Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities and commercial paper of Wellknown Polyesters Limited (Wellknown) at ‘CRISIL AA-/Stable/CRISIL A1+’.

 

The ratings continue to reflect Wellknown’s healthy business risk profile marked by established market position in polyester yarn industry and high contribution of value-added products, healthy operating efficiency driven by backward integration as well as healthy financial risk profile marked by comfortable debt protection metrics. These strengths are partially offset by high capital intensive, competitive and commoditised nature of the industry and susceptibility of profitability to sharp volatility in raw material prices and currency fluctuations.

 

For fiscal 2022, revenue is expected to grow by over 50% over a low base of previous fiscal, supported by healthy demand and higher realisations. Operating margin is expected to remain strong at 13-14%. Operating performance was strong in the first-half of the current fiscal with revenue of Rs 2,438 crore (7% growth over than pre-pandemic level i.e., first half year of fiscal 2020) mainly driven by higher realisations. The operating margin was healthy at 13.5% in the first half of the current fiscal.

 

Financial risk profile remains healthy and is expected to further improve with regular repayments and healthy accruals. Interest cover is expected to be around 12-13 times in fiscal 2022 and net cash accruals to adjusted debt (NCA/AD) is expected to be over 50%.

 

Liquidity remains strong with cash and equivalents of around Rs 370 crore and unutilised bank facilities of around Rs 380 crore as of November 30, 2021.

 

Revenue de-grew by 25% in fiscal 2021 owing to pandemic impact in the first half of the fiscal. Significant recovery was observed in the second half owing to overall increase in demand including pent up demand. Despite the impact on top line, the operating profitability improved in fiscal 2021 to 15% (13.4% in fiscal 2020) due to lower prices of key raw materials [purified terephthalic acid (PTA) and mono-ethylene glycol (MEG)] and strong demand in the second-half of the fiscal. Financial risk profile remained comfortable with gearing reducing to 0.5 time as on March 31, 2021. Debt protection metrics also improved with adjusted interest cover of 5.8 times and NCA/AD of 33% for fiscal 2021 (compared to 4.6 times and 30% respectively in fiscal 2020).

Analytical Approach

For arriving at the rating, revaluation reserve of Rs. 230 crore has been deducted from networth. Further, preference share capital has been treated as equity as these are compulsory convertible with 0% coupon.

Key Rating Drivers & Detailed Description

Strengths

* Healthy business risk profile marked by established market position in polyester yarn market with high contribution of value-added products, long standing experience of promoters, strong distribution network and longstanding relationships with clientele. 

Wellknown is promoted by the Mr. Anil Gupta, who has been associated with the polyester yarn manufacturing industry for over the past three decades. Over the years, the promoters have established forward as well as backward integrated operations and have demonstrated a strong understanding of the nuances in the industry. It is expected that Wellknown will continue to benefit in the future from longstanding experience of promoters in the industry.

 

Wellknown is among the top 3 manufacturers of value added fully drawn yarn (FDY) and Texturized Yarns in India with overall market share of about 11% in polyester yarn industry and total capacity of more than 465000 tonne per annum. The company has recently ventured into manufacturing of IDY (Industrial Draw Yarn) with a capacity of 13200 tonne per annum. Its strong market position is underpinned by large scale of operations (annual turnover of Rs 3206 crore in fiscal 2021) and diverse customer base. The company has strong distribution network consisting of over 100 dealers with whom it has established long standing relations. The collection mechanism of the company is disciplined demonstrated by debtor days of 20-30 days over the years as well as minimal instances of bad debts. The company has also established a presence in the global polyester yarn market with exports to over 50 countries. Exports contributed ~14% to total revenue of the company in fiscal 2021 and is expected to remain around similar level over the medium term.

 

* Healthy financial risk profile marked by comfortable capital structure and healthy debt protection metrics

Wellknown's capital structure is comfortable with a healthy adjusted net worth, at around Rs. 2066 crore, gearing of 0.53 times and total outside liabilities to total net worth (TOL/TNW) ratio of 0.90 time as on March 31, 2021. The debt protection metrics remained comfortable with interest coverage of 4.6 times and ratio of net cash accrual to total debt of 33% in fiscal 2021. The capital expenditure (capex) is expected to remain low for fiscal 2022 and 2023 for carrying out debottlenecking activities and technology upgradation including routine maintenance capex. Low capex intensity along with healthy cash accrual and efficient working capital management will result in improvement in TOL/TNW to around 0.6-0.7 time in fiscal 2023. The quantum of capex towards any organic and inorganic growth opportunities and funding of the same will remain a key rating sensitivity factor.

 

Weaknesses:

* High capital intensive, competitive and commoditised nature of industry

The domestic polyester yarn and fabric industry is highly capex intensive reflected in asset turnover of 1.14 times (average of last five fiscals). In order to maintain/improve market share, the industry participants have been observed to routinely carry out the capacity expansion and debottlenecking activities. The industry is dominated by large manufacturers such as Reliance Industries Limited (CRISIL AAA/Stable/CRISIL A1+) which is present in almost entire value chain of the industry and hence is able to influence the pricing in the entire industry. As the PTA/MEG manufacturing industry in India is dominated by 3-4 large petrochemical giants, they enjoy significant bargaining power. The company procures between 50% to 60% of its total raw material requirements from top 3 suppliers.

