Rating Rationale
July 11, 2022 | Mumbai
Techno Sportswear Private Limited
'CCR BBB/Stable' assigned to Corporate Credit Rating
 
Rating Action
Corporate Credit RatingCCR BBB/Stable (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CCR BBB/Stable’ Corporate Credit Rating to Techno Sportswear Private Limited (TSPL).

 

The rating reflects TSPL's established market position in the activewear segment and a good brand recall. The ratings also factor in a healthy financial profile marked by comfortable gearing and debt protection metrics and efficient working capital management. These strengths are partially offset by exposure to intense competition and susceptibility to volatility in raw material prices.

Key Rating Drivers & Detailed Description

Strengths:

Established market position and good brand recall: The two-decade-long experience of the promoters, their strong understanding of market trends and healthy customer and supplier relationships will continue to support the business risk profile. This has led to healthy compound annual growth rate (CAGR) of 57.78% for the past three fiscals to Rs 233.01 crore in fiscal 2022. The company sells its products under the ‘Technosport’ brand which commands a good brand recall amidst the users. TSPL also has a strong distribution network across states which has been growing by the year. This has enabled the company to penetrate across regions over the years.

 

Healthy financial profile: TSPL capital structure have been at healthy level due to lower reliance on external funds yielding gearing of 0.5 time and low total outside liabilities to adj tangible networth (TOL/ANW) of 0.83 time for year ending on 31st March 2022. TSPL debt protection measures have also been at healthy level due to leverage and healthy profitability.  The interest coverage and net cash accrual to total debt (NCATD) ratio are at 14.2  times and 1.18  times for fiscal 2022 .TSPL debt protection measures are expected to remain at similar level over medium term.

 

Efficient working capital management: GCA days remained below 100 days in the past three years supported by moderate inventory and debtor levels. The collections are in the range of 25-30 days and the company maintains inventory of 45-60 days. The company reports healthy Return on capital employed (ROCE) of more than 50 per cent in last two years. Sustenance of operating efficiencies would remain key rating monitorable.

 

Weaknesses:

Exposure to intense competition: The company has positioned itself in the affordable  sportwear segment, where it has to compete with well-established brands and several unorganised players. The business risk profile is constrained by price sensitivity of the target segment, which limits the ability to pass on any sharp increase in raw material prices to customers. Furthermore, exposure to risks related to competitive designs, constant change in customer preferences and growing presence of international brands persists. This forces the company to continuously develop new designs to stay ahead of competition.

 

Susceptibility to volatility in input cost: The cost of yarn, the key raw material, accounts for a significant cost of total production. Volatility in raw material prices affects the profitability of fabric and garment manufacturers. Moreover, majority of the garmenting activities are outsourced and any delay in pass on in escalation in such costs would impact profitability. The profitability margins have remained volatile in the past between 5-11% in the 4 years through FY2022 and would continue to remain susceptible to variation in input costs.

Liquidity: Adequate 

Cash accruals are expected to be over Rs 14 crore which are adequate against term debt obligation of Rs 0.5 crore over the medium term. In addition, it will act as cushion to the liquidity of the company.  Bank limit utilisation is moderate at around 81.12 percent for the past thirteen months ended May-2022.  Current ratio remains healthy at 3.3 times on March31, 2022.

Outlook: Stable

CRISIL Ratings believe TSPL  will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward factors

  • Sustained improvement in scale of operation by 10% and sustenance of operating margin, leading to higher cash accruals
  • Sustenance of healthy financial risk profile and working capital management

 

Downward factors

  • Decline in net cash accruals on account of decline in revenue or operating profits deteriorating to less than 5%.
  • Large debt-funded capital expenditure weakens capital structure or witnesses a substantial increase in its working capital requirements thus weakening its liquidity & financial profile.

About the Company

Established in 2003 was later incorporated in 2015 as TSPL, it is located in Coimbatore, TN.  TSPL is engaged in manufacturing of sportswear under the brand “Techno sport’.

Key Financial Indicators

As on / for the period ended March 31

 

2022*

2021

Operating income

Rs crore

223.01

128.58

Reported profit after tax

Rs crore

19.26

8.20

PAT margins

%

8.64

6.47

Adjusted Debt/Adjusted Net worth

Times

0.50

0.90

Interest coverage

Times

14.07

11.12

*Provisional

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)

ISIN

Name of

instrument

Date of allotment

Coupon

rate (%)

Maturity

date

Issue size

(Rs.Cr)

Complexity

Levels

Rating assigned

with outlook

NA

NA

NA

NA

NA

NA

NA

NA

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Corporate Credit Rating LT 0.0 CCR BBB/Stable   --   --   --   -- --
All amounts are in Rs.Cr.

   

Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
The Rating Process
CRISILs Bank Loan Ratings

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