S.K.L. Exports

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.82.65 Crs. of S.K.L. Exports

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	22.65	Long Term	BWR BBB - /Stable Assignment
	60.00	Short Term	BWR A3 Assignment
Non Fund Based	(5.00)	Short Term	BWR A3 Assignment
Grand Total	82.65	(Rupees Eighty Two Crores and Sixty Five lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK

The rating assignment of S.K.L. Exports (SKLE or the firm) factors the extensive experience of the management, established track record, the long-standing relationships for more than a decade with reputed clients and suppliers, integrated nature of operations and locational advantage. The ratings also derive comfort from the stable financial profile during the last two years along with a significant improvement in the year-to-date performance. However, the ratings are partially offset by the modest scale of operations, highly competitive industry limiting the bargaining power of the firm, susceptibility of the firm's margins to volatility in the raw materials, forex risk, customer and supplier concentration risk and constitutional risk.

BWR notes that the firm had availed relief under the COVID-19 moratorium package during Mar'20 - Aug'20 involving deferment of interest and emergency credit lines. The firm has been regular in debt obligation payments in the post-moratorium period, as confirmed by the lenders. BWR also notes the firm has not availed for one time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes the Firm's business risk profile will be maintained over the medium term. The outlook may be revised to Positive if significant growth in scale of operations, higher than expected profitability and improved capital structure results in an improved financial risk profile. The outlook may be revised to Negative if lower than expected revenue or profitability, deterioration in the debt protection metrics, any adverse impact of COVID-19 on the business profile, significant and unanticipated capex or weakening gearing adversely impacting the financial risk profile. 

KEY RATING DRIVERS

Credit Strengths:

• Long track record of operations and experienced promoters :

  S.K.L. Exports (SKLE) was established in the year 1990 at Tirupur, Tamil Nadu and has a successful track record of more than three decades in the existing line of of garment manufacturing. SKLE’s long track record and the extensive experience of promoters have helped in understanding the business cycles, establishing relationships with suppliers and customers, obtaining repeat orders and addressing associated inherent risks.

• Above-average financial risk profile :

  The firm’s financial risk profile is considered above-average as reflected by the modest scale of operations, stable margins, adequate gearing and improved debt protection metrics. The firm in FY21 achieved a turnover of Rs.148.58 Crs as against Rs.139.57 Crs in FY20. The EBITDA marginally improved in terms of value from Rs.14.61 Crs in FY20 to Rs.14.87 Crs in FY21. The tangible net worth of the firm stood at Rs.51.00 Crs as on 31 Mar 2021 as against Rs.46.13 Crs as on 31 Mar 2020. The gearing is adequate at 1.40 times as on 31 Mar 2021. The debt protection metrics are moderate. The ISCR and DSCR of the firm stood at 3.97 times and 2.25 times as on 31 Mar 2021 as against 3.20 times and 2.22 times as on 31 Mar 2020. During the H1FY22, for the sales of Rs.162 Crs the firm reported a net profit of Rs.10.27 Crs. The firm has achieved sales of ~Rs.204 Crs for 10MFY22. The firm has an order book worth Rs.157 Crs to be executed over the next 4-5 months.

• Established relationships with clientele :

  The firm exports to customers in US & Europe. The major customers of the firm include Ovs Spa (Italy) and TJX (USA) who are leading retailers of apparel worldwide. The established and long relationships of more than 10 years with its export clienteles is expected to continue to support the business.

Credit Risks:

• Vulnerability of operating margin to fluctuations in raw material prices and forex rates :

  Raw material accounts for major portion of the operating cost of the firm. Hence, any sudden change in raw material prices could affect the operating margin of the firm. Also, majority of revenue comes from the international market, any sharp fluctuation in forex rates affects realizations and accrual.

• Intense competition in the global textile industry :

  The ready made garment manufacturing segment is fragmented and intensely competitive. Despite the group's presence in the business for over three decades and established relationships with customers and suppliers, it remains exposed to competition from various players in India and other low-cost ready made garment manufacturers from other countries. This places pressure on its business risk and financial risk profiles.

• Customer, supplier and geographical concentration in revenue :

  SKLE's top 5 customers have contributed to more than 95% of its revenues. Furthermore, the exposure from top two clients is at ~80% as in FY21. Also, its top five suppliers contribute to ~33% of the total purchases. The firm's business is exposed to geographical concentration as nearly ~98% sales is derived from exports to Europe and USA. Any vendor rationalisation efforts by its customer could adversely impact the business and financial risk profile of SKLE. However, the long-term relationship (more than 10 years) with the top buyers mitigates such risk to a certain degree.

• Constitutional risk of a partnership firm :

  Being a partnership firm, it is exposed to inherent risks of capital being withdrawn at a time of personal contingency, risks of dissolution and limited avenues to raise capital which could prove a hindrance to the growth of the firm.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has adopted a stand-alone approach as the firm does not have any subsidiaries.

RATING SENSITIVITIES

Positive:

• Significant improvement in scale of operations and profitability on a sustained basis
• Prudent working capital management and improvement in the capital structure
• Diversification in customer base.

Negative:

• Weaker than expected growth in revenue and profitability margins leading to deterioration in business and financial risk profile
• Specific credit metrics which may result in a rating downgrade include deterioration in EBITDA margin to <10%, gearing above 2.00 times and DSCR and ISCR declining to
  below 1.50 times on a sustained basis
• Further elongation in operating cycle marked by stretch in receivable days

LIQUIDITY INDICATORS - Adequate

The liquidity position is considered adequate marked by the average utilization of ~70-75% of fund-based working capital facilities for the last 12 months. Cash and cash equivalents stood at Rs.5.26 Crs as on March 31, 2021. The operating profit of Rs.14.87 Crs in FY21 was sufficient to cover the interest and finance expenses of Rs.3.75 Crs. Further, the firm has adequate net cash accrual of Rs.11.28 Crs which sufficiently covers the debt obligations of ~Rs.7.00 Crs in FY21. The net cash accrual for FY22 and FY2 is expected to be Rs.27.91 Crs and Rs.35.03 Crs which adequately covers the debt obligations of ~Rs.8.00 Crs and Rs.12.02 Crs respectively.  The Current ratio improved to  1.07 times as on 31 Mar 2021 as against 1.01 times as on 31 Mar 2020. The ability of the firm to generate the envisaged cash accrual in FY22 and FY23 in view of the proposed debt of Rs.8.50 crs for expansion remains a key rating monitorable.

ABOUT THE ENTITY

SKL Exports (SKLE) was incorporated in 1990 at Tirupur, Tamil Nadu as a proprietorship concern by Mr. N Govindasamy. Later, in 2002, it was reconstituted as a partnership firm between Mr N Govindasamy and his family. The partnership firm is engaged in manufacturing hosiery garments. The operations of the Firm are primarily export-oriented with a major portion of the products being exported to customers in US and European countries. The firm is involved in export sales of women, men, kids and infant apparel. The manufacturing facility of the firm supports all processes including knitting, laundry, stitching, cutting, printing, dyeing and designing within in-house facilities. The manufacturing facilities are spread across the 4 units located at Tirupur, equipped with ~2000 sewing machines and automated facilities for cutting, printing, embroidery, etc. The total production capacity of SKLE is 100000 pieces/day. 

The Firm also owns and operates windmills which a capacity of 4.85 MW power. The generated power is majorly for the Firm’s captive usage. 

Mr.N. Govindasamy, Mrs. G. Radhamani, Mr. K. Mohanraj  and Mr. A. Kumarasamy are the partners of the Firm.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	148.58	139.57
EBITDA	Rs.Crs.	14.87	14.61
PAT	Rs.Crs.	9.94	12.19
Tangible Net Worth	Rs.Crs.	51.00	46.13
Total Debt/Tangible Net Worth	Times	1.40	1.32
Current Ratio	Times	1.07	1.01

RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating  (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	22.65	BWR BBB-/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Fund Based	ST	60.00	BWR A3 (Assignment)	NA	NA	NA	NA	NA	NA
NFB SubLimit	ST	(5.00)	BWR A3 (Assignment)	NA	NA	NA	NA	NA	NA
Grand Total		82.65	(Rupees Eighty Two Crores and Sixty Five lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt

Analytical Contacts
Priyanka RS Rating Analyst Board : +91 044 24663326 priyanka.rs@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Axis Bank Ltd.	Term Loan - Out-standing	0.24	_	0.24
2	Axis Bank Ltd.	Term Loan - Out-standing	0.49	_	0.49
3	Axis Bank Ltd.	Term Loan - Out-standing	3.50	_	3.50
4	Axis Bank Ltd.	Covid -19 Emergency Line Credit - Sanctioned	4.43	_	4.43
5	Axis Bank Ltd.	GECL - Sanctioned	6.57	_	6.57
6	Axis Bank Ltd.	PC/PCFC - Sanctioned	_	20.00	20.00
	Sub-Limit (ILC) - Sanctioned		(5.00)
7	Axis Bank Ltd.	FBD/FBP - Sanctioned	_	20.00	20.00
8	ICICI Bank	PC/PCFC - Sanctioned	_	20.00	20.00
9	SIDBI	Term Loan - Out-standing	7.42	_	7.42
Total			22.65	60.00	82.65
TOTAL (Rupees Eighty Two Crores and Sixty Five lakhs Only)