| Suvidhi Rayons Private Limited | ||||
| Rating migrated to 'CRISIL BB+/Positive' | ||||
| Rating Action | ||||
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| & *Issuer did not cooperate; based on best-available information | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale Due to inadequate information and in line with the Securities and Exchange Board of India guidelines, CRISIL Ratings had migrated its rating on the long-term bank facilities of Suvidhi Rayons Private Limited (SRPL) to 'CRISIL BB+/Stable Issuer Not Cooperating'. However, the company’s management has subsequently started sharing the information necessary for carrying out a comprehensive review of the rating. Consequently, CRISIL Ratings is migrating its rating on the bank facilities of SRPL to 'CRISIL BB+/Positive'.
The rating reflects the extensive experience of the promoters in the textile industry, the diversified clientele of the company and its moderate financial risk profile. The rating also factors in the improved scale of operations with increase in operating revenue by more than 90% in fiscal 2022, backed by higher demand from the domestic market and ramp-up in capacity from fiscal 2020. Revenue is expected to grow 14-15% in fiscal 2023 and operating margin will be sustained at 7.5-8%. Backed by improvement in the business risk profile, net cash accrual is expected above Rs 12 crore per annum over the medium term, which will result in liquid surplus of more than Rs 5 crore. Improvement in liquidity will be a key monitorable. These strengths are partially offset by large working capital requirement and exposure to intense competition and susceptibility of profitability to input costs. |
Analytical approach Unsecured loan of Rs 23.59 crore as on March 31, 2022, from the promoters has been treated as neither debt nor equity as the loan is subordinate to bank debt, expected to remain in the business over the medium term and carries low interest. |
Key rating drivers and detailed description Strengths:
The promoters’ experience of over two decades in the textile business, strong understanding of local market dynamics and healthy relationships with customers and suppliers will continue to support the business. The company has a large clientele and derives revenue from institutional clients (grey fabric) as well as branded sales (finished fabric). It also has presence in the suiting segment, mainly in south India.
Revenue grew by more than 90% to around Rs 218 crore in fiscal 2022 driven by high demand in the domestic market in ready-made garments and home textile segments. The company has ramped-up operations after completion of capital expenditure (capex) in fiscal 2021 and expects 14-15% growth in revenue over the medium term. Operating margin stood at 7.9% in fiscal 2022, and is expected at a similar level over the medium term.
Adjusted gearing was 1.77 times as on March 31, 2022 and is expected below 1.7 times over the medium term. Debt protection metrics were adequate, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 2.14 times and 0.14 time, respectively, in fiscal 2022. The metrics should improve over the medium term aided by higher net cash accrual and decrease in interest cost. Any debt-funded capex, increasing future repayment, will be critical to the financial risk profile and will be a key monitorable.
Weaknesses:
Estimated gross current assets (GCAs) were at 165 days as on March 31, 2022, driven by receivables and inventory of 74 days and 81 days, respectively. However, payables of around 20 days support the working capital cycle. The working capital requirement is met through cash credit limit. GCAs are expected below 160 days over the medium term. Improvement in the working capital cycle and cash credit limit utlisation will remain key monitorables.
Intense competition in the grey and finished fabric industry constrains scalability, pricing power and profitability of players such as SRPL. Operating profit was 7.9% in fiscal 2022. As raw material cost accounts for bulk of production cost, fluctuations in raw material prices may impact the operating margin drastically. |
Liquidity: Stretched Net cash accrual of Rs 10.7 crore just about covered debt obligation of Rs 7.7 crore in fiscal 2022. Expected cash accrual of around Rs 12.8 crore and Rs 15 crore in fiscals 2023 and 2024, respectively, will comfortably cover debt obligation of Rs 7 crore and Rs 7.6 crore, respectively. Utilisation of cash credit limit averaged more than 90% for the 12 months through March 2022. Current ratio was 2.12 times as on March 31, 2022. The promoters will continue to extend support through unsecured loans. |
Outlook: Positive CRISIL Ratings believes SRPL will continue to benefit from the extensive experience of its promoters. CRISIL rating believes that business risk and liquidity risk profile of SRPL are expected to improve backed by ramp up of operations and high demand in domestic market along with enhanced operating efficiency and improved financial risk profile. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the company SRPL was incorporated as Suvidhi Capvest Pvt Ltd in 1997 by Mr Rajesh Kumar Jain, Ms Sushila Devi Jain, Mr Milap Chand Jain, Mr Kamal Jain and Mr Nitin Jain. In 2002, the company amended its business objective and acquired its current name. It now manufactures grey and finished fabrics for shirting and suiting under its registered brand, Santro. |
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 - 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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