| RBA Textiles Private Limited | ||||
| Rating reaffirmed at 'CRISIL BB- / Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the long-term bank facilities of RBA Textiles Pvt Ltd (RBA) at ‘CRISIL BB-/Stable’.
The rating continues to reflect the extensive experience and funding support of its promoters. These strengths are partially offset by exposure to intense competition in the cotton yarn industry and susceptibility to fluctuations in cotton prices.
The lockdown and other measures taken by the Central and state governments towards containment of Covid-19 are expected to have a moderate impact on RBA’s business risk profile. Revenue had dropped sharply in the first quarter of fiscal 2021 but recovered gradually after that with better demand; however, overall revenue is expected to be significantly lower than CRISIL Ratings’ earlier expectations.
CRISIL Ratings has taken cognizance of the moratorium granted to the company by its banker up to August 31, 2020, as permitted by the Reserve Bank of India. |
Analytical Approach Unsecured loans (outstanding at Rs 70.05 crore as on March 31, 2020) extended to the company by its promoters have been treated as neither debt nor equity as these loans have been in the business for more than five years and are expected to remain so over the medium term as well. |
Key Rating Drivers & Detailed Description Strengths: Experience of the promoters and established relationships with customers RBA belongs to the Agarwal group, which has diverse business interests, including property development and manufacturing of iron casting, glassware, garments, and yarn. The group has a strong position in the domestic and global markets. Benefits derived from the promoters’ experience of over 40 years, their strong understanding of local market dynamics, and healthy relations with suppliers and customers should continue to support the operations.
Funding support from the promoters Unsecured loans from the promoters stood at Rs 70.05 crore as on March 31, 2020. These are interest-free loans. The promoters are expected to continue extending timely, need-based funds to support financial flexibility.
Weakness: Exposure to intense competition As the cotton yarn industry is highly commoditized, no single player can influence prices, leading to intense competition. This constrains revenue and profitability. Thus, scale of operations has been modest at Rs 85.8 crore in fiscal 2020.
Susceptibility to fluctuations in cotton prices The company manufactures cotton yarn (of 30s and 40s counts), which is susceptible to volatility in cotton prices. Hence, operating margin has remained volatile over the years. Susceptibility to fluctuations in the prices of cotton should continue to constrain business risk profile. |
Liquidity: Adequate Liquidity is adequate with net cash accruals expected at Rs 4 to 6 crore per annum in the medium term, against nil repayment obligations. Repayment obligations of Rs 2.6 crore for FY 21 have been paid off. Bank limit utilisation is comfortable at 63% for 12 months through Oct 2020. Company had minimal unencumbered cash and bank balance as on March 31, 2020. There are no capex plans in the medium term. Liquidity is supported by strong support from promoters in form of USL, amounting to Rs 70.05 crore as on March 31, 2020. |
Outlook Stable The company will continue to benefit from the experience of its promoters. |
Rating Sensitivity factors Upward factors
Downward factors • Decline in revenue by over 20% per annum over the medium term or lower operating margin, leading to weaker-than-expected cash accrual • Large, debt-funded capital expenditure (capex), unexpected dividends, or stretch in working capital cycle weakening financial risk profile |
About the Company RBA, established in 2006, is a Chittoor (Andhra Pradesh)-based company that manufactures cotton yarn. Mr Narendra Kumar Agarwal and his brother, Mr Anil Kumar Agarwal, are the promoters. |
Key Financial Indicators
*-Provisional |
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 - 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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