| Sri Cheran Synthetics India Private Limited | ||||||
| Ratings upgraded to 'CRISIL AA- / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded the ratings on the bank facilities of (Sri Cheran Synthetics India Private Limited, SCSIPL; part of pallava group) to ‘CRISIL AA-/Stable/CRISIL A1+’ from ‘CRISIL A+/Stable/CRISIL A1’.
The rating action reflects the expectation of continued healthy business performance and strong financial risk profile of Pallava group. Revenue is estimated to have grown by over 35% year on year to over Rs.2400 crores in fiscal 2022, driven by strong demand for viscose products, diverse product offering with integrated nature of operations and steady capacity addition. The group is one of the largest players in the country in viscose segment and holds a strong market position with being the largest consumer of VSF from Grasim Industries Limited. Over the years, the group has consistently added capacities in response to strong demand for viscose yarn in the domestic market. Moreover, the continuous integration across the chain and investment in wind assets for captive power consumption, has resulted in sustenance of heathy operating margins in the range of 22-24% in the 3 years ended FY2022. Over the medium-term margins would be sustained at healthy levels.
Steady growth in turnover and maintenance of healthy operating margin has resulted in larger accruals which continues to support a strong financial risk profile. Despite Large debt funded capital expenditure total outstanding liabilities to total networth (TOLTNW) is estimated at 0.4 times in fiscal 2022 similar to previous fiscal. The RoCE also has improved over the year with healthy operating efficiencies and optimal utilisation of capacities.
The ratings reflect the Pallava group’s strong market position in the viscose yarn and fabric segment, its integrated operations, healthy operating efficiency and strong financial risk profile because of comfortable networth and robust debt protection metrics. These strengths are partially offset by susceptibility to volatility in raw material prices and exposure to supplier concentration risk |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of PTL, Sri Cheran Synthetics India Pvt Ltd (SCSIL), VSM Weavess India Pvt Ltd (VSM) and VSP Industries Pvt Ltd (VSP). This is because the four entities, collectively referred to as the Pallava group, have common promoters and business, and financial and operational 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 Strong market position in the viscose yarn and fabric segment The Pallava group has a track record of over two decades in the viscose yarn industry and is one of the largest players in the segment in south India with strong understanding of market dynamics and healthy relationships with customers and suppliers. Continued focus on capacity addition and integrated operations with captive power units support the business risk profile. CRISIL Ratings believes the Pallava group will maintain its healthy market position backed by its large scale of operations and the extensive experience of the promoters.
Integrated operations and healthy operating efficiency The Pallava group’s revenue mix consists of diversified products and it has flexibility to adjust manufacturing depending on demand. Its integrated operations have helped build presence across the value chain. Integrated operations, consistent investment in modernisation and high captive power consumption have resulted in healthy operating margin and return on capital employed (RoCE) of more than 22% each, over the past three fiscals through 2022. More than 50% of the group’s power requirement is met through captive power units.
Strong financial risk profile Despite consistent capital expenditure, the capital structure has remained healthy on account of steady improvement in accretion to reserves and low reliance on external funds. The gearing is estimated at 0.30 time and total outside liabilities to adjusted networth ratio at 0.4 time as on March 31, 2022. Networth is estimated at more than Rs 1300 crore as on that date. Debt protection metrics have also been healthy with interest coverage and net cash accrual to total debt ratio estimated at 15 times and 1 time, respectively, for fiscal 2022. The financial risk profile should remain comfortable over the medium term driven by steady accrual and adequate networth.
Weaknesses: Susceptibility to volatility in raw material prices The prices of viscose staple fibre (VSF) are volatile owing to fluctuations in wood pulp prices. Any steep increase in raw material prices that cannot be fully passed on to customers will affect profitability. However, strong operational capability and healthy diversification in clientele mitigate this risk.
The group sources VSF majorly from Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+') and has limited bargaining power as Grasim has an established market position in the viscose fibre segment. Though there has been no instance of shortage in supply by Grasim, risks related to supplier concentration will prevail. |
Liquidity: Strong The Pallava group has strong liquidity because of healthy cash accrual, low bank limit utilisation and strong cash and bank balance. Bank limit utilisation averaged 60% over the 12 months through December 2021. Cash accrual is expected around Rs.450-500 crore annually over the medium term against yearly term loan obligation of Rs 70-80 crore. Liquidity is supported by healthy unencumbered cash and bank balance and mutual fund balance of around Rs 35 crore as on February 28, 2022. Current ratio was strong at 2.5 times as on that date. |
Outlook Stable The Pallava group will continue to benefit from its established market position and longstanding customer relationships. |
Rating Sensitivity factors Upward factors: * Substantial ramp up in scale of operations and sustenance of profitability at over 24% aided by newly added capacities * Improvement in the working capital cycle and retention of accruals resulting in enhanced liquidity
Downward factors: * Decline in revenue by 15% or in operating margin to less than 20% * Larger-than-expected working capital requirement or significant debt-funded capital expenditure impacting credit risk profile |
Key Financial Indicators
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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)
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Annexure – List of entities consolidated
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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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Criteria Details
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