| P.K.Laxmi Mill India Private Limited | ||||||
| Ratings migrated to 'CRISIL BBB-/Stable/CRISIL A3' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||||
| *Issuer did not cooperate; based on best-available information |
| Detailed Rationale |
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Because of inadequate information and in line with the Securities and Exchange Board of India guidelines, CRISIL had migrated its ratings on the bank facilities of P.K.Laxmi Mill India Private Limited (PKLM; part of the PKPN group) to 'CRISIL B/Stable/CRISIL A4 Issuer Not Cooperating'. However, the company's management has started sharing the information required for carrying out a comprehensive review of the rating. Consequently, CRISIL is migrating the ratings to 'CRISIL BBB-/Stable/CRISIL A3'. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of PKLM and its group concern, PKPN Spinning Mills Private Limited (PKPN). This is because the two companies, together referred to as the PKPN group, are in the same line of business, have a common management and have significant business synergies, including fungible cash flow. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position in the specialty yarn segment The group shall continue to benefit from its established market position in the specialty yarn segment in which it operates. Further, the promoters' experience of over four decades have enabled the group to scale up its operations as reflected in revenue of Rs.233.07 crores in fiscal 2020. This has also enabled the group to establish healthy relationship with its customers and suppliers. CRISIL believes that the group will continue to maintain its strong business profile supported by its established position. * Above-average financial risk profile Capital structure is strong, as reflected in moderate total outside liabilities to tangible networth of 1.06 times and healthy networth of Rs 74.20 crore as on March 31, 2020. Debt protection metrics were adequate, indicated by interest coverage and net cash accrual to adjusted debt ratios of 3.31 times and 0.31 time, respectively, in fiscal 2020. Weaknesses * Large working capital requirement The PKPN group's operations are working capital-intensive, as reflected in gross current assets of around 144 days over the three years ended March 31, 2020, driven by large inventory and moderate credit offered to customers. The company maintains inventory of more than two months on account of the varieties of yarn produced, such as cotton, viscose, Lycra, modal and blended yarns, and the long operating cycle. The company is required to offer credit of 30-45 days to its customers. However, during the current fiscal, on account of the pandemic, ability of the company to manage working capital efficiently remains a key monitorable. * Exposure to intense competition The group's operating performance is susceptible to risks related to intense competition from several players in both the organised and unorganised segment and steep movement in input prices. Furthermore, the products are marked by limited product differentiation among various players, and may result in lower bargaining power with customers. These factors may result in an impact on the sales and operating margins. Additionally, on account of suspension of operations during the lockdown imposed to contain the Covid-19 pandemic, sales and operating margins in the first quarter were impacted. Therefore, the ability of the company to sustain its sales and operating margins for fiscal 2021, remains a key monitorable. |
| Liquidity Adequate |
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Net cash accrual, expected at Rs 7.5-10 crore in Fiscal 2021 and Rs.16-20 crore in Fiscal 2022, should adequately cover yearly debt obligation of Rs 2.5 crore in Fiscal 2021 and Rs.5 crore in Fiscal 2022. Utilisation of fund-based limit of Rs 40.94 crore averaged 76% over the 12 months through October 2020. The excess funds are expected to be utilised towards meeting the incremental working capital requirement. Apart from the sanctioned cash credit limit, the group has taken a Covid-19 loan of Rs 12.48 crore, which should further ease liquidity. |
| Outlook: Stable |
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CRISIL believes the PKPN group will continue to benefit from its strong position in the yarn industry. |
| Rating Sensitivity factors |
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Upward factors * Sustained increase in revenue to more than Rs.300 crore along with improvement in the operating margin leading to higher cash accrual * Improvement in working capital cycle. Downward factors * Decline in operating income or profit margin leading to subdued cash accrual * Interest coverage ratio of less than 2 times * Substantial increase in the working capital requirement or any large, debt-funded capital expenditure weakening the financial profile and liquidity |
| About the Group |
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Incorporated in 1981, PKPN is the flagship entity of the PKPN group, which is owned and managed by Mr PK Jayagopal and his family members. Based in Erode, Tamil Nadu, PKPN manufactures viscose, blended and speciality yarn, such as Lycra and acrylic yarn. Based in Dindigul, PKLM manufactures viscose yarn, blended yarn, and speciality yarn such as lycra and acrylic yarn. |
| Key Financial Indicators - Consolidated | ||||||||||||||||||||||||
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Status of non cooperation with previous CRA: |
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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 and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| *Issuer did not cooperate; based on best-available information | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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| For further information contact: | ||||||
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