Rating Rationale

Rating Rationale

November 02, 2021 | Mumbai

Shri Santhosh Meenakshi Textiles Private Limited

'CRISIL BBB/Stable/CRISIL A3+' assigned to Bank Debt

Rating Action

Total Bank Loan Facilities Rated	Rs.36 Crore
Long Term Rating	CRISIL BBB/Stable (Assigned)
Short Term Rating	CRISIL A3+ (Assigned)

1 crore = 10 million

Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB/Stable/CRISIL A3+’ ratings to the bank facilities of Shri Santhosh Meenakshi Textiles Private Limited (SSMTPL).

The ratings reflect the SSMTPL's promoter’s extensive experience and above average financial risk profile. These strengths are partially offset by customer and geographical concentration in revenue profile and susceptibility to volatility in yarn and foreign exchange (forex) rates.

Analytical Approach:

CRISIL Ratings had earlier consolidated the business and financial risk profile of SSMTPL with Sree Santhosh Garments. However, there is no operational and financial fungibility between these entities and is being managed independently.

CRISIL Ratings has treated the unsecured loan from promoters as neither debt nor equity as they are expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description

Strengths:

* Promoters extensive industry experience and partially integrated nature of operations:

Promoters experience of more than 2 decade in the textile industry and established relationship with suppliers and customer should continue to support the business risk profile of SSMTPL over the medium term. SSMTPL’s operations are partially integrated with presence across spinning and garmenting. In addition, the company has captive wind power capacity of 4.5 MW, which caters to about 50% of the total power requirement. It’s partially integrated operations along with captive power unit aids the operating efficiency.

* Above average financial risk profile: SSMTPL has above average financial risk profile as reflected in its healthy capital structure and above average debt protection metrics. Estimated net worth of Rs. 51 crores, as on March 31, 2021 coupled with low reliance on bank borrowing led to gearing of less than 1 time as on the same date. Further, given moderate operating profitability, debt protection metrics is expected to remain moderate with interest coverage ratio of more than 4 times over the medium term.

Weakness:

* Customer and geographical concentration in revenue: SSMTPL's top 5 clients have contributed more than 50-60% to its revenues in the past. Further, majority of exports are to Europe, leading to geographical concentration. Any vendor rationalisation efforts by its customer could adversely impact the business and financial risk profile of SSMTPL.

* Vulnerability of operating margin to fluctuations in raw material prices and forex rates:

Raw material accounts for major portion of its cost. Hence, any sudden change in raw material prices could affect the operating margin of the company as witnessed in the past. Also, majority of revenue comes from the international market, any sharp fluctuation in forex rates affects realizations and accrual.

Liquidity: Adequate

SSMTPL has adequate liquidity. The bank limits were utilized at around 80% in the past twelve months ending Sep 2021. The net cash accruals are estimated to be in the range of Rs 14-17 crores against repayment obligation of Rs 2-6 crores over the medium term. Regular fund support from promoters in the form of equity infusion and unsecured loan shall continue to support the liquidity of the company

Outlook: Stable

CRISIL Ratings believes the SSMTPL will continue to benefit over the medium term from its established relationship with customers.

Rating Sensitivity Factors

Upward factors:

Sustenance of net cash accrual of over Rs 20 crores
Sustained increase in scale of operation and profitability

Downward factors:

Large decline in scale of operations and profitability leading to net cash accrual of less than Rs 8 crores
Stretch in working capital cycle leading to weak liquidity

About the Company

SSMTPL manufactures knitted garments and cotton yarn. Set up in 2005, its operations are managed by Mr. Udhaysankar, Managing Director of the company.

Key Financial Indicators

Particulars	Unit	2021	2020
Revenue	Rs Crore	124	100
Profit After Tax (PAT)	Rs Crore	13	1
PAT Margin	%	10.4	1.5
Adjusted debt/adjusted networth	Times	0.58	1.07
Adjusted interest coverage	Times	10.34	4.3

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.Cr)	Complexity levels	Rating Assigned with Outlook
NA	Cash Credit	NA	NA	NA	5	NA	CRISIL BBB/Stable
NA	Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting	NA	NA	NA	18	NA	CRISIL A3+
NA	Long Term Loan	NA	NA	30-Sept-2024	10.3	NA	CRISIL BBB/Stable
NA	Standby Line of Credit	NA	NA	NA	2.7	NA	CRISIL BBB/Stable

Annexure - Rating History for last 3 Years

	Current			2021 (History)		2020		2019		2018		Start of 2018
Instrument	Type	Outstanding Amount	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Fund Based Facilities	LT/ST	36.0	CRISIL A3+ / CRISIL BBB/Stable		--	21-12-20	Withdrawn	09-08-19	CRISIL BBB-/Stable / CRISIL A3		--	CRISIL BBB+/Stable / CRISIL A2
			--		--	19-08-20	CRISIL BB+ /Stable(Issuer Not Cooperating)*	28-02-19	CRISIL A3+ / CRISIL BBB /Stable(Issuer Not Cooperating)*		--	CRISIL BBB+/Stable / CRISIL A2
			--		--	19-06-20	CRISIL BB+ /Stable / CRISIL A4+ (Issuer Not Cooperating)*		--		--	--
Non-Fund Based Facilities	ST		--		--	19-08-20	Withdrawn (Issuer Not Cooperating)*	09-08-19	CRISIL A3		--	CRISIL A2
			--		--	19-06-20	CRISIL A4+ (Issuer Not Cooperating)*	28-02-19	CRISIL A3+ (Issuer Not Cooperating)*		--	--

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	5	State Bank of India	CRISIL BBB/Stable
Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting	18	State Bank of India	CRISIL A3+
Long Term Loan	10.3	State Bank of India	CRISIL BBB/Stable
Standby Line of Credit	2.7	State Bank of India	CRISIL BBB/Stable

This Annexure has been updated on 02-Nov-2021 in line with the lender-wise facility details as on 02-Nov-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

Rating Criteria for Cotton Textile Industry

CRISILs Criteria for rating short term debt

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