Rating Rationale
November 05, 2020 | Mumbai
Rishi Techtex Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.26 Crore (Enhanced from Rs.21 Crore)
Long Term RatingCRISIL BBB-/Stable (Reaffirmed)
Short Term RatingCRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB-/Stable/CRISIL A3' ratings on the bank facilities of Rishi Techtex Limited (RTL).
 
The ratings continue to reflect the company's longstanding presence and the promoter's extensive experience in the technical textile industry, and above-average financial risk profile driven by comfortable debt protection metrics and healthy capital structure. These strengths are partially offset by modest scale of operations amid intense competition and large working capital requirement.
 
The nationwide lockdown and other measures taken by the central and state governments to contain the spread of the Covid-19 pandemic will moderately impact revenue and profitability in fiscal 2021. Operations resumed on April 15, 2020, albeit on a smaller scale. Performance fell in the first quarter of fiscal 2021, with revenue declining by 29% (year on year) leading to net loss. However, revenue has steadily risen from June 2020 to pre-Covid levels, and is likely to improve further in the next few quarters, strengthening the business risk profile.

Key Rating Drivers & Detailed Description
Strengths:
* Longstanding presence and promoter's extensive experience in the technical textile industry: RTL has been manufacturing woven sacks and technical textile products such as shade nets for over two decades. This, along with the promoter's experience of over three decades has helped to develop strong relationships with customers and suppliers.

* Above-average financial risk profile: Gearing and total outside liabilities to adjusted networth ratios were healthy at 0.80 time and 1.3 times, respectively, as on March 31, 2020, on account of limited capital expenditure (capex) and modest incremental working capital requirement. The ratios are expected to be sustained over the medium term backed by accruals and moderate incremental working capital and capex requirements. Debt protection metrics were comfortable, as reflected in interest coverage ratio of 2.6 times and net cash accrual to total debt ratio of 0.1 time in fiscal 2020. While decline in revenue and profitability will weaken the debt protection metrics in fiscal 2021, they are expected to improve to over 3 times and 0.2 time, respectively, over the medium term.

Weaknesses:
* Modest scale of operations: Revenue is expected to remain modest over the medium term (turnover was Rs 76.2 crore in fiscal 2020) because of intense competition in the woven sacks segment, which accounts for 50% of revenue. Although the technical textile industry is less competitive, demand growth and scalability is gradual, which constrains revenue growth.

* Large working capital requirement: Gross current assets were high at 155-181 days during the three fiscals through 2020 (181 days as on March 31, 2020) driven by large inventory of over 100 days and moderate receivables of 44 days. Though inventory is sizeable, price escalation clauses mitigate the price risk. The working capital requirement is likely to remain large over the medium term.
Liquidity Adequate

Expected cash accrual of Rs 2.4-4.5 crore per fiscal over the medium term should comfortably cover yearly debt obligation of Rs 1.5-2.7 crore. Expected capex of around Rs 1.5 crore per fiscal over the medium term will be adequately funded through 75% term debt. Fund-based limit of Rs 17 crore was utilised 89% on average over the six months through July 2020, of which Rs 3-3.5 crore is currently unutilised. The company has availed emergency Covid line of Rs 4.9 crore, which also supports liquidity. Current ratio was comfortable at 1.3 times as on March 31, 2020.

Outlook: Stable

CRISIL believes RTL will continue to benefit from the extensive experience of the promoter and healthy relationships with clients.

Rating Sensitivity Factors
Upward factors:
* Significant growth in revenue and profitability leading to increase in net cash accrual to above Rs 8 crore
* Prudent working capital management or equity infusion strengthening the financial risk profile, especially debt protection metrics and financial flexibility

Downward factors:
* Decline in revenue and operating margin, leading to net cash accrual below Rs 2.5 crore over the medium term
* Further stretch in the working capital cycle, large debt-funded capex or sizeable dividend payout weakening the financial risk profile and liquidity.

About the Company

RTL, formerly known as Rishi Packers Ltd, was incorporated in 1984 by Mr Harshad Patel. The company manufactures woven sacks and technical textile products such as shade nets. The facility is located in Daman. The company is listed on the Bombay Stock Exchange.

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs crore 76.2 84.0
Profit After Tax (PAT) Rs crore 1.0 2.9
PAT Margin % 1.3 3.5
Adjusted debt/adjusted networth Times 0.8 0.7
Interest coverage Times 2.6 3.6

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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.Crore)
Complexity Level Rating assigned
and outlook
NA Bank Guarantee NA NA NA 0.2 NA CRISIL A3
NA Bill Discounting under Letter of Credit NA NA NA 0.5 NA CRISIL A3
NA Cash Credit NA NA NA 17 NA CRISIL BBB-/Stable
NA Long Term Loan NA NA Mar-2023 1.7 NA CRISIL BBB-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 1.6 NA CRISIL BBB-/Stable
NA Term Loan NA NA Sept-2023 5 NA CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  25.30  CRISIL BBB-/Stable  22-04-20  CRISIL BBB-/Stable  07-03-19  CRISIL BBB-/Positive  09-02-18  CRISIL BBB-/Stable    --  -- 
Non Fund-based Bank Facilities  LT/ST  0.70  CRISIL A3  22-04-20  CRISIL A3  07-03-19  CRISIL A3  09-02-18  CRISIL BBB-/Stable    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Bank Guarantee Canara Bank 0.2 CRISIL A3
Bill Discounting under Letter of Credit Canara Bank 0.5 CRISIL A3
Cash Credit Canara Bank 14.8 CRISIL BBB-/Stable
Cash Credit Canara Bank 2.2 CRISIL BBB-/Stable
Long Term Loan Canara Bank 1.7 CRISIL BBB-/Stable
Proposed Long Term Bank Loan Facility Not Applicable 1.6 CRISIL BBB-/Stable
Term Loan Canara Bank 5 CRISIL BBB-/Stable

This Annexure has been updated on 26-Sep-2021 in line with the lender-wise facility details as on 02-Aug-2021 received from the rated entity.

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
CRISILs Criteria for rating short term debt

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