| Shubhalakshmi Polyesters Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Non cooperation by Issuer |
Detailed Rationale CRISIL Ratings’ ratings on the bank facilities of Shubhalakshmi Polyesters Limited (SPXL; part of the Shubhalakshmi Group) continues to reflect the improved operating performance with revenues in fiscal 2022 increasing 50% year-on-year and operating profitability recovering to 8.7% in fiscal 2022 from 7.9% in fiscal 2021 driven by recovery in demand from end user industries and higher demand for polyester yarn due to elevated cotton yarn prices
CRISIL Ratings has also withdrawn its rating on Rs. 42.06 crore proposed long term bank loan facility at the company's request. This is in line with CRISIL Ratings’ withdrawal policy.
As a result, debt protection metrics such as interest coverage ratio improved to 2.48 times in fiscal 2022 (1.08 times in fiscal 2021) and is likely to continue to be above 2 times over the medium term. Total debt reduced to Rs 568 crore from Rs 791 crore as on March 31, 2022 due to implementation of debt restructuring and debt repayment thereafter. Expected net cash accruals of Rs 110-Rs 115 crore over next two fiscals will be adequate for annual debt servicing of Rs 22 crore, limited capex and incremental working capital requirement. Subsequently, total debt is expected to reduce further resulting in TOL/TNW improving to below 2 times in the medium term.
The ratings reflect the Company’s established market position in the domestic polyester yarn market, wide product range and average operating efficiency. These strengths are offset by weak financial risk profile, working capital intensive nature of operations and profitability remaining susceptible to raw material and currency fluctuations. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of SPL and Shubhalakshmi Polytex Ltd (SPXL). This is because both the companies, together referred to as the Shubhalakshmi group, have common promoters and management, operate in the same business, and have strong operational 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 Company is promoted by Surat-based Agarwal family, which has been associated with the polyester yarn industry for the past three decades. Over the years, the promoters have both forward- and backward-integrated operations and have demonstrated a strong understanding of industry nuances.
The Company is among the top 6 manufacturers in India with presence in Fully Drawn Yarn (FDY)/texturised yarns/Polyester Staple Fibre (PSF) and an overall market share of about 5% in polyester yarn and total capacity of around 266000 tonne per annum. Its healthy market position is underpinned by large scale of operations (annual turnover of over Rs 2,400 crore in fiscal 2020) and diverse customer base. Distribution network comprises over 150 dealers with whom it has longstanding relationships. Collection mechanism is disciplined, as seen in minimal instances of bad debt. The Company also exports to over 20-25 countries, which contributed 11% to total revenue in fiscal 2022.
Over the years, operating margin has improved to 8-9% from 4-5% earlier, driven by higher contribution from value-added products, backward integration of operations, benefits derived from operating leverage and faster ramp-up of new capacities. This is also reflected in return on capital employed of 8-9% over the last two fiscals. The Company procures PTA and MEG (key raw materials) from external sources, which are converted POY, FDY, PSF, Draw Texturized Yarn(DTY) & Air Texturized Yarn (ATY). Also, manufacturing facilities in Dahej, Gujarat, provide logistical advantages for imports of raw materials as well as exports. Proximity to suppliers and ports also helps to a tight control over inventory (40-50 days). Inventory level was lower at 61 days as on March 31, 2022, compared to previous fiscal as demand recovered.
Cash accruals are expected to improve gradually to pre-COVID levels with improvement in industry demand. Net cash Accruals for fiscal 2022 was Rs 94 crore. Timely debtor collection, normalisation of working capital cycle and restoration of operating profitability will remain key rating sensitivity factors.
During fiscal 2021, implementation of one-time restructuring (OTR) scheme as per RBI guidelines which was invoked as on December 24th, 2020 by the consortium of lenders led by Bank of Baroda supported the company’s liquidity as repayment obligations have been restructured along with a revised repayment schedule.
Infusion of equity from the promoters of Rs. 26.70 crores in fiscal 2022, improved cash generation and debt realisation have helped improve the credit metrics of the company. This is further benefitted by a significant part of the company’s debt levels converted into Compulsorily Convertible Debentures (CCDs) thus lowering their repayment obligations. Going forward, total debt is expected to reduce due to low capex and healthy annual cash accruals of Rs 110-115 crore over the medium term.
Weaknesses:
The domestic polyester yarn and fabric industry is highly capital-intensive, and in order to maintain or improve market share, players have to routinely carry out capacity expansion and debottlenecking activities. Also, the industry is dominated by large manufacturers such as Reliance Industries Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), which is present in the entire value chain of the industry and is hence able to influence pricing. As the PTA/MEG segment in India is dominated by 3-4 large petrochemical giants, they enjoy significant bargaining power. The Company procures around 70% of its total raw material requirements from top three suppliers.
Raw materials used to manufacture polymer yarn are crude derivatives and are mostly imported. Input prices and currency rates have been volatile in the past because of sharp fluctuations in crude oil rates. While the Company has demonstrated disciplined working capital management in the past and has been able to pass on fluctuations in raw material prices to end customers, profitability is susceptible to any sharp movement in input prices and currency rates. |
Liquidity: Adequate Fund-based working capital limit of Rs 201.78 crore was utilised at average 78% during last nine months ended March 2022. Company has cash surplus of Rs 49 cr as on March 31, 2022 largely encumbered for non-fund based limits. |
Outlook: Stable CRISIL Ratings believes the credit profile will be supported by healthy market position and expected improvement in financial risk profile in the medium term. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Incorporated in 2005 and promoted by Mr Ramu Raman Agarwal, Mr Bankesh Agarwal and Mr Ajay Agarwal, SPL is the flagship company of the Shubhalakshmi Group and manufactures FDY, ATY, DTY, POY, PSF and Polymer chips.
Shubhalakshmi Polytex Ltd, incorporated in 1991, is another group company initially traded in yarn. However, from March 2016, it began manufacturing texturised yarns. |
Key Financial Indicators- (Shubhlaxmi Group)
*Provisional; CRISIL Ratings-adjusted numbers |
Status of non cooperation with previous CRA: SPL has not cooperated with CARE Ratings which has classified it as issuer not cooperative vide release dated May 07, 2020. The reason provided by CARE Ratings is unavailability of due diligence, unavailability of latest financials and latest developments of the company's business & financial risk profile and impact of COVID-19 on the same |
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)
*COVID Loans **Includes CCDs as per restructuring scheme ^Funded Interest Term Loans |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 09-Sep-22 in line with the lender-wise facility details as on 09-Dec-21 received from the rated entity.
*COVID Loans
**Includes CCDs as per restructuring scheme
^Funded Interest Term Loans
Criteria Details
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