Rating Rationale

Rating Rationale

January 22, 2025 | Mumbai

Parmeshwari Silk Mills Limited

Rating reaffirmed at 'Crisil BB+/Stable'

Rating Action

Total Bank Loan Facilities Rated	Rs.37 Crore
Long Term Rating	Crisil BB+/Stable (Reaffirmed)

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 BB+/Stable’ rating on the long-term bank facilities of Parmeshwari Silk Mills Ltd (PSML).

The rating continues to reflect the extensive experience of the promoters in the textile industry and the improving scale of operations of the company. These strengths are partially offset by average financial risk profile, large working capital requirement and exposure to intense competition from several unorganised players.

Analytical Approach

Crisil Ratings has evaluated the consolidated business and financial risk profiles of PSML and Harappa Textile Mills Private Limited.

Unsecured loans extended by the promoters and their relatives stood at Rs 4.93 crore as on March 31, 2024. These are non-interest bearing loans, which are expected to remain in the business over the medium term. Hence, it has been treated as 75% equity and 25% debt.

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 the promoters: The key promoter, Mr Jatinder Singh Pal, has been engaged in the textile business for the past three decades. His family has been associated with this business for over 105 years. Longstanding industry presence of the promoters and their healthy relationships with customers and suppliers will continue to support the business risk profile. The younger generation of the promoter’s family is also involved in the business.

Improving scale of operations: Revenue has grown to Rs 203.51 crore in fiscal 2024 from Rs 172.98 crore in fiscal 2023, backed by revival in demand after the Covid-19 pandemic and the strong image of the Ramtex brand. PSML has already booked revenue of Rs 104.46 crore till the second quarter of fiscal 2025 and is expected to achieve over Rs 230 crore revenue for the full fiscal. In fiscal 2024, the company acquired HTML, which prints fabrics, for consideration. The company was a family concern with the majority shares held by the promoters of PSML. Through this acquisition, PMSL will undertake all printing activities in house and provide printing services to other fabric manufacturers.

Operational efficiency will be supported by the acquisition of Harappa Textile Mills Private Limited in fiscal 2024, which is engaged in the business of printing fabrics. The company generated operating income of Rs 8.49 crore in fiscal 2024 and is expected to contribute roughly Rs 8-9 crore additionally to the total revenue of the group in fiscal 2025. As a result of this backward integration, the operating margin has improved in the current fiscal to 10.31% till September 2024 and is expected to sustain at around 10% for the entire fiscal.

Weaknesses:

Intense competition from several unorganised players: Presence of several small processing units in the domestic textile industry makes it highly fragmented and competitive. The industry is also inherently cyclical. Any adverse change in the global economic outlook and demand-supply scenario in the domestic market will directly impact demand for textiles.

Working capital-intensive operations: Gross current assets (GCAs) were 280 days as on March 31, 2024, owing to large inventory and receivables of 136 days and 113 days, respectively. The company deals with distributors and retailers to whom it extends average credit of around 114 days. It also maintains a large inventory, given the time taken for weaving, embroidery and printing fabrics in-house. In fiscal 2025, GCAs are expected to moderate to 251 days, driven by expected improvement in inventory holding period to 120 days, as the printing operations will be undertaken in-house leading to reduction in turnaround time between procurement of yarn and dispatch of finished fabric. Working capital requirement is expected to continue to be partially offset by credit period of 130-140 days from its suppliers.

Average financial risk profile: In fiscal 2024, capital expenditure (capex) of Rs 20.20 crore was undertaken by the company for the procurement of machinery to increase its manufacturing capacity. Additional long-term financing of Rs 24.78 crore were issued to fund the capex and additional working capital requirement. The capital structure was impacted by modest adjusted networth of Rs 50.70 crore, and high gearing and total outside liabilities to adjusted networth ratio of 2.19 times and 3.08 times, respectively, as on March 31, 2024. The debt protection metrics were average, with interest coverage and net cash accrual to total debt ratios of 2.45 times and 0.09 time, respectively, for fiscal 2024. The debt protection metrics are expected to improve over the medium term. In fiscal 2025, the company is expected to undertake additional capex of Rs 4 crore funded through external financing of Rs 2 crore and the balance through internal accrual. The capital structure is expected to improve, supported by timely repayment of debt and accretion to reserves, despite additional debt-funded capex, in the current fiscal. Networth is expected to be Rs 54 crore while gearing is expected to moderate to around 2 times in the current fiscal. The debt protection metrics are also expected to improve modestly, supported by healthy operating profitability, as indicated by expected interest coverage and net cash accrual to adjusted debt (NCAAD) ratios of 2.66 times and 0.11 time, respectively, in fiscal 2025.

