ST Cottex Exports Private Limited

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 250.27 Crs. of ST Cottex Exports Private Limited

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (27 Jul 2020)	Present
Fund Based	223.27	230.27	Long Term	BWR A- (Stable) Reaffirmed	BWR A - /Stable Reaffirmation
	12.00	5.00	Short Term	BWR A2+ Reaffirmed	BWR A2 + Reaffirmation
	(40.00)	(40.00)
	(10.00)	(10.00)
	(18.00)	(18.00)
	(5.00)	(5.00)
	(12.00)	(12.00)
Non Fund Based	15.00	15.00	Short Term	BWR A2+ Reaffirmed	BWR A2 + Reaffirmation
Non Fund Based	(1.00)	(1.00)	Short Term	BWR A2+ Reaffirmed	BWR A2 + Reaffirmation
Grand Total	250.27	250.27	(Rupees Two Hundred Fifty Crores and Twenty Seven 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 Ratings (BWR) reaffirms the ratings of the bank loan facilities of S T Cottex Exports Pvt. Ltd. (STCEPL or the company). This reaffirmation reflects the company’s sustained credit risk profile, indicated by its comfortable gearing and the moderate improvements registered in revenues and profitability owing to its better product realisations in FY21. The rating derives strength from the company’s diversified product portfolio that insulates its profit margins from a sharp correction in cotton prices. The ratings also factor in the increasing revenue share from value-added yarns, which has aided a gradual expansion in the contribution margins over the past 5 years. Additionally, the company benefited from the demand-supply gap emerging in the exports of cotton and blended yarns in the second half of FY21. The company is projecting an increase in capacity by ~ 24000 spindles, which may commence operations in 2022. The ratings, however, continue to be constrained by the intensely competitive nature of the yarn manufacturing industry because of the presence of large numbers of organised and unorganised players with limited product differentiation. The ratings are also constrained by inherent industry risks such as cyclicality in earnings, overcapacity, susceptibility to volatile raw material prices and agro-climatic risks.

OUTLOOK: STABLE

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

KEY RATING DRIVERS

Credit Strengths:

Sustained credit risk profile with moderate improvements in key credit metrics :
STCEPL’s total operating income increased by 14.39%, driven by 23.73% growth in exports; growth was modest, at ~3.5%, in domestic sales. The EBITDA improved by ~48% in FY21 due to higher realisations across the company’s product line. Growth in the EBITDA was also aided by an increasing contribution from high-margin value-added products, which now comprise ~50% of the company’s revenues. Due to the improvements in margins vis-a-vis flat interest costs, the company’s ISCR improved from 3.59x (FY20) to 5.70x (FY21), and its DSCR improved to 3.03x. Total debt increased marginally from Rs 194 Crs to Rs 207 Crs as a result of higher utilisation in the working capital facilities. Due to the accretion of reserves, the networth increased by ~ Rs 51 Crs and has had a positive impact on the gearing, which improved from 1.34x (FY20) to 1.06x (FY21).
Healthy capacity utilisation levels :
FY21 was the first full year of STCEPL’s operations, with an enhanced capacity of 1.69 lakh spindles, after an addition of ~25000 spindles in FY20. The company’s capacity utilisation has remained optimum, with an overall utilisation of more than 95% as the total production increased by ~10% in FY21. The company is projecting significant growth in FY22, provided any COVID-related disruption does not arise in conducting its operations going forward. The company is planning to undertake debt-funded capex (partly funded by internal accruals) to increase its manufacturing capacity, which is likely to commence operations in FY23.
Diversified product mix with increasing contribution from value-added products :
Over the last five years, STCEPL has focused on expanding its product portfolio from being a cotton yarn manufacturer (60% of the portfolio) to producing a variety of yarns, including cotton combed and compact yarns, PC yarns, PC melange yarns, open-ended yarns and fabrics. This diversification has helped the company mitigate product concentration risks.
Geographically diversified client profile :
The company has diversified revenue streams coming from a variety of clients in the Indian and international markets. Domestic export proportions keep changing, depending on market dynamics. The major exporting destinations are Bangladesh, Korea, Portugal, the US, Latin America and the EU. STCEPL’s domestic revenues constituted 56.74%, and exports constituted 43.26% in FY21. The company is an approved vendor for some reputed international brands, which helps it enter new markets and geographies.
Experienced and resourceful promoters :
The company’s directors Mr. Amit Gupta and Mr. Aman Gupta, sons of Mr Prem Gupta, are seasoned businessmen and have over two decades of experience in the yarn industry. The promoters’ experience has helped the company establish long-term relations with its suppliers and customers in domestic and international markets.

