Rating Rationale
January 13, 2023 | Mumbai
VTM Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.120.2 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
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 'CRISIL BBB+/Stable/CRISIL A2+' ratings on the bank facilities of VTM Limited (VTM).


The ratings continue to reflect VTM's established position in the grey fabric segment, and its healthy financial risk profile. These strengths are partially offset by exposure to risks stemming from intense competition and volatility in cotton prices

Key Rating Drivers & Detailed Description

Strengths:
Established position in the grey fabric industry: Backed by a six-decade-long presence and established market position in the cotton fabric industry, the company caters to an extensive clientele.  It derives around 60% of revenue from the local market, and the balance 40% from the export market. The favorable location provides access to yarn from neighboring districts of Tamilnadu.

Healthy financial risk profile: Financial risk profile is marked by healthy gearing and debt protection metrics. Total outside liabilities to tangible net worth ratio has been comfortable at 0.17 time as on March 31, 2022, and less than one time over the five fiscals through September 30, 2022. Networth was healthy at Rs.234 crore and gearing at less than 0.1 time as on March 31, 2022. Debt protection metrics were comfortable marked by interest coverage and net cash accrual to total debt ratio have remained strong supported by absence of term debt.


Weakness:
Exposure to risks from volatility in cotton prices and intense competition: Cost of cotton yarn accounts for around 65% of total production cost. Though the company maintains raw material stock for 30-60 days, and cotton prices may remain volatile, ability to pass on the higher input cost to customers depends on the global demand and competition scenario. In addition, the company faces intense competition from various players in the industry and shall continue to constrain its business risk profile.

Liquidity: Adequate

Bank limit utilization has been not utilized for the past twelve months ended November 2022. Cash accrual are expected to be over Rs. 15 crores which are sufficient against minimal term debt over the medium term. In addition, it will be act as cushion to the liquidity of the company. Liquid investments and healthy cash and bank balances in the range of Rs.60 crore will further support the liquidity.

Outlook: Stable

CRISIL Ratings believes VTM will maintain benefit from its established market position in the grey fabric segment and shall maintain its healthy financial risk profile over the medium term, backed by low debt and steady accrual.

Rating Sensitivity Factors

Upward Factors:

  • Increase in turnover by more than 25 percent, while sustaining operating profitability.
  • Improvement in working capital management.

 

Downward Factors:

  • Decline in operating profitability to less than 8 % and revenues by 30%.
  • Any large debt funded capital expenditure, resulting in deterioration of financial risk profile

About the Company

VTM, set up in 1951, manufactures cotton fabric at its factory in Sulakkarai, Tamil Nadu. The company is promoted by Mr T Kannan. The company is listed on the Bombay Stock Exchange (BSE).

Key Financial Indicators

As on/for the period ended March 31

Unit

2022

2021

Operating income

Rs crore

192.90

141.89

Reported profit after tax

Rs crore

14.75

9.79

PAT margins

%

7.65

6.90

Adjusted Debt/Adjusted Networth

Times

0.07

0.06

Interest coverage

Times

22.00

19.29

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 Level

Rating Assigned with Outlook

NA

Bank Guarantee

NA

NA

NA

2

NA

CRISIL A2+

NA

Letter of Credit

NA

NA

NA

1

NA

CRISIL A2+

NA

Packing Credit

NA

NA

NA

45

NA

CRISIL A2+

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

65.7

NA

CRISIL BBB+/Stable

NA

Term Loan

NA

NA

Jan-2028

6.5

NA

CRISIL BBB+/Stable

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 117.2 CRISIL BBB+/Stable / CRISIL A2+   -- 15-02-22 CRISIL BBB+/Stable / CRISIL A2+   -- 15-12-20 CRISIL BBB+/Stable / CRISIL A2+ CRISIL BBB+/Stable / CRISIL A2+
Non-Fund Based Facilities ST 3.0 CRISIL A2+   -- 15-02-22 CRISIL A2+   -- 15-12-20 CRISIL A2+ CRISIL A2+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 2 State Bank of India CRISIL A2+
Letter of Credit 1 State Bank of India CRISIL A2+
Packing Credit 10 IDBI Bank Limited CRISIL A2+
Packing Credit 25 Standard Chartered Bank Limited CRISIL A2+
Packing Credit 10 State Bank of India CRISIL A2+
Proposed Long Term Bank Loan Facility 65.7 Not Applicable CRISIL BBB+/Stable
Term Loan 6.5 HDFC Bank Limited CRISIL BBB+/Stable

This Annexure has been updated on 12-May-2023 in line with the lender-wise facility details as on 04-May-2023 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt

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