Liquidity: Adequate

Bank limit utilisation was moderate at 61.25% on average during the 13 months ended November 30, 2024. Cash accrual is expected to be Rs 12-14 crore annually, which will be sufficient against term debt obligation of Rs 9-11 crore annually over the medium term, and the surplus will cushion the liquidity of the company.

The current ratio was healthy at 1.4 times as on March 31, 2024. The promoters are likely to extend support in the form of equity and unsecured loans to meet the working capital requirement and debt obligation.

Outlook: Stable

Crisil Ratings believes PSML will continue to benefit from the extensive experience of its promoters in the textile industry and their established relationships with clients.

Rating sensitivity factors

Upward factors:

Sustained growth in revenue and improvement in operating margin to above 11%, leading to higher cash accrual
Efficient working capital management amidst sustained accretion to reserves, leading to further improvement in the capital structure

Downward factors:

Decline in revenue or operating margin, leading to net cash accrual lower than Rs 9 crore
Substantial increase in working capital requirement, weakening the financial risk profile and liquidity

About the Company

PSML was incorporated in 1993, by the promoter, Mr Jatinder Pal Singh and his family members. The Ludhiana (Punjab)-based company manufactures ladies unstitched suit fabrics and other fabrics for women, which are sold under the ‘Ramtex’ brand. The company is listed on the Bombay Stock Exchange. It undertakes spinning and weaving of all kinds of yarn, spun, and filament yarn. It has in-house facilities for weaving, embroidery and printing (30,000 meters of cloth/day) of all kinds of fabric.

Key Financial Indicators

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	203.51	172.98
Reported profit after tax	Rs crore	5.96	5.52
PAT margins	%	2.93	3.19
Adjusted Debt/Adjusted Net worth	Times	2.19	1.94
Interest coverage	Times	2.45	2.57

Status of non cooperation with previous CRA:

PSML has not cooperated with Credit Analysis & Research Ltd. (CARE) which has classified it as non-cooperative vide release dated December 02nd, 2024. The reason provided by CARE is non-furnishing of information for monitoring of ratings.

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
Crisil Ratings` 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.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. 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. Crore)	Complexity Levels	Rating Outstanding with Outlook
NA	Cash Credit	NA	NA	NA	37.00	NA	Crisil BB+/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Harappa Textile Mills Private Limited	Full Consolidation	100% subsidiary

Annexure - Rating History for last 3 Years

	Current			2025 (History)		2024		2023		2022		Start of 2022
Instrument	Type	Outstanding Amount	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Fund Based Facilities	LT	37.0	Crisil BB+/Stable		--		--	26-10-23	Crisil BB+/Stable	30-12-22	Crisil BB+ /Stable(Issuer Not Cooperating)*	Crisil BB+/Stable
			--		--		--	20-09-23	Withdrawn (Issuer Not Cooperating)*		--	Withdrawn
Non-Fund Based Facilities	LT		--		--		--		--		--	Withdrawn

All amounts are in Rs.Cr.

* - Issuer did not cooperate; based on best-available information

Annexure - Details of Bank Lenders & Facilities

Facility	Amount (Rs.Crore)	Name of Lender	Rating
Cash Credit	28	Axis Bank Limited	Crisil BB+/Stable
Cash Credit	9	YES Bank Limited	Crisil BB+/Stable

Criteria Details

Links to related criteria

CRISILs Approach to Financial Ratios

Rating criteria for manufaturing and service sector companies

CRISILs Bank Loan Ratings - process, scale and default recognition

Rating Criteria for Cotton Textile Industry

CRISILs Criteria for Consolidation

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