| Vardhman Acrylics Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 AA/Stable/CRISIL A1+’ ratings on the bank facilities of Vardhman Acrylics Limited (VAL).
The ratings take into consideration the established market position of the company in the acrylic fibre segment in India, being one of the top three players with installed capacity of 21,000 TPA. The company saw improvement in operating performance for fiscal 2023 after slightly muted operating performance in fiscal 2022, primarily due to improvement in capacity utilisation and higher realisations. The operating income for fiscal 2023 increased to Rs. 427 crores (as against Rs. 303 crores in fiscal 2022), while the operating margins improved to ~9.5% for fiscal 2023 (as against ~3.6% for fiscal 2022). However, the operating income for fiscal 2024 is expected to moderate by 15-20%, primarily on account of reduction in realisation in H1 of fiscal 2024. Further operating margins are expected to moderate to ~5-7% due to higher competition in the domestic market. However, H2 of fiscal 2024 is expected to generate normal profitability with expected improvement in demand and realisations. The financial profile is expected to be strong, with Nil external debt, liquidity of above Rs. 170 crores and unutilised bank limits. This is however, partially offset by vulnerability to volatile raw material prices linked to crude oil prices, the presence of a low-cost substitute, polyester staple fibre and strong competition from exporting countries.
VAL has a comfortable financial risk profile characterised by healthy networth level and nil debt. The company has modest maintenance capex scheduled in fiscal 2024, which is to be funded through internal accruals. VAL has a cash equivalent of over Rs. 170 crores which is expected to remain within the company over the medium term. Net cash accruals expected for fiscal 2024 and 2025 is expected to be in the range of Rs. 10-15 crores annually.
The ratings are further strengthened by the strong managerial support that VAL receives from VTXL which has a shareholding of 70.74% in VAL. Company, in FY23, has repaid it entire debt and is expected to remain debt-free in medium term. Performance is expected to normalise in fiscal 2024, owing to strong competition in domestic market. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the extent of operational and managerial support VAL receives from VTXL being a 70.74%% subsidiary of VTXL, with shared name and past instances of support. |
Key Rating Drivers & Detailed Description Strengths: Strong support from parent, Vardhman Textiles Limited (VTXL) VTXL holds a 70.74% stake in VAL and extends strong managerial and operational support. The ratings of Vardhman Textiles Limited were reaffirmed at CRISIL AA+/Stable/CRISIL A1+ in March 2023 owing to healthy business and financial risk profile and presence of liquidity of about Rs 3500 crore. The group’s strong business position in the textiles business is reinforced by its healthy operating capability. The group has continuously invested towards enhancing its spinning productivity. It has a strong market position in the cotton yarn and fabrics segment, backed by large capacity and established relationships with leading global apparel manufacturers. It is one of the largest spinners in the domestic market and has installed capacity of 12 lakh spindles, accounting for 2% of the total installed spindles in India.
Established position in acrylic fibre industry. The top three players hold around 90% of total operational capacity in the domestic acrylic fibre industry. With an installed capacity of 21,000 tonne per annum, VAL continues to be one of the leading players in the industry.
Comfortable financial risk profile The financial risk profile is supported by nil debt, healthy networth and low capital expenditure (capex). In FY 23, VAL recorded net cash accrual of Rs 38 crore with a cash surplus of over Rs 150 crore. Despite net cash accrual being expected to moderate in FY 24, it is expected to be in the range of Rs 10-15 crore.
Weakness: Volatility in price of basic raw material, acrylonitrile Acrylonitrile, the basic raw material, is a derivative of crude oil and is thus exposed to fluctuation in prices. As acrylonitrile prices move in tandem with crude oil prices, inability of manufacturers to pass on the increase in input cost continues to constrain operating margin. Even though price of crude oil is expected to stabalise in FY23, it will continue to remain a key monitorable.
Availability of cheaper substitutes and strong competition The acrylic fibre industry faces intense competition from cheaper substitutes such as polyester. Q1FY24 also witnessed strong competition in domestic acrylic industry from exporting countries. Vardhman Acrylics will continue to face pressure on realisation because of demand-supply mismatches. |
Liquidity: Strong Liquidity has been comfortable, with cash and equivalent (including investments) of Rs 173 crore as on March 31, 2023. The company has nil long-term debt. The company also has undrawn fund-based limits of Rs. 25 crore on average which coupled with cash accruals of Rs. 38 crores in FY23 are more than sufficient to shield the company in case of any exigencies. |
Outlook: Stable CRISIL Ratings believes VAL will benefit over the medium term from the managerial and operational support of VTXL. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Vardhman Acrylics is among the large players in the domestic acrylic fibre market, with capacity of 21,000 tonne per annum. Vardhman group holds a 74.28% stake in Vardhman Acrylics, which has manufacturing facilities at Jhagadia, Gujarat. Vardhman Acrylics markets acrylic fibre under the Varlan brand. Acrylic fibre is used to manufacture hand-knitted yarn, blankets, jerseys, sweaters, saris, upholstery, and carpets.
For fiscal 2023, the company has reported an operating income of Rs. 427.15 crores and profit after tax of Rs. 32.85 crores. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Interchangeable with other non-fund Based Facilities |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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