Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities of Nahar Industrial Enterprises Ltd (NIEL) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘Crisil A-’. The rating on the short-term bank facilities has been reaffirmed at 'Crisil A2+’.

 

The revision in outlook reflects expansion in the warehousing and commercial real estate segment with steady rentals providing stability to cash flows. The ratings factor in expected sustained business and financial risk profiles with improvement in operating performance projected over the medium term, despite US tariff concerns.

 

Although performance in the textile and sugar division remains lower than previous fiscals, it is expected to improve moderately over the medium term with operating margin likely at 4-5%. The operating income is expected to decline by 5-7% to Rs 1400-1450 crore  on account of expected phasing out of Bhiwadi plant, which has been a loss-making unit. The operating performance of the textile and sugar segment remains monitorable.

 

The rental income is expected to increase from Rs 35-40 crore expected in fiscal 2026 to Rs 65-70 crore over the medium term. This is driven by the company expanding its warehousing business with total leasable area expected at 2.4 million sq ft (msf) by June 2026 from ~1.3 msf till fiscal 2025. The warehouses are grade A and Built to suit client needs with locations in Kolkata and Ludhiana, respectively.

 

The company is planning to sell its commercial and residential plots over the next 3-5 years with an expected annual inflow of around Rs 50 crore. This will be utilised towards capital expenditure (capex) and reduction of working capital debt. This is expected to improve the debt protection metrics. The adjusted interest coverage is expected at 3.1 times in fiscal 2026 and improve to 3.3–3.7 times over the medium term. The capital structure is likely to remain comfortable with total outside liabilities to tangible networth (TOLTNW) ratio expected to remain below 1 time over the medium term (expected ~0.9 time as on March 31, 2026) despite large capex of Rs 300-350 crore in the commercial real estate segment in the next 3-5 years. The debt service coverage ratio (DSCR) for the warehousing segment is also expected to remain healthy at above 1 time. Movement of the debt protection metrics will remain monitorable.

 

The ratings also reflect the company’s established market position in the cotton yarn and fabric business, and large scale of operations with moderate integration across the textile value chain. The ratings also factor in support of the Nahar group. These strengths are partially offset by susceptibility to fluctuation in prices of cotton, cotton yarn and sugarcane, moderation in operating performance, and large capex and working capital requirement.

Analytical Approach

The Nahar group comprises NIEL, Nahar Spinning Mills Ltd (‘Crisil A/Stable/Crisil A1’), Oswal Woolen Mills Ltd, Nahar Polyfilms Ltd, Monte Carlo Fashions Ltd (‘Crisil AA-/Stable/Crisil A1+’) and Nahar Capital and Financial Services Ltd (Nahar Capital). These companies are under the same management with Jawaharlal Oswal as the group's chairman. Crisil Ratings has applied its group notch-up framework to factor in the support expected from the Nahar group. Also, Crisil Ratings believes NIEL will likely receive financial support from the Nahar group during exigencies.

 

Preference shares have been treated as 75% equity and 25% debt as per criteria.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths

Established market position in the yarn and fabric business  and diversity of operations

NIEL, one of India's largest cotton yarn and fabric manufacturers, has an established market position with a significant scale of operations, boasting a spinning capacity of 2.2 lakh spindles, 515 looms, and fabric processing capacity of 584 lakh metres per annum. With a strong domestic presence and longstanding relationships with international garment retailers in the US and Canada, the company benefits from diversified geographical reach. Its large-scale procurement of over 3,00,000 bales of cotton annually gives it significant bargaining power, while partial forward integration into fabric segment (65%) supports operating efficiency. Additionally, NIEL is diversifying into commercial real estate, with warehousing facilities in Ludhiana and Kolkata, and a large commercial real estate park in development, expected to provide steady rental income over the medium to long term.

 

Steady cash flow from warehousing, supported by healthy occupancy and good clientele

The company has grade A warehouses in Ludhiana and Kolkata with area of 2.4 msf (~0.6 msf is under construction in Kolkata). The warehouse complying with safety and environmental standards. The tenants include marquee names such as Amazon, Instakart and Zomato. Location advantage, along with asset quality, should drive demand and support leasing over the medium term as well. Currently, the warehouses are fully occupied and lease deeds are signed with upcoming tenants. The rental income from warehousing segment is expected at Rs 60-70 crore over the medium term, supported by increase in leased areas and escalation for existing tenants.

 

Strong support from the Nahar group

The group had a strong presence in the domestic textile value chain with overall revenue of over Rs 7,389 crore in fiscal 2025. NIEL has received financial support from the group by way of loans and preference shares. The company is expected to receive support from promoter investment companies or Nahar Capital during exigencies.

