. Cotton fibre prices, too, exhibit cyclical volatility and depend on the monsoon and international demand and have remained high in the recent past. The company is able to pass on majority of the increases in raw material prices to its customers.
Exposure to intense competition from the unorganised sector The organised sector for manufacturing sewing threads has two large players - MCPL & Vardhman Yarns and Threads Ltd (rated ‘CRISIL AA-/Stable/CRISIL A1+’) with the former being the leader. Despite this, the company continues to face competition from the unorganised sector, which accounts for a sizeable segment of the total threads market |
Liquidity: Strong Liquidity is strong driven by healthy net cash accrual vis-à-vis nil debt repayments over the medium term. Liquid investments (including cash and cash equivalents) aggregated over Rs 150 crore as on May 31, 2023. Over the medium term, excess cash would be distributed in the form of dividend post meeting capital expenditure (capex) and working capital requirements. |
Outlook: Stable CRISIL Ratings believes MCPL will continue to benefit from its established market position in the sewing threads segment in India. Financial risk profile should remain healthy over the medium term in the absence of any major capex. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company MCPL is a wholly owned subsidiary of Coats Group, the world's leading industrial thread manufacturer. The parent provides management input, export orders, product support (including technology upgrade) and assistance in raw material procurement to MCPL. The support received from Coats Group has helped the company to retain its leadership position in the threads industry in India. |
Key Financial Indicators (CRISIL Ratings adjusted figures)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Interchangeable with other fund-based limits ^^Interchangeable with other non-fund-based limits |
| 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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^Interchangeable with other fund-based limits
^^Interchangeable with other non-fund-based limits
Criteria Details
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