| Shree Radhalakshmi Cotton Private Limited | ||||
| Rating reaffirmed at 'CRISIL A/Stable' | ||||
| 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 A/Stable' rating on the long-term bank facilities of Shree Radhalakshmi Cotton Private Limited (SRCPL; part of Radhalakshmi group).
The rating continues to reflect the benefits derived from the extensive experience of the group’s promoters in the cotton trading industry, steady cash flow from windmill business, prudent risk management policies, and strong financial risk profile. These strengths are partially offset by susceptibility to volatility in cotton prices and business cycles and exposure to risks inherent in operating wind-energy assets. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of SRCPL, Ashwini Traders (AT), Shree Siddhivinayaka Cotton Corporation (SSCC), Sri Balaji and Co (SBC), and Shree Tirupati Cotton Corporation (STCC), together referred to as ‘Radhalakshmi group'. This is because all the companies, have common promoters, are in the same line of business, and have strong operational linkages and financial linkages.
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:
The Ganatra family has been engaged in cotton trade for over six decades, while the current promoter, Mr. Atul Ganatra has experience of close to 4 decades which has helped expand the group's operations. Longstanding presence in the cotton industry has helped them gain a deep understanding of industry dynamics. Established network of ginners (suppliers), facilitates effective procurement, while healthy relationships with spinners (customers), assure repeat sales.
The group has presence in windmill power generation and has set up 28.35 MW of windmills across Maharashtra, Gujarat, and Tamil Nadu. The long-term power purchase agreements (PPAs) signed for all windmills and healthy plant load factor reported in past few fiscals, provides stability in cash flows from this business.
The group follows efficient risk management practices, as reflected in low inventory and credit extended to customers. Average inventory of 10-40 days has been maintained for the past three years. The group has a large customer base, that offsets counter party risk to a large extent. Back-to-back arrangement with suppliers and customers limits exposure to inventory and price risks commonly faced by trading entities. Fixed margin on the cotton trading business and predictable cash flows from windmills, shall help to sustain the margins over the medium term.
Financial risk profile is marked by a strong networth of Rs 300.75 crore, and low gearing and total outside liabilities to adjusted networth (TOLANW) ratios of 0.04 time and 0.07 time, respectively, estimated as on March 31, 2022. Debt protection metrics were comfortable, with net cash accrual to total debt and interest cover ratios at 1.55 time and 50 times, respectively, estimated in fiscal 2022. Group’s controlled reliance on external debt and absence of any major capital expenditure plans over the medium term should continue to support the financial risk profile.
Weaknesses:
Scalability and profitability of the group's operations remain susceptible to changes in the cotton crop pattern, demand scenario, extent of competition, and regulatory intervention to control cotton prices. In fiscal 2022, the revenue decline sharply on account of cautious call by management to reduce cotton trading given volatile market scenario. Although, firm’s prudent risk policies has protected sharp volatility in profitability, operating margin has remained volatile in range of 4.0-12% over the past four fiscals ended fiscal 2022. Further, intense competition in the cotton trading business, which has numerous small players, constrains the operating margin.
Variation in wind speed and pattern could reduce the operating PLF, thus impacting the cash flows from this segment. There are delays observed in payment from counterparty, i.e. state electricity boards in the near past. Any further delay in receipt of payment from counterparty, could lead to higher dependence on debt and impact the credit profile of the group. |
Liquidity: Strong The group enjoys strong liquidity driven by expected cash accruals of more than Rs. 25 crores per annum in fiscal 2023 and 2024, against no term debt obligations. Cash and cash equivalents were strong at Rs. 135 crore, as on March 31, 2022. It also has access to fund-based limits of Rs. 186 crore, which have been sparsely utilized in the last 12 months ended February 2022. With a gearing of 0.04 times, group has sufficient gearing headroom, to raise additional debt to meet its incremental working capital requirements. Deployment of the cash and liquid surplus will remain a rating monitorable. |
Outlook: Stable CRISIL Ratings believes the Radhalakshmi group will continue to benefit from its established market position as a cotton trader, and steady revenue from windmills. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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About the Group The Radhalakshmi group, promoted by the late Mr Shivdas Ganatra, commenced operations in 1981 in Mumbai. SRCPL, the group's flagship entity, was originally set up as Radhalakshmi Cotton Corporation, a partnership firm. It was reconstituted as a private limited company, with the present name in 1997.
SRCPL, and other group entities - SBC (in 1994), STCC (1995), AT (1998), and SSCC (1999), trade in cotton bales. The group also has 31.8 MW of windmills under SBC, AT and SSCC, for which it has long term PPAs with state electricity boards.
Mr. Atul Ganatra manages the group's operations, along with his wife, Ms Deepali Ganatra, his brother, Mr Nitin Ganatra, and his daughters, Dr Anvi Ganatra and Ms. Karuna Ganatra.
The Radhalakshmi group has its corporate office in Mumbai, and branches in Gujarat, Maharashtra, Andhra Pradesh, and Madhya Pradesh. |
Key Financial Indicators
*Consolidated numbers |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 6 | HDFC Bank Limited | CRISIL A/Stable |
| Secured Overdraft against term deposits | 5.5 | HDFC Bank Limited | CRISIL A/Stable |
This Annexure has been updated on 11-Jan-23 in line with the lender-wise facility details as on 04-Jan-23 received from the rated entity.
Criteria Details
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