 

* Susceptibility of profitability to sharp volatility in raw material prices and currency fluctuations

Raw materials, such as PTA and MEG used to manufacture polymer yarn are crude derivatives and a significant portion of the same is generally imported. Prices of the raw materials and the currency rates have been volatile in the past because of sharp fluctuations in crude oil prices. While the company has demonstrated disciplined working capital management in the past and has been able to pass on fluctuation in raw material to the ultimate customers, its profitability is susceptible to any sharp movement in raw material prices and currency rates.

Liquidity Strong

Wellknown has healthy liquidity marked by healthy cash accruals as against maturing repayments and sufficient availability of bank limits. As of November 2021, the company had cash & equivalents of Rs 370 crore, maintained in the form of FDs while the unutilized fund based limits over drawing power of around Rs 380 crore. The accruals are expected to remain around Rs 500 crore over the medium term against repayments of Rs ~200-220 crore. Current ratio stood at 1.6 times as on 31st March 2021. The average utilisation for the last 12 months of fund and non-fund-based facilities was 52%.

Outlook Stable

CRISIL Ratings expects Wellknown to maintain its strong market position in polyester yarn industry and also maintains its healthy operating efficiencies. The company’s financial risk profile is also expected to remain comfortable due to healthy cash accrual, disciplined working capital management and low capex intensity over next couple of fiscals.

Rating Sensitivity factors

Upward factors:

• Sharp and sustained improvement in cash accrual to Rs 600-800 crore supported by improving diversity
• Sustained improvement in capital structure and debt metrics for instance, ratio of Debt to Ebidta below 1-1.5 times or interest cover above 10-12 times

 

Downward factors:

• More than expected debt funded capex resulting in deterioration in liquidity and capital structure leading to TOL/TNW ratio of more than 1.4 times on sustained basis.
• Deterioration in operating performance due to decline in operating profitability or revenue such that the operating profitability is below 10%.
• Weakening of debt protection metrics such as interest coverage ratio.

About the Company

Wellknown, incorporated in 1996, was promoted by Mr. Anil Gupta, in Mumbai. The company has a continuous polymerization unit with a capacity of 468000 MTPA in Daman for manufacturing of polyester yarns. Sustained expansion and backward integration over the years has resulted in product portfolio consisting of FDY, air textured yarn (ATY), draw textured yarn (DTY), partially oriented yarn (POY-mostly captive), Polyester staple fibre (PSF) and Industrial Yarn (IDY).

 

During six months ended 30th September 2021, the company posted net sales of Rs 2438 crore and Ebidta of Rs 329 crore.

Any other information: Not applicable

SIN	Facilities Name	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs in Crs)	Complexity Level	Rating assigned with outlook
NA	Commercial Paper	NA	NA	7 to 365 Days	200	Simple	CRISIL A1+
NA	Rupee Term Loan	NA	NA	30-Sep-22	100	NA	CRISIL AA-/Stable
NA	Rupee Term Loan	NA	NA	31-Mar-27	158.9	NA	CRISIL AA-/Stable
NA	Rupee Term Loan	NA	NA	29-Sep-25	32.45	NA	CRISIL AA-/Stable
NA	Rupee Term Loan	NA	NA	30-Sep-25	53.2	NA	CRISIL AA-/Stable
NA	Foreign Currency Term Loan	NA	NA	12-Jun-28	53.59	NA	CRISIL AA-/Stable
NA	Foreign Currency Term Loan	NA	NA	03-Mar-27	61.71	NA	CRISIL AA-/Stable
NA	External Commercial Borrowings	NA	NA	09-Oct-23	37.68	NA	CRISIL AA-/Stable
NA	External Commercial Borrowings	NA	NA	31-May-22	8.24	NA	CRISIL AA-/Stable
NA	External Commercial Borrowings	NA	NA	30-Jun-25	40.83	NA	CRISIL AA-/Stable
NA	External Commercial Borrowings	NA	NA	31-Oct-27	164.93	NA	CRISIL AA-/Stable
NA	Cash Credit	NA	NA	NA	396	NA	CRISIL AA-/Stable
NA	Cash Credit	NA	NA	NA	72	NA	CRISIL AA-/Stable
NA	Cash Credit	NA	NA	NA	100	NA	CRISIL AA-/Stable
NA	Cash Credit	NA	NA	NA	253	NA	CRISIL AA-/Stable
NA	Cash Credit	NA	NA	NA	45	NA	CRISIL AA-/Stable
NA	Cash Credit	NA	NA	NA	110	NA	CRISIL AA-/Stable
NA	Cash Credit	NA	NA	NA	40	NA	CRISIL AA-/Stable
NA	Letter of Credit	NA	NA	NA	34	NA	CRISIL A1+
NA	Bank Guarantee	NA	NA	NA	40	NA	CRISIL A1+
NA	Bank Guarantee	NA	NA	NA	25	NA	CRISIL A1+
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	323.47	NA	CRISIL AA-/Stable