Rating Rationale
November 15, 2018 | Mumbai
Sybly Industries Limited
Rating downgraded to 'CRISIL C'; removed from 'Watch developing' 
 
Rating Action
Total Bank Loan Facilities Rated Rs.15 Crore
Long Term Rating CRISIL C (Downgraded from 'CRISIL B-'; Removed from 'Rating Watch with Developing Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has removed its rating on the long term bank facilities of Sybly Industries Limited (SIL) from 'Rating Watch with Developing implications' and downgraded the rating to 'CRISIL C' from 'CRISIL B-'.

The rating was placed on watch on August 28, 2017, following the demerger announcement of SIL's wholly owned subsidiary, Sybly International FZE (SI). Post-demerger, a new company, Space Incubatrics Technologies Ltd, will be formed.

Also, the two other companies of SIL's promoters, Vartex Fabrics Pvt Ltd and Dux Textiles Pvt Ltd, are being merged with SIL to achieve greater efficiencies in operations with optimum utilisation of resources, better administration, and reduced cost.

The scheme of arrangement among SIL (demerged company/transferee company), Space Incubatrics Technologies Ltd (resulting company), Vartex Fabrics Pvt Ltd (transferor company 1), Dux Textiles Pvt Ltd (transferor company 2), and their respective shareholders has been approved by the National Company Law Tribunal (NCLT). Approval for trading, dated June 27, 2018, has been received and trading of shares of SIL resumed from July 2, 2018. The updated financials for SIL are also available.

The downgrade factors in SIL's weak business risk profile, as seen in a decline in scale of operations to Rs 35.7 crore in fiscal 2018 from Rs 83.1 crore in the previous fiscal. Operating margin was also negative 1.1 per cent. Furthermore, financial risk profile, especially liquidity, has deteriorated, reflected in increase in gearing to 2.2 times as on March 31, 2018, from 0.44 time in the previous year; and negative interest coverage ratio. Net cash accrual is expected to remain insufficient to meet term debt obligation while bank limit has remained fully utilised.

Analytical Approach

CRISIL has deconsolidated SI as it was demerged from SIL after the approval of NCLT.

Key Rating Drivers & Detailed Description
Weaknesses:
* Small scale of operations in fragmented industry: Despite being in the textiles industry for over 25 years, scale remained modest, with an operating income of Rs 35.7 crore in fiscal 2018. This prevents the company from exploiting economies of scale and limits its pricing power with suppliers and customers, thereby affecting working capital cycle and operating margin.

* Susceptibility to fluctuations in raw material prices: Margin will remain exposed to volatility the price of key input, polyester staple fibre, which is a crude derivative.

* Working capital-intensive operations and weak financial risk profile: Liquidity is constrained by stretched receivables of around 120 days as on March 31, 2018. Liquidity will remain subdued over the medium term. Also, gearing and interest coverage ratio remained weak.

Strength
* Experience of promoters: Benefits from promoters' experience of over 30 years and strong relationship with dealers, suppliers, and customers should continue to support business.
About the Company

Established in May 1988, SIL is promoted by Mr Mahesh Chand Mittal and his son, Mr Nishant Mittal. It manufactures polyester yarn and trades in cotton fabrics. SIL's plant is in Muradnagar, Uttar Pradesh. The company is listed on the Bombay Stock Exchange. 

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs cr 35.7 83.1
Profit After Tax (PAT) Rs cr -1.3 0.18
PAT Margins % -3.8 0.22
Adjusted debt/adjusted networth Times 2.23 0.44
Interest coverage Times -0.2 2.4

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 crore)
Rating assigned with outlook
NA Cash Credit NA NA NA 11.0 CRISIL C
NA Proposed Long Term Bank Loan Facility NA NA NA 4.0 CRISIL C
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  15.00  CRISIL C  20-08-18  CRISIL B-/Watch Developing  29-11-17  CRISIL B-/Watch Developing  07-06-16  CRISIL B-/Stable  03-03-15  CRISIL B-/Stable  CRISIL C 
        22-05-18  CRISIL B-/Watch Developing  28-08-17  CRISIL B-/Watch Developing           
        23-02-18  CRISIL B-/Watch Developing               
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 11 CRISIL C Cash Credit 11 CRISIL B-/Watch Developing
Proposed Long Term Bank Loan Facility 4 CRISIL C Proposed Long Term Bank Loan Facility 4 CRISIL B-/Watch Developing
Total 15 -- Total 15 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Cotton Textile Industry
Rating Criteria for Steel Industry
CRISILs Approach to Recognising Default
CRISILs Criteria for Consolidation

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