| Sportking India Limited | ||||||
| Long-term rating upgraded to ‘Crisil A+/Stable'; Short-term rating reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 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 upgraded its rating on the long-term bank facilities of Sportking India Limited (Sportking) to ‘Crisil A+/Stable’ from ‘Crisil A/Positive’; The short-term rating has been reaffirmed at ‘Crisil A1’.
The rating upgrade reflects the improvement in the business risk profile of Sportking, with fiscal 2025 revenue reaching above Rs. 2500 crores and operating margin improving to 10.6%, from ~10.1% in fiscal 2024. The revenue of the company is expected to increase by 1-3% to ~Rs. 2600 crores in fiscal 2026 as it is operating near full capacity. Further, the operating margins are expected to remain healthy at 10.5-11.5% in fiscal 2026, supported by stable spreads, and minimal inventory losses. The margins are expected to improve to 11-12% over the medium term, supported by additional use of solar power, resulting in lower power costs. Accordingly, the Net Cash Accruals for the company are expected to remain at ~Rs. 200-220 crores for fiscal 2026.
Additionally, the financial risk profile continues to remain healthy with debt/ebitda at 2.17 times and interest cover of 5.7 times fiscal 2025. The overall debt levels for the company had reduced significantly, in fiscal 2025 driven by lower short-term debt on account of significant procurement by CCI, obviating the need for holding inventory. This is expected to normalize this fiscal and debt is accordingly expected to remain around Rs. ~650-700 crores for fiscal 2026. With repayment obligations of Rs. 70-80 crores over the next 2-3 years the debt is expected to reduce to Rs. 500-580 crores over the medium term. However, given the capacity utilization remains at ~95%, any significant debt funded capex will remain a key monitorable.
The debt protection metrics of the company are expected to remain comfortable with the interest coverage and net cash accrual to adjusted debt (NCAAD) ratios expected to improve to 7-9 times and 0.3-0.4 times, respectively, in the medium term from 5.7 times and 0.33 time, respectively, in fiscal 2025. Moreover, gearing and total outside liabilities to tangible networth (TOL/TNW) ratios are also likely to improve from 0.58 and 0.76 times, respectively, as on March 31, 2025 to below 0.6 and 0.8 time, respectively, in the medium term. The debt/ebitda is anticipated to be below 2.5 times in the medium term, compared to 2.17 times in fiscal 2025.
These strengths are partially offset by the large working capital requirement and susceptibility to volatility in raw material prices and foreign exchange (forex) rates. |
Analytical Approach For arriving at its rating, Crisil Ratings has taken a standalone view on the company. Preference capital has been treated as equity due to a low coupon rate and no redemption in the medium term. |
Key Rating Drivers & Detailed Description Strengths: Strong position in the cotton yarn industry: Sportking has a strong market position in the compact cotton yarn industry, with total spindle capacity expanded to 3.79 lakh and operating income of over Rs 2,530 crore in fiscal 2025. The company benefits from its diversified geographic reach across several markets such as Bangladesh, China, Egypt and the US, and its longstanding relationships with garment retailers in the US and Europe. In fiscal 2025, overseas demand is expected to improve as Indian spinners have become more competitive on account of domestic cotton prices remaining below international prices. Structural changes in overseas markets, such as the China+1 strategy, will also favour players such as Sportking.
Large scale of operations and healthy operating efficiency: Post expansion, Sportking has demonstrated capacity utilisation of ~95% and improvement in overall scale. The company is looking to de-risk its exposure to basic cotton yarn products, by focusing on value-added products such as contamination-free, sustainable and multi-twist cotton yarn, which fetch higher margin.
Operating margin should fare better than historical trends due to stable cotton prices resulting in reduced inventory prices.
Improving and healthy financial risk profile: The financial risk profile continues to remain healthy with debt/ebitda at 2.17 times and interest cover of 5.7 times fiscal 2025. The overall debt levels for the company had reduced significantly, in fiscal 2025 driven by lower short-term debt on account of significant procurement by CCI, obviating the need for holding inventory. This is expected to normalize this fiscal and debt is accordingly expected to remain around Rs. ~650-700 crores for fiscal 2026. With repayment obligations of Rs. 70-80 crores over the next 2-3 years the debt is expected to reduce to Rs. 500-580 crores over the medium term. However, given the capacity utilization remains at ~95%, any significant debt funded capex will remain a key monitorable.
The debt protection metrics of the company are expected to remain comfortable with the interest coverage and net cash accrual to adjusted debt (NCAAD) ratios expected to improve to 7-9 times and 0.3-0.4 times, respectively, in the medium term from 5.7 times and 0.33 time, respectively, in fiscal 2025. Moreover, gearing and total outside liabilities to tangible networth (TOL/TNW) ratios are also likely to improve from 0.58 and 0.76 times, respectively, as on March 31, 2025 to below 0.6 and 0.8 time, respectively, in the medium term. The debt/ebitda is anticipated to be below 2.5 times in the medium term, compared to 2.17 times in fiscal 2025.
Financial flexibility is healthy, as reflected in moderate bank limit utilisation. This, coupled with adequate liquidity, will continue to support debt servicing. Larger-than-expected, debt-funded capex or dividend payout, resulting in a weaker capital structure, will remain a key monitorable.
Weaknesses: Susceptibility to volatility in raw material prices and forex rates: The company derives over 90% of its revenue from yarn and thus remains susceptible to volatility in the prices of cotton and cotton yarn. As a result, operating margin has fluctuated between 10% and 28% over the 10 fiscals through 2025. Demand for cotton and yarn is driven by international demand-supply dynamics. In the past decade, the industry has seen five cycles (fiscals 2012, 2015, 2018, 2020 and 2021) where demand spiraled and then fell rapidly. Additionally, as Sportking derives close to half of its revenue from exports, it also remains exposed to fluctuations in forex rates. This risk is mitigated via forex forward contracts or working capital limits in foreign currency.
Large working capital requirement: Gross current assets are high estimated around 170-180 days over the medium term, driven by large inventory and receivables. The company maintains a sizeable stock of raw cotton bales, which are procured seasonally. Hence, there is higher reliance on working capital debt. |
Liquidity: Strong Liquidity is marked by sufficient annual cash accrual of Rs 190-210 crore and moderate bank limit utilisation. With no major capex expected, cash accrual of over Rs 190-210 crore per annum in the next two fiscals will comfortably cover the term debt obligation of Rs 70-80 crore. Utilisation of bank limit of Rs 460 crore averaged 35% over the 12 months ended March 2025. |
Outlook: Stable Sportking is expected to maintain its strong market position and healthy capital structure over the medium term. |
Rating sensitivity factors Upward factors
Downward factors
|
About the Company Sportking, incorporated in February 1989, is a part of the Sportking group. The company manufactures cotton, synthetic and blended yarn in counts ranging from 20s to 46s. It has units in Ludhiana and Bathinda, both in Punjab. The company has a large capacity of 3.79 lakh spindles and dyeing capacity of 20 tonne per day. It manufactures value-added yarns, such as compact, sustainable and contamination-free cotton yarn, which provide higher realisations than normal cotton yarn. |
Key Financial Indicators (Crisil Ratings adjusted numbers)
|
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
& - Interchangeable with packing credit/packing credit in foreign currency |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|