| Manohar Filaments Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB / CRISIL A3+ '; outlook revised to 'Positive'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised the rating outlook on the long-term bank facilities of Manohar Filaments Pvt Ltd (MFPL) to ‘Positive’ from ‘Stable’ and reaffirmed the 'CRISIL BBB’ rating, and has reaffirmed the ‘CRISIL A3+' rating on the short-term bank facility of the company.
The revision in outlook reflects the expectation of improvement in the business risk profile of the company over the medium term. Operating income rose from Rs 122 crore in fiscal 2015 to around Rs 215 crore in fiscal 2020 and earnings before interest, tax, depreciation and amortisation remained healthy between 13.5%-14.2%. As a result, net cash accrual increased from Rs 11.43 crore in fiscal 2015 to around Rs 20 crore in fiscal 2020. Operating income will increase marginally in fiscal 2021, despite de-growth expected in the readymade garment segment, because of increase in demand from existing customers as well as new customers.
The business risk profile is expected to improve over the medium term backed by capacity additions in the Indian and Vietnamese entities. CRISIL Ratings expects the operating income to grow more than 20% and operating margin to remain healthy, resulting in net cash accrual of more than Rs 26 crore by fiscal 2023. Timely capacity addition and ramp-up in operations will remain key monitorables.
The ratings continue to reflect the extensive experience of the promoters in the garment labels industry, and the established clientele and above-average financial risk profile of the company. These strengths are partially offset by exposure to intense competition and large working capital requirement. |
Analytical Approach The promoters have extended unsecured loans totalling Rs 30 crore, of which Rs 25.83 crore has been treated as 75% equity and 25% debt as it is subordinated to bank debt and is expected to remain in business over medium term. The remaining amount has been treated as debt.
CRISIL Ratings has combined the business and financial risk profiles of MFPL and its subsidiaries Manohar Filaments BD Ltd (MFBDL), Manohar Filaments Vietnam LLC (MFVL) and Manohar Filaments HK Ltd (MFHKL). All the companies, collectively referred to as the Manohar group, have a common management and are in the same business.
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 management and established customer relationships The two-decade-long experience of the promoters in the garment labels business and their strong relationships with key customers will continue to support the business risk profile.
* Above-average financial risk profile Adjusted networth was healthy at Rs 65.9 crore and total outside liabilities to adjusted networth (TOLANW) ratio was 1.39 times as on March 31, 2020. The adjusted networth is expected to increase gradually, aided by steady accretion to reserve. Capital structure should remain comfortable with TOLANW below 1.2 times over the medium term, despite significant debt-funded capital expenditure plan. Debt protection metrics were adequate, reflected in net cash accrual to adjusted debt and interest coverage ratios of 0.31 time and 3.8 times, respectively, in fiscal 2020. The debt protection metrics are expected at similar levels over the medium term.
Weakness: * Modest scale of operations amid intense competition Intense competition in the garment tagging business, where unorganised players account for 65% of total production, has led to subdued scale and constrained bargaining power with suppliers and customers. This is reflected in consolidated operating income of Rs 215 crore in fiscal 2020.
* Large working capital requirement Gross current assets were at 149 days as on March 31, 2020, primarily because of receivables of 79 days and inventory of 51 days (including raw material and finished goods). Working capital management was partly aided by payables of 61 days, provided by suppliers. The working capital cycle stretched in April-November 2020 because of the pandemic, but returned to the earlier level in December 2020. |
Liquidity: Adequate Liquidity is adequate as indicated by moderate bank limit utilisation of 78% on average over the 12 months through January 2021. Net cash accrual is expected over Rs 23 crore in fiscal 2022 against debt obligation of Rs 10-11 crore. The group had availed the moratorium on debt repayment in March-August 2020 under the Covid-19 Regulatory Package announced by the Reserve Bank of India. It has also availed emergency credit line of Rs 4.33 crore. Liquidity is supported by unsecured loans of Rs 30 crore from the promoters and related parties as on March 31, 2020. |
Outlook Positive MFPL will continue to benefit from its established clientele and healthy operating efficiency. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Set up in 1986 in Delhi, MFPL manufactures garment labels, both fabric and paper-based, for international and domestic clients. It has manufacturing units at Barhi industrial area and at Kundli Industrial Area, Sonipat, Haryana. |
Key Financial Indicators (Standalone)
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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 – 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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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