| Texmo Industries | ||||||
| Ratings reaffirmed at 'CRISIL AA- / Stable / CRISIL A1+ ' | ||||||
| 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 reaffirmed its ratings on the bank facilities of Texmo Industries (Texmo) at CRISIL AA-/Stable/CRISIL A1+. The reaffirmation of ratings reflects the firm’s established position in the industry supported by strong brand equity, wide distribution network and diverse product portfolio.
The firm has recorded a revenue growth of 7% in fiscal 2021 inspite of the lockdown & business interruptions due to first wave of Covid-19 with firm having an effective business operation of 9-10 months in FY21. The growth is on account of overall improvement in agricultural and industrial demand thereby leading to improvement in sales. Operating Margins has remained steady during FY 2021.
While the improvement in operating performance has been consistent since fiscal 2016, the firm has witnessed a moderation in performance during 9 months ending Dec 2021 mainly due to the sluggish demand and higher raw material prices. The adequate and timely monsoon in the current year and increase in water table and reservoir levels, coupled with higher purchase cost of pumps and allied components led to deferment of purchase decisions by farmers. The muted demand has resulted in loss of revenues, lower capacity utilization & lesser absorption of fixed costs. Further in order to mitigate the volume drop, company absorbed only a part of the cost increase leading to decline in margins during the 9 months ended Dec 2021. Accordingly revenues were 7% lower at ~Rs 749 crore as on 9m ended Dec 21 compared to previous year with reduction in operating margins from 19.5%(9m FY21) to 13.3%(9m FY 22).
The pent up demand for pumps and the on-going pickup in real estate construction activities are expected to improve demand for agriculture and domestic pumps in over the medium term, enabling the company to restore its performance in fiscal 2023. The Business growth over medium term will also be supported by government’s focus on expanding the irrigated area, growing urbanization and improving water & sewage management.
The financial risk profile continues to remain healthy, with no long-term debt on the firm’s books, and only modest working capital short term debt. Debt protection metrics are expected to remain robust over the medium term supported by healthy cash accruals, negligible debt, modest capex plans and prudent working capital management.
These strengths are partially offset by the intense competition in largely unorganized motor/pumps segment , and vulnerability of operating profitability to sharp fluctuations in raw material prices. |
Key Rating Drivers & Detailed Description Strengths: Strong financial risk profile: The firm has a strong, debt-free capital structure, steady cash accrual, and increasing surplus funds. The networth was healthy at around Rs 878 crore as on March 31, 2021 and estimated to improve to Rs.973 crore as on March 31, 2022. Substantial cash flows and prudent capital expenditure (capex) and working capital management are expected to keep the financial risk profile, particularly liquidity, strong over the medium term. The firm is expected to be debt free over the medium term resulting in comfortable debt protection metrics.
Established market position in the pumps industry with high operating efficiency: The firm is one of the leading players in the submersible and surface pumps industry and its products, sold under Texmo and Taro pumps brands, have high brand recall. The product portfolio is diversified with more than 3,500 variants of pumps and motors, while the marketing network is well established with more than 20 branches and 1,200 dealers across the country. With consistent performance since 2016, firm has industry leading operating efficiency through their unique distribution model of dealing with exclusive dealers who have very long association with the firm.
Prudent working capital management: Efficiency in working capital management is being achieved through regulating raw material holding and debtor levels. Inventory decreased to 61 days as on March 31, 2021, from 67 days a year earlier and since been stabilised after lifting of the lockdown restrictions, and is expected to remain moderate at about 60 days, as against 90 days for the industry. The established brand equity and market position have been leveraged to set up dedicated channel partners for product distribution, thereby eradicating the need to extend long credit periods; the firm presently sells on the cash-and-carry model with debtors of firm less than 6 days in past 5 years.
Weaknesses Exposure to intense competition in a fragmented industry: The Indian pumps industry comprises some large-scale (organised segment) and around 800 small-and medium-scale enterprises in the unorganised segment. The latter has grown, supported by a low entry barrier and price-sensitive customers. Although Texmo differentiates its position in the industry with product warranties and aftersales services, exposure to intense competition persists. Hence highly fragmented segment coupled with high competition in the organized sector is exerting pressure on the profitability of players.
Susceptibility of the operating margin to volatility in raw material prices: The cost of raw materials constitutes 60-65% of the total cost of production. Therefore, any substantial volatility in raw material prices can adversely affect the operating margin. Although the firm has the ability to partially pass on input price hikes to customers, it remains susceptible to the inherent volatility in these prices. |
Liquidity: Strong Texmo's liquidity will continue to be supported by healthy unencumbered cash balance and unutilized bank lines. Strong liquidity position marked by ~Rs. 613 crore of liquid surplus as on March 31, 2021 increased from Rs.423 crores as on Mar 2020). With cash generation expected to exceed regular capex and incremental working capital needs and without any repayment obligations, liquidity position to remain strong in the medium term. Further firm’s sanctioned bank limits of Rs 72 Crore has been sparsely used over the past 12 months providing additional comfort on the liquidity front. |
Outlook Stable CRISIL Ratings believes Texmo will continue to maintain a strong business risk profile over the medium term, an established market position, greater geographic penetration through addition of new dealers, and strong operating efficiency. The firm’s low dependence on bank funding and steady cash accrual will further strengthen the financial risk profile over this period. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Firm Texmo was set up as a proprietorship firm in 1956 by Mr R Ramaswamy to manufacture motors for the textile industry. It is currently managed by his daughter-in-law, Mrs Damayanti Ramachandran, and is owned by the family. The firm manufactures bore-well submersible pump sets, single-phase domestic pumps, agricultural monoblocs, open-well submersible pumps, and electric motors. Around 60% of revenue is derived from the agriculture sector and the remaining from the domestic segment. Its nine manufacturing units in Coimbatore, Tamil Nadu., have a combined capacity of 3.6 lakh units per annum. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 65 | HDFC Bank Limited | CRISIL AA-/Stable |
| Letter of credit & Bank Guarantee | 7 | HDFC Bank Limited | CRISIL A1+ |
This Annexure has been updated on 17-Mar-2023 in line with the lender-wise facility details as on 03-Feb-2023 received from the rated entity.
Criteria Details
|