Brickwork Ratings revises/reaffirms the ratings for the Bank Loan Facilities of Rs. 16.97 Crs. of Silver Spring Spinners India (P) Ltd
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (07 May 2020) |
Present | ||
Fund Based | 8.23 | 12.15 | Long Term |
BWR B
/Stable Issuer Not Cooperating |
BWR B +
/Stable Upgrade |
1.50 | 1.50 | Short Term |
BWR A4 Issuer Not Cooperating
|
BWR A4
Reaffirmation |
|
Non Fund Based | 3.32 | 3.32 | Short Term |
BWR A4 Issuer Not Cooperating
|
BWR A4
Reaffirmation |
Grand Total | 13.05 | 16.97 | (Rupees Sixteen Crores and Ninety Seven lakhs Only) |
The rating upgrade has factored the satisfactory net worth of the Company, its adequate debt coverage indicators and improved operating profit margin apart from its established track record in the business and promoter's experience in the industry. The ratings, however, are constrained by the modest scale of operations of the Company, stressed working capital requirement, and risk associated with seasonal availability of cotton and its fluctuating price.
BWR believes that the business risk profile of Silver Spring Spinners India Pvt. Ltd. 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 there is decline in profit margins and any further increase in overall debt level, affecting the liquidity.
KEY RATING DRIVERS
Credit Strengths:
The decade-long experience of the promoters in the cotton yarn industry and their healthy relationships with the customers and suppliers has helped the Company in establishing its position and acquire repeat orders. Mr. R Rajendran, the founder-promoter of the Company, has more than four decades of the business experience.
The Company, formed in 1994, is in existence for more than two decades in the cotton industry. It is primarily engaged in manufacturing of cotton yarn with an installed capacity of 14112 spindles at its manufacturing unit. Long track record of the operations has helped the Company in establishing its business in the market.
The Company has satisfactory net worth of Rs. 11.51 Cr as at March 31 2020 which has been improving year on year due to retention of profits. Operating profit margin has improved from1.15% in FY19 to 5.43% in FY20, though there is decline in operating revenue. DSCR and ISCR stood at 1.31 times and 1.69 times in FY20 indicating company’s adequacy to meet its debt obligations.
Credit Risks:
Scale of operations of the Company stood modest with an operating income of Rs. 42.15 Cr - declined from Rs. 45.27 Cr in FY19. The Company has informed of achieving a turnover of Rs. 36.42 Cr as of February 2021 and thus, its ability to improve its scale of operations will be a key rating sensitivity. Further, revenue generation is concentrated during FY20 business operations, as 85% of the total operating income is being generated from top 3 customers.
Operations remain susceptible to availability of cotton and any sharp fluctuations in its prices. Any adverse movement in the same would adversely impact the overall financial position of the Company considering its scale of operation and this profit margins.
The major raw material for the Company is ginned cotton, which are being sourced domestically. Purchases are normally made in advance due seasonal availability of cotton to meet raw material requirement on time, which has kept the inventory level high as indicated by the Inventory Days of 109 in in FY20 - increased from Inventory Days of 91 days in FY19. Thus, the working capital requirement is stressed as indicated by increased cash conversion cycle from 41 days in FY19 to 71 day in FY20.
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
Upward: The rating would be upgraded if there is a significant increase in the operating income and operating profit margin, along with a reduction in overall debt level.
Downward: The rating would be revised negatively if there is decline in operating profitability, capital structure and stretched liquidity position of the Company.
LIQUIDITY INDICATORS - Stretched
The liquidity is moderately stretched as indicated by the present utilization of the working capital facilities of close to 80% (as per the banker feedback dated 05.03.2021). Though the term loan obligations are adequately covered by the achieved cash accruals in FY20, the net cash accruals to total debt stood weak at 0.07 times in FY20. Additional facilities availed by the Company in the form of Covid 19 emergency line credit and stand by line of credit, on account of increased inventory position of the Company resulting in increased working capital requirement, will further stress the repayment structure of the Company. The current ratio stood at 1.06 times in FY20.
ABOUT THE ENTITYSilver Spring Spinners India Pvt Ltd was incorporated in the year 1994 at Srivilliputhur, Tamil Nadu. The Company is engaged in manufacturing of cotton yarn. The Promoters are Mr. R Sridhar, Mrs. S Menaka, and Mr. R Rajendran.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 42.62 | 45.27 |
EBITDA | Rs.Crs. | 2.31 | 0.52 |
PAT | Rs.Crs. | 0.10 | 0.02 |
Tangible Net Worth | Rs.Crs. | 11.51 | 11.41 |
Total Debt/Tangible Net Worth | Times | 1.31 | 0.97 |
Current Ratio | Times | 1.06 | 1.07 |
None
None
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)Facilities | Current Rating (2021) | 2020 | 2019 | 2018 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 12.15 |
BWR B+/Stable
|
07May2020 |
BWR B/Stable Issuer Not Cooperating
|
NA |
NA
|
22Nov2018 |
BWR B+/Stable
|
Fund Based | ST | 1.50 |
BWR A4
|
07May2020 |
BWR A4 Issuer Not Cooperating
|
NA |
NA
|
22Nov2018 |
BWR A4
|
Non Fund Based | ST | 3.32 |
BWR A4
|
07May2020 |
BWR A4 Issuer Not Cooperating
|
NA |
NA
|
22Nov2018 |
BWR A4
|
Grand Total | 16.97 | (Rupees Sixteen Crores and Ninety Seven lakhs Only) |
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.
Analytical Contacts | |
---|---|
Rajaram Gouda Senior Rating Analyst Board : +91 80 4040 9940 rajaram.g@brickworkratings.com |
Nagaraj K Associate Director - Ratings Board : +91 80 4040 9940 nagaraj.ks@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 | Term LoanSanctioned | 2.50 | _ | 2.50 | ||
2 | Stand by Line of CreditSanctioned | 0.15 | _ | 0.15 | ||
3 | Cash CreditSanctioned | 6.75 | _ | 6.75 | ||
Sub-Limit (PC/FBN/FBP/FBD/AACB) Sanctioned | (2.00) | |||||
4 | Covid -19 Emergency Line CreditSanctioned | 2.75 | _ | 2.75 | ||
5 | Bill Discounted (BD)Sanctioned | _ | 1.50 | 1.50 | ||
6 | Letter of CreditSanctioned | _ | 3.00 | 3.00 | ||
7 | Bank GuaranteeSanctioned | _ | 0.25 | 0.25 | ||
8 | Forward ContractSanctioned | _ | 0.07 | 0.07 | ||
Total | 12.15 | 4.82 | 16.97 | |||
TOTAL (Rupees Sixteen Crores and Ninety Seven lakhs Only) |
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