Key Rating Drivers - Weaknesses

Sustained moderation in operating performance

The operating performance of the company remained moderate with earnings before interest, taxes, depreciation and amortisation (Ebitda) margin at 3.4% (textiles and sugar) for the six months ended September 30, 2025. The operating margin is expected to remain moderate at 3.5-4% in the current fiscal compared with 4.7% in fiscal 2025. Moderation in operating performance is mainly in the textile segment due to operating losses in Bhiwadi unit. Crisil Ratings expects the Ebitda margin to improve to above 4% over the medium term, supported by stable cotton yarn spreads and low-cost inventory. The operating performance in the sugar and warehousing businesses is expected to remain steady.

 

Susceptibility to volatility in cotton, cotton yarn and sugarcane prices

The company derives about 85% of its revenue from the yarn and fabric segments, which are susceptible to volatility in cotton and cotton yarn prices. The operating margin fluctuated between 4% and 18% for the 10 fiscals through 2025. Demand for cotton and yarn is driven by global demand-supply dynamics. In the past decade, the industry has seen five cycles (fiscals 2012, 2015, 2018, 2020 and 2021), wherein demand spiraled and then fell rapidly. Additionally, as NIEL derives 8-12% revenue from the sugar division, high cane prices impact profitability. Moreover, recent permission of quota-based exports provided by the Government of India and minimum support price of sugar provides a partial cushion.

 

Large capex and working capital requirement

The company is planning large capex of Rs 300-350 crore over 3-5 years in the commercial real estate segment to set up more warehouses, schools, hotels and high street. The company is planning to sell its commercial and residential plots over the next 3-5 years with expected annual inflow of around Rs 50 crore. This will be utilised towards reduction of working capital debt. This is expected to improve the debt protection metrics. The adjusted interest coverage is expected at 3.1 times in fiscal 2026 and improve to 3.3–3.7 times over the medium term. The capital structure is likely to remain comfortable with TOLTNW ratio expected to remain below 1 time over the medium term (expected to be ~0.9 time as on March 31, 2026). The DSCR for warehousing segment is also expected to remain healthy above 1 time. Movement of the debt protection metrics will remain monitorable.

 

Operations are working capital intensive because of seasonal availability of cotton and sugarcane, leading to high reliance on short-term debt. Gross current assets stood at 141–238 days for the past five years and are expected in a similar range over the medium term. To maintain quality, the company procures an entire year’s requirement of cotton during the peak season, resulting in sizeable inventory.

Liquidity Adequate

The company has adequate liquidity driven by expected annual cash accrual of more than Rs 100 crore in fiscals 2026 and 2027. It also has access to fund-based limit of Rs 480 crore, utilised at 73% on an average for the 12 months ended October 31, 2025. The company has long-term debt obligation of Rs 30-40 crore each in fiscals 2026 and 2027 with capex of Rs 260-270 crore and Rs 100 crore, respectively, in each of these fiscals. Low gearing and healthy networth provide cushion to any adverse conditions or downturns in the business. Further support from Nahar group is there in case of any exigency.

Outlook Stable

NIEL will continue to benefit over the medium term from improving profitability and stable raw material prices; the financial risk profile is expected to remain stable.

Rating sensitivity factors

Upward factors

• Timely completion of under construction projects and their leasing out, leading to overall occupancy remaining above 90%
• Higher-than-expected improvement in cash accruals and prudent working capital management and capital spending, resulting in improvement in debt protection metrics
• Higher than expected rentals in warehousing and sustained reduction in LRD debt to ebidta ration to below 3.0-3.5 times
• Significant upgrade in the credit view on Nahar Group by Crisil Ratings

 

Downward factors

• Deterioration in operating performance in textiles and sugar business leading to lower than anticipated accruals.
• Time or cost overrun in the under-construction projects resulting in higher-than-envisaged debt or substantial LRD debt in the operational projects impacting the debt protection metrics
• Weakened cash generation, and/or elongation in working capital cycle and/or higher than expected debt funded capex impacting credit metrics; adjusted interest coverage going below 2.75-3 times on a sustained basis
• Downward revising in the credit view of Nahar group by Crisil Ratings or weakening of strategic importance of the entity for the group.

About the Company

NIEL is part of the Nahar group, a business conglomerate that operates in the spinning, garment and hosiery segments. The company has manufacturing units at Lalru and Amloh in Punjab, and Bhiwadi in Rajasthan. It undertakes spinning, dyeing, weaving and fabric processing activities. Besides, it has a sugar mill of 4,000 tonne of cane per day capacity in Amloh, and a cogeneration power plant with capacity of 14.5 megawatt. The company has forayed into the commercial real estate segment with warehouses operational in both Ludhiana and Kolkata.

Key Financial Indicators*

As on / for the period ended March 31		2025	2024
Operating income	Rs crore	1525	1473
PAT	Rs crore	21	10
PAT margin	%	1.3	0.7
Adjusted debt/adjusted networth	Times	0.6	0.6
Adjusted interest coverage	Times	2.7	3.1

*As per analytical adjustments made by Crisil Ratings

Any other information: Not applicable