RATING RATIONALE

17Apr2025

Avon Cottex Pvt. Ltd.

Brickwork Ratings upgrades the Fund Based long-term ratings and simultaneously removes from the ratings from ISSUER NOT COOPERATING category and assigns the Non Fund Based long-term rating for the Bank Loan Facilities of Rs. 25.98 Crs. of Avon Cottex Pvt. Ltd. Further, BWR withdraws the ratings of short-term bank loan facilities on account of closure of facilities.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (24 Jan 2024)	Present
Fund Based	22.75	25.13	Long Term	BWR B- /Stable Continues to be in ISSUER NOT COOPERATING* category/Downgraded	BWR BB + /Stable removal from ISSUER NOT COOPERATING* category/Upgraded
Non Fund Based	0.00	0.85	Long Term		BWR BB + /Stable Assignment
	(0.00)	(0.50)	Long Term		BWR BB + /Stable Assignment
	1.30	0.00	Short Term	BWR A4 Continues to be in ISSUER NOT COOPERATING* category/Reaffirmed	Withdrawal
Grand Total	24.05	25.98	(Rupees Twenty Five Crores and Ninety Eight 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

Brickwork Rating has upgraded the fund-based long-term ratings for bank loan facilities of Avon Cottex Pvt. Ltd. to BWR BB+/Stable and simultaneously removes from the ratings from ISSUER NOT COOPERATING category and assigned the non-fund-based long-term rating at BWR BB+/Stable for the aggregate rated amount of Rs.25.98 crores. Further, BWR withdraws the ratings of short-term bank loan facilities on account of the closure of the facilities.

The rating upgrade reflects the extensive experience of its directors, a healthy financial risk profile, adequate liquidity, and positive feedback from lenders. However, the ratings are constrained by Susceptibility of profitability to raw material price volatility and the presence in a highly fragmented and competitive textile industry

The outlook has been retained as Stable as BWR believes that the business risk profile of the company will be maintained over the medium term. The Stable outlook indicates a low likelihood of a rating change over the medium term.

For assigning the rating, BWR has relied upon the last 3 years of audited financials till FY24, projected financials for FY25 & FY26, and publicly available information and clarification provided by management.

KEY RATING DRIVERS

Credit Strengths:

Extensive Experience of the Directors :
The company has a long operational track record and market reputation in Ludhiana region. There is strong and professional management in place. The company is led by its promoters Mr. Satnam Singh, Mr. Taranjit Singh, and Mr. Gaganjot Singh. The Managing Director of the company has over four decades of experience in the textile industry like Yarn , Fabrics, Knitting & Dyeing, Sampling & Production Planning, Garments etc.
Healthy Financial Risk Profile :
Avon Cottex Pvt. Ltd. maintains a healthy financial risk profile, demonstrating revenue growth and stable debt protection metrics. In FY24, the company reported a total operating income (TOI) of Rs.63.79 crores with EBIDTA margin of 13.73% in FY24 and Net Margin of 4.34%. As of February 2025 (11MF), it has aready achieved TOI of Rs.62.78 crores. Debt servicing capacity remains adequate, with an ISCR of 5.78 times and DSCR of 1.16 times in FY24. Moderate net worth of Rs 27.63 crores in FY24 (Audited) which is expected to further improve to Rs.32.32 crores in FY25.

Credit Risks:

Susceptibility of profitability to raw material price volatility :
Avon Cottex Pvt. Ltd. is highly susceptible to volatility in cotton yarn price, polyester price, driven by the inherent cyclicality of the textile industry and fluctuating raw material costs. The company remains vulnerable to changes in government policies, such as Minimum Support Price (MSP), import-export duties, and market regulations, which can impact procurement costs and overall margins. Any adverse policy changes or price fluctuations could strain profitability, affecting cost competitiveness and working capital management.
Presence in a highly fragmented and competitive textile industry :
The Indian garments and textile manufacturing industry is highly fragmented, with numerous small-scale units leading to intense competition. Due to a fragmented market structure, Avon Cottex Pvt. Ltd. has limited ability to pass on fluctuations in raw material prices to end customers, often experiencing a time lag before price adjustments can be implemented. This exposes the company to margin pressures, especially during periods of rising cotton prices. Additionally, the intense competition from both domestic and international players constrains its bargaining power, making it essential for the company to focus on operational efficiencies, cost optimization, and strategic customer relationships to sustain profitability and growth in a highly competitive environment.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has considered the standalone performance of Avon Cottex Pvt. Ltd. BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Going forward, the ability of the company to improve the scale of operations and profitability, maintain a strong liquidity position, effectively manage working capital, and strengthen the overall credit profile would be the key rating sensitivities.

Positive :

Steady increase in turnover or profitability, leading to increased cash accruals. Growth in operating income to more than Rs. 100.00 Crs with the operating margin (OPM) rising above 16% and the net margin (NPM) exceeding 8% on a sustained basis
Maintenance of an optimum capital structure, increase in liquidity position, and TNW on a continuous basis.

Negative:

Decline in revenue, a drop in operating profit margin below 12% and net margins below 3% and deterioration of the financial position of the Company, including deterioration in liquidity, leverage, and TNW on a continuous basis would indicate higher leverage risk.
Delayed payments of its debt obligations.

