Rating Rationale
June 26, 2018 | Mumbai
Nahar Spinning Mills Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.1508.4 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
 
Rs.23.5 Crore Commercial Paper CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank loan facilities and commercial paper programme of Nahar Spinning Mills Limited (Nahar).
 
The reaffirmation reflects CRISIL's expectation that Nahar's operating performance will recover in fiscal 2019 with improvement in yarn and cotton spread, reduction in power cost, and higher export realisations. In fiscal 2018, Nahar's financial performance weakened, primarily on account of high cotton prices in the a aftermath of demonetisation of high value currency notes in November 2016 while yarn prices remained subdued in the international market. Appreciation of rupee against the US dollar dragged down export realisation, leading to substantial erosion of profitability. As a result, Nahar's operating income was flat in fiscal 2018, while operating margin declined to 4.6% from 9.3% in fiscal 2017.
 
The company's operating performance improved in the second half of fiscal 2018 with profit after tax of Rs 13 crore against loss of Rs 45 crore in the first half. Furthermore, from fiscal 2019, the company will benefit from reduction in basic power tariff from about Rs 6 per unit to Rs 5.5 per unit. Although cotton prices are expected to remain high during cotton season 2018-19, gradual increase in yarn prices should help improve profitability. Improvement in yarn and cotton spreads, reduction in power cost, and better export realisation should help the company maintain earnings before interest, tax, depreciation, and amortisation (EBITDA) at Rs 180-200 crore during fiscal 2019.
 
The ratings continue to reflect Nahar's established position in the cotton yarn and knitted garments segments, large scale and moderately integrated operations across the textile value chain, and healthy financial flexibility. These strengths are partially offset by susceptibility to volatility in cotton and cotton yarn prices as well as currency exchange rates, average financial risk profile, and large working capital requirement.

Key Rating Drivers & Detailed Description
Strengths
* Established position in the cotton yarn and knitted garments segments
Nahar is one of the largest manufacturers of cotton yarn and a leading manufacturer and exporter of knitted garments in India, with revenue of Rs 2142 crore in fiscal 2018. It is among the top 10 spinners in India with capacity of 5 lakh spindles and established presence in several overseas markets. Clients in India include reputed, large home textile and denim manufacturers, and the company has longstanding relationships with key international garment retailers in the US and Canada. This geographical diversification lends stability to revenue.
 
* Large scale and modestly integrated operations across the textile value chain
Nahar consumes over 400,000 bales of cotton every year, and is one of the largest buyers of cotton in India. Large-scale purchase provides an edge in cotton procurement. Also, operations are partially forward integrated, with presence in knitted garments, supporting operating efficiency.
 
* Healthy financial flexibility
Nahar's healthy financial flexibility is reflected in low bank limit utilisation of about 60% on an average during fiscal 2018. Moreover, the company receives need-based support from Nahar Capital and Financial Services Ltd (Nahar Capital), which had liquid investment with a book value of about Rs 498 crore as on March 31, 2018. Management has articulated that these investments can be used to provide need-based financial support to Nahar.
 
Weakness
* Susceptibility to volatility in cotton and cotton yarn prices, and currency exchange rates
About 90% of revenue comes from the yarn segment, which is susceptible to volatility in cotton and cotton yarn prices, reflected in fluctuations in the operating margin from 1% to 21% over the seven fiscals through 2018. Cotton and yarn demand are driven by international demand-supply dynamics. In the past decade, the industry has seen three cycles (fiscals 2012, 2015, and 2018) in which cotton prices were volatile. Additionally, as Nahar derives close to two-thirds of its revenue from overseas, it is vulnerable to fluctuations in foreign exchange rate. Hence, sharp movement in foreign exchange rates and cotton prices will be key rating monitorables.
 
* Average financial risk profile, and large working capital requirement
The financial risk profile is constrained by working capital-intensive operations (gross current assets of 212 days as on March 31, 2018), driven by seasonal availability of cotton, leading to large debt. Although the cotton procurement policy has been changed to reduce raw material inventory, working capital borrowing remains large, constraining debt protection metrics. Also, due to low profitability in fiscal 2018, debt protection measures weakened significantly. For instance, adjusted interest coverage was weak at 1.98 times during fiscal 2018. Debt protection metrics should improve in fiscal 2019 due to likely improvement in operating profitability supported by moderate raw material prices, lower power cost, and better export realisation. As a result, interest coverage is expected to improve to 4 times during fiscal 2019. Furthermore, adequate liquidity in the form of unutilised bank line and comfortable financial flexibility should continue to support debt repayment. Also, the company has put on hold capital expenditure of Rs 270 crore as of now.
Outlook: Stable

CRISIL believes Nahar will maintain its established market position and continue to benefit from its integrated operations. Debt protection metrics deteriorated sharply in fiscal 2018, but are expected to improve gradually over the medium term.
 
