Supreme Mills India Pvt. Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.7.17 Crs. of Supreme Mills India Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)	Tenure	Rating#
Fund Based
Cash Credit - Sanctioned	04.80	Long Term	BWR
Term Loan - Sanctioned	00.43
Mortgage Loan - Sanctioned	00.37
Mortgage Loan - Sanctioned	00.09
Term Loan - Sanctioned	01.48
Sub Total	7.17
Grand Total	7.17	(Rupees Seven Crores and Seventeen 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

BWR believes that Supreme Mills India Pvt. Ltd. business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.

KEY RATING DRIVERS

Credit Strengths:

• Experienced management :

  The promoters of the company have extensive experience of two decades in the Textile Industry. The company benefits from the promoters understanding of the dynamics of the business and established relationships with customers and suppliers.

• Locational advantage :

  The locational advantage of the unit, by virtue of its location in the cotton - producing belts of Coimbatore,Tamilnadu, which ensures availability of cotton directly from customers & farmers and cost effective in logistics benefits the company.

Credit Risks:

• Average scale of operations combined with customer , supplier and geographic concentration risk :

  The company is an average-sized player in the fragmented industry with revenues of Rs.19.71 Crs in FY19 (audited) and Rs.20.60 Crs in FY20 provisional. The company is exposed to high customer concentration risk with a single customer contributing to ~50% of the revenue and also procures raw materials accounting to ~45% from a single supplier that indicates supplier concentration risk. The Company’s major customers and markets are concentrated at Tirupur, Palladam and Coimbatore , TamilNadu that exposes the company to revenue risks in the event of order slowdown from the customers and decline in average realizations from these customers.

• High Gearing Level :

  Due to the low net worth of INR 3.36 Crs and moderate debt level of Rs. 6.33 Crs , the gearing levels were high marked by total Debt/TNW and TOL/TNW at 1.88 times and 2.16 times respectively in FY19 (audited) .

• Exposure to intense competition :

  The cotton processing industry is highly commoditized. The company’s revenues and margins are exposed to fluctuations in cotton and yarn prices as high raw material costs cannot be passed on to customers.Entry barriers in cotton processing business are low on account of limited capital and technology requirements and low differentiation in end product. This leads to intense competition and limits players pricing power, resulting in low profitability. Its availability depends on the vagaries of monsoon and exposed to inherent price fluctuation risk associated with agro based commodities and major dependence on monsoon.

• Impact of COVID 19 :

  As the impact of the Covid-19 pandemic intensifies, industries most vulnerable to consumer sentiment and discretionary spending (such as textiles) may be severely affected. Due to the widespread lockdown the demand for downstream products are at a near standstill. India’s cotton yarn exports are expected to drop by about ~ 18-20% as an intermediate product, yarn is likely to face a chain reaction of declining downstream demand.During FY20, the company has achieved its estimated target and has not incurred any revenue loss in the Q4FY20 (provisional) . However it expects decline in sales on account of the COVID19 lockdown.

ANALYTICAL APPROACH

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Going forward, the ability of the company to scale up sales from yarn on a sustained basis and improve its business profile, effectively manage impact on business operations due to COVID19, efficiently manage its working capital cycle and strengthen its credit profile would be the key rating sensitivities.

Positive : The ratings may be upgraded in case the company shows sustained improvement in scale of operations with improved profitability margins,stable working capital cycle, capital structure, Total Debt/Tangible net worth on a sustained basis and improvement in EBITDA margins.

Negative:The ratings may be downgraded in case  deterioration in scale of operations and/or EBITDA margins due to industry or company-specific factors and prolonged impact of Covid on the revenues and cash flows leading to material deterioration in its financial risk profile and liquidity.

LIQUIDITY INDICATORS -

Liquidity position of the company is stretched with the current ratio at 1.12 times in FY19 (audited) and  increase in the conversion cycle days to 94 days as on 31 Mar 2019 as against 84 days as on 31 March 2018 on account of increased inventory and debtors. As on 31 Mar 2020 (Provisional), the conversion cycle further increased to 108 days.The company's average utilization of cash credit limit was more than 90% in fiscal 2019. The ability of the company to manage its working capital requirement without any strain on borrowings/cash flows is crucial for smooth operations.

ABOUT THE ENTITY

Supreme Mills India Private Limited was incorporated on 25th September 2000. The company has two directors viz. Gunalan Arul Mozhi , Arulmozhi Sujini. The company is engaged in manufacturing of cotton yarn viz. 20s count ,26s count, 30s count, 40s count and NM-44. The company's operations are majorly concentrated in Tamilnadu with single customer contributing to 50% of the revenue among other customers and the company procures raw materials accounting to 45% from a single supplier among the other suppliers . The company's headoffice is located at Aerodrome Post Coimbatore, Tamil Nadu.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 18-19 (Audited)	FY 17-18 (Audited)
Operating Revenue	Rs.Crs.	19.71	18.50
EBITDA	Rs.Crs.	1.40	1.14
PAT	Rs.Crs.	0.26	0.25
Tangible Net Worth	Rs.Crs.	3.36	3.17
Total Debt/Tangible Net Worth	Times	1.88	1.55
Current Ratio	Times	1.12	1.21

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

ANY OTHER INFORMATION

RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended) COMPLEXITY LEVELS OF THE INSTRUMENTS -

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

Analytical Contacts
M Akila Lead Analyst akila.m@brickworkratings.com	R Varadarajan Associate Director - Ratings Board : +91 044 24663326 varadarajan.r@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	4.80	_	4.80
2	Term Loan - Sanctioned	0.43	_	0.43
3	Mortgage Loan - Sanctioned	0.37	_	0.37
4	Mortgage Loan - Sanctioned	0.09	_	0.09
5	Term Loan - Sanctioned	1.48	_	1.48
Total				7.17
TOTAL (Rupees Seven Crores and Seventeen lakhs Only)