LIQUIDITY INDICATORS - Adequate

The average utilization of the cash credit facility over the past 12 months stood at a moderate 51.16%.
The Debt Service Coverage Ratio (DSCR) remained comfortable at 1.16 times in FY24, reflecting the ability to meet debt obligations.
The Interest Service Coverage Ratio (ISCR) remained comfortable at 5.78 times in FY24, indicating stronger interest servicing capacity.
Additionally, the current ratio stood at an adequate 1.58 times, indicating a stable liquidity position.
Total Debt/TNW remained comfortable at 0.49 times, reflecting lower dependence on debt.
Net Cash accruals stood at Rs.6.03 Crs in FY24 and are projected to be at Rs.6.95 Crs in FY25 against CPLTD of Rs. 5.35 Crs in FY25 and Rs. 5.20 Crs in FY26.

ABOUT THE ENTITY

Macro Economic Indicator	Sector	Industry	Basic Industry
Consumer Discretionary	Textiles	Textiles & Apparels	Other Textile Products

Avon Cottex Private Limited was incorporated in 2011 by Mr. Gaganjot Singh and Mr. Taranjit Singh. The Company is into manufacturing of fabrics and readymade garments besides doing fabrication on job work basis of Fabric Knitting, Dyeing, Printing, Mercerising and other fabric processing. Fabrics includes 100% Cotton, Polyester/Cotton Blends, 100% Polyester, 100% Viscose, 100% Modal and other various fabrics.The unit is located in Ludhiana (Punjab). The constructed area of the factory is 150000 sq. ft. Further, the Effluent treatment plant has been setup as per the norms set by the Punjab Pollution Control Board.The current utilization capacity is around 80%.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 22 - 23 (Audited)	FY 23 - 24 (Audited)	FY 24 - 25 (Unaudited - Others(11M FY25))
Operating Revenue	Rs.Crs.	67.52	63.79	62.78
EBITDA	Rs.Crs.	8.58	8.76	8.78
PAT	Rs.Crs.	1.95	2.77	3.71
Tangible Net Worth	Rs.Crs.	24.07	27.63	31.34
Total Debt / Tangible Net Worth	Times	0.78	0.49	0.76
Current Ratio	Times	1.15	1.58	1.61

KEY COVENANTS OF THE FACILITY RATED

Maintain a minimum current ratio of 1.50 times (excluding term loan installment).
Maintain gearing of less than 1.50 times.
The terms of sanction include standard covenants normally stipulated for bank loan facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not Applicable

ANY OTHER INFORMATION

NIl

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2025)			2024		2023		2022
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	25.13	BWR BB+/Stable (removal from ISSUER NOT COOPERATING* category/Upgraded)	24Jan2024	BWR B- Stable (Continues to be in ISSUER NOT COOPERATING* category/Downgraded)	NA	NA	07Dec2022	BWR BStable (Continues to be in ISSUER NOT COOPERATING* category/Downgraded)
Non Fund Based	LT	0.85	BWR BB+/Stable (Assignment)	NA	NA	NA	NA	NA	NA
NFB SubLimit	LT	(0.50)	BWR BB+/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	0.00	Withdrawal	24Jan2024	BWR A4 (Continues to be in ISSUER NOT COOPERATING* category/Reaffirmed)	NA	NA	07Dec2022	BWR A4 (Continues to be in ISSUER NOT COOPERATING* category/Reaffirmed)
Grand Total		25.98	(Rupees Twenty Five Crores and Ninety Eight lakhs Only)

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Chinmaya R Rating Analyst chinmaya.r@brickworkratings.com	Hari Kishan Yadav Associate Director - Ratings hari.ky@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com	Customer Support \| CustSupport@brickwrokratings.com

Avon Cottex Pvt. Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)	Complexity of the Instrument
1	Axis Bank Ltd.	Term Loan - Out-standing	14.25	_	14.25	Simple##
2	Axis Bank Ltd.	Cash Credit - Sanctioned	10.00	_	10.00	Simple##
	Sub-Limit (Bank Guarantee (Long Term)) - Sanctioned	(0.50)
3	Axis Bank Ltd.	Bank Guarantee - Sanctioned	0.85	_	0.85	Simple##
4	Axis Bank Ltd.	Emergency Credit Line Guarantee Scheme (ECLGS) - Out-standing	0.88	_	0.88	Simple##
5	State Bank Of India (SBI)	Term Loan - Sanctioned	_	_	0.00	Simple##
6	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	_	0.00	Simple##
7	State Bank Of India (SBI)	Cash Credit - Sanctioned	_	_	0.00	Simple##
Total			25.98	0.00	25.98
TOTAL (Rupees Twenty Five Crores and Ninety Eight 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.

ANNEXURE-II

INSTRUMENT DETAILS

Instrument	Issue Date	Amount (Rs.Crs)	Coupon Rate (%)	Maturity Date	ISIN Particulars	Complexity of the Instrument
Nil	Nil	Nil	Nil	Nil	Nil	Nil

ANNEXURE-III

List of entities consolidated

Name of Entity	% Ownership	Extent of consolidation	Rationale for consolidation
Nil	Nil	Nil	Nil

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