Upside scenario
* Sustained improvement in gearing and debt protection metrics
* Maintenance of business risk profile
 
Downside scenario
* Subdued revenue growth or profitability, lower-than-expected EBIDTA
* Deterioration in financial risk profile because of sustained appreciation in rupee or significant debt-funded capital expenditure
* Increase in working capital requirement

About the Company

Nahar is the flagship company of the Nahar group, a business conglomerate that operates in the spinning, garments, and hosiery segments. After the group was restructured in fiscal 2007, Nahar acquired the entire textile business of the erstwhile Nahar Exports Ltd, while the group company and other investments were transferred to a new company, Nahar Capital and Financial Services Limited.
 
Nahar has manufacturing units in Ludhiana, Jitwal Kalan, Jodhan, and Lalru in Punjab; and Raisen and Mandideep in Madhya Pradesh. It undertakes spinning, mercerising-cum-dyeing, knitting, and garmenting activities. Besides, it has two co-generation power plants in Ludhiana and Lalru, with capacity of 3.8 megawatt (MW) and 4.8 MW, respectively.

Key Financial Indicators
As on / for the period ended March 31 Unit 2018 2017
Revenue Rs crore 2,142 2,143
Profit After Tax Rs crore (32) 46
PAT margins % (1.5) 2.1
Adjusted debt/Adjusted networth Times 1.22 0.86
Interest coverage Times 1.96 4.41
 

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)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity date Issue size
(Rs Cr)		 Rating assigned
with outlook
NA Commercial paper NA NA 7-365 days 23.5 CRISIL A1
NA Cash Credit* NA NA NA 1000.0 CRISIL A/Stable
NA Letter of Credit# NA NA NA 165.0 CRISIL A1
NA Proposed Term Loan NA NA NA 7.5 CRISIL A/Stable
NA Term Loan  NA NA Mar -2020 23.67 CRISIL A/Stable
NA Term Loan  NA NA Sep'2023 13.83 CRISIL A/Stable
NA Term Loan NA NA Sep-2020 35.62 CRISIL A/Stable
NA Term Loan NA NA Sep -2019 76.42 CRISIL A/Stable
NA Term Loan NA NA Jan- 2020 32.17 CRISIL A/Stable
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 154.19 CRISIL A/Stable
*Interchangeable with packing credit foreign currency/overdraft
#Interchangeable with bank guarantee/buyer's credit
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  23.50  CRISIL A1      22-08-17  CRISIL A1  07-10-16  CRISIL A1  19-01-15  CRISIL A1  CRISIL A1 
                19-02-16  CRISIL A1  12-01-15  CRISIL A1   
Fund-based Bank Facilities  LT/ST  1343.40  CRISIL A/Stable      22-08-17  CRISIL A/Stable  07-10-16  CRISIL A/Stable  19-01-15  CRISIL A/Stable  CRISIL A/Stable 
                19-02-16  CRISIL A/Stable  12-01-15  CRISIL A/Stable   
Non Fund-based Bank Facilities  LT/ST  165.00  CRISIL A1      22-08-17  CRISIL A1  07-10-16  CRISIL A1  19-01-15  CRISIL A1  CRISIL A1 
                19-02-16  CRISIL A1  12-01-15  CRISIL A1   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 1000 CRISIL A/Stable Cash Credit* 945 CRISIL A/Stable
Letter of Credit# 165 CRISIL A1 Letter of Credit# 165 CRISIL A1
Proposed Long Term Bank Loan Facility 154.19 CRISIL A/Stable Proposed Term Loan 2 CRISIL A/Stable
Proposed Term Loan 7.5 CRISIL A/Stable Term Loan 396.4 CRISIL A/Stable
Term Loan 181.71 CRISIL A/Stable -- 0 --
Total 1508.4 -- Total 1508.4 --
*Interchangeable with packing credit foreign currency/overdraft
#Interchangeable with bank guarantee/buyer's credit
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Cotton Textile Industry
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000
 jyoti.parmar@crisil.com
Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 44 6656 3100
anuj.sethi@crisil.com

Amit Bhave
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3113
amit.bhave@crisil.com

Sitaraman Iyer
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 1906
Sitaraman.Iyer@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL