| Shree Bhavya Fabrics Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 B+/Stable/CRISIL A4’ ratings on the bank loan facilities of Shree Bhavya Fabrics Limited (SBFL).
Company has achieved an operating income of Rs 140.29 crore with an operating margin of 5.3% during the nine months ended December 31, 2022. For full year FY 2023, operating income is expected to witness a y-o-y growth of over 20% aided by improved realizations. While the volumes are expected to witness a slight moderation on account of high prices, nonetheless the volume sales would remain steady. Going forward, demand is expected to improve backed by expected softening of cotton and cotton yarn prices. The operating margin is susceptible to the volatility in cotton prices. Operating margin is expected to be around 5.3% - 5.4% during fiscal 2023 (as against ~5.5% in FY22 and 6.45% in FY21) owing to high material prices and fuel costs; operating margin is expected to improve to around 5.5% - 6.0% going ahead supported by expected softening in raw material prices. Debt repayments of around Rs 3.1 crore in fiscal 2023 are expected to be met by expected net cash accruals of around Rs 2.8 crore, cushion in bank limits (around Rs 4 crore, on an average) and by unsecured loans. Company has been meeting its debt repayment obligations in a timely manner. Net cash accruals are expected to improve to more than Rs. 4 crores from fiscal 2024, backed by growing business of the company and improved margins, thereby resulting in improved cushion between cash accruals and repayments.
The ratings reflect the extensive experience of the promoters in the textiles industry, established relationships with suppliers and customers, and moderate scale of operations. These strengths are partially offset by below-average financial risk profile and large working capital requirements. |
Analytical Approach Unsecured loans of Rs 2.25 crore (expected as on March 31, 2023) have been treated as debt as these are need based in nature. |
Key Rating Drivers & Detailed Description Weaknesses: Working capital-intensive operations: Operations are working capital intensive as reflected from GCA days expected at around 280 days as on March 31, 2023, mainly driven by high inventory and debtor days of 140-150 days and ~190 days. GCA days are expected to be in the range of 260-280 days over the medium term mainly driven by high debtor days of 180-190 days and inventory of 130-145 days. The working capital requirements are funded by bank limits and by support from creditors that are expected to range between 70-85 days. Prudent working capital management over the medium term will be closely monitored.
Below-average financial risk profile: Networth is comfortable and is expected to be around Rs 26 crore as on March 31, 2023. Going forward, networth is expected to improve further to around Rs 30 crore, backed healthy accretion to reserves and no plans for dividend payout. Financial risk profile is partially offset by moderate gearing and modest debt-protection metrics. Gearing is expected to be around 2.07 times as on March 31, 2023 and is expected to improve to around 1.7-1.8 times going ahead, marked by no plans for additional debt. High reliance on creditors has also resulted in high total outside liabilities to tangible networth (TOLTNW) ratio, expected at around 5.15-5.20 times as on March 31, 2023. Debt protection metrics are modest with interest cover expected at around 1.45 times and net cash accruals to adjusted debt (NCAAD) ratio expected at around 0.05 time expected for fiscal 2023. Interest coverage ratio and NCAAD are expected to improve to around 1.7 times and around 0.08 time over the medium term.
Strengths: Extensive experience of the promoters: The promoters have been engaged in the textile industry for over three decades and over their tenure have gained a sound understanding of the market dynamics and established healthy relationships with suppliers and customers that has helped to sustain operating margin even during uncertainty and slowdown in the textiles industry.
Moderate scale of operations: Company is expected to clock nearly Rs 200 crore in FY23, a Y-o-Y growth of over 20% on the back of increase in realization and steady volumes. The volume sales are slightly impacted during fiscal 2023 owing to the high cotton prices on account of which some players had held the orders during the year. However, with the expected softening of cotton prices going ahead, the demand is expected to witness improvement which will consequently support the volume sales going forward. |
Liquidity: Stretched Bank limit utilization has averaged at 89% over the 12 months ended February 2023. Debt repayments of around Rs 3.1 crore in fiscal 2023 are expected to be met by expected net cash accruals of around Rs 2.8 crore, cushion in bank limits (around Rs 4 crore, on an average) and by unsecured loans. Company has been meeting its debt repayment obligations in a timely manner. Net cash accruals are expected to improve to more than Rs. 4 crores from fiscal 2024 backed by improved revenue and operating margin, and hence this will result in improved cushion between cash accruals and repayments. Net cash accruals are expected to be around Rs 4.2 – 4.9 crore per fiscal against yearly debt repayments of Rs 2.8 – 3.6 crore during fiscal 2024 and fiscal 2025. Unsecured loans are around Rs 2.25 crore currently (increased from Rs 0.61 crore as on March 31, 2022). The current ratio is moderate and expected to be around 1.35 times as on March 31, 2023. |
Outlook: Stable CRISIL Ratings believes that SBFL will continue to benefit from its established market position in the textiles industry and established relationships with customers and suppliers. |
Rating Sensitivity Factors Upward factors * Revenue growth backed by steady volume growth along with sustenance of operating margin above 5.5%, resulting in net cash accruals over Rs 4 crore * Improvement in working capital cycle and improved networth consequently resulting in improved TOLTNW ratio and debt protection metrics
Downward factors * Sharp decline in operating margin below 4% or net cash accrual under Rs 3 crore * Stretch in working capital cycle, or large, debt-funded capital expenditure further weakening the TOLTNW ratio |
About the Company SBFL was set up as Anjani Dram Industries Ltd in 1988 by Mr Purushottam R Agarwal, Mr Anjani R Agarwal and Mr Radheshyam Agrawal. The company processes grey cloth and undertakes jobwork contracts for fabrics received from third parties. It has an established network for procurement of grey cloth and a strong marketing set-up across India. The company is listed on the Bombay Stock Exchange. Operations are managed by Mr Purushottam Agarwal, who is the Chairman and Managing Director. |
Key Financial Indicators
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Status of non cooperation with previous CRA: SBFL has not cooperated with Brickwork Ratings India Private Limited which has classified it as non-cooperative vide release dated 13-Oct-2022. The reason provided by Brickwork Ratings India Private Limited is non-furnishing of information for monitoring of ratings. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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This Annexure has been updated on 13-Apr-23 in line with the lender-wise facility details as on 15-Feb-23 received from the rated entity.
Criteria Details
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