Credit Risks:

Susceptibility of margins to volatility in cotton prices :
Currently, yarn realisations and stable cotton prices are favouring spinners. However, most mid-and small-sized spinners are susceptible to adverse changes in raw material prices due to their limited ability to completely pass on this increase to their customers. With the commoditised nature of operations, STCEPL’s ability to maintain its operating margins at 14-15% for a longer period will determine the sustainability of its performance.
Inherent industry risks :
The man-made yarn industry is characterised by a cyclicality in earnings, overcapacity, high competitive intensity and low bargaining power with suppliers and customers. The yarn industry is also sensitive to supply-side constraints as cotton is an agricultural commodity, and the overall yield of cotton is highly dependent on agro-climatic conditions in the country. Furthermore, the industry’s performance is largely dependent on government regulations such as fixing the MSP for cotton, imposing or lifting barriers for international trade and competition from other exporting countries.

ANALYTICAL APPROACH - Standalone

The ratings of ST Cottex Exports Pvt. Ltd. have been arrived at on a standalone basis after the independent evaluation of its financial risk profile. For arriving at its ratings, Brickwork Ratings (BWR) has applied its rating methodology as detailed in the rating criteria below (hyperlinks provided at the end of this rationale)

RATING SENSITIVITIES

Upward: The ratings may be upgraded if the company continues to operate at healthy capacity utilisation levels translating into significant growth in the topline, as well as in profitability, besides also maintaining or improving its debt coverage metrics in FY22.

Downward: The ratings may be downgraded if there is significant decline in the company’s profitability, resulting in a stretch in its liquidity profile.

LIQUIDITY INDICATORS - Adequate

Adequate liquidity is indicated by a moderate bank limit utilisation of 48% for the last 12 months ended June 2021, coupled with healthy cash accruals of Rs 76.23 Crs in FY21, which provide ample cushion for the repayment of maturing term loan instalments of Rs 18 Crs and to fund incremental working capital and capex requirements. Liquidity is further supported by the zero utilisation of LC facilities in the last 12 months. As of 05 July 2021, STCEPL had prepaid term loan instalments amounting to Rs 4.20 Crs for FY2022.

ABOUT THE ENTITY

Promoted in 2000 by Mr. Prem Gupta, Mr. Amit Gupta and Mr. Aman Gupta, ST Cottex Exports Pvt. Ltd. (STCEPL) commenced operations by taking over the cotton yarn unit of Shreyansh Industries Limited with an installed capacity of 25,344 spindles. Over the years, STCEPL has grown to become a diversified textile player with a presence in cotton, synthetic and blended yarns, and fabric thereof. The company has expanded its installed capacity to 1.69 lakh spindles, 5,776 rotors and 100 knitting machines at its manufacturing facilities in Ludhiana, Punjab. The company has a diversified product portfolio with an overall production capacity of ~53700 MTPA of yarn and 5994 MTPA of knitted fabric. It offers an array of products including, but not limited to, cotton combed and compact yarn, PC melange yarn, organic cotton yarn, cotton slub yarn, BCI cotton yarn, Lycra, BCI cotton yarn and open-ended yarn.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	762.97	666.65
EBITDA	Rs.Crs.	114.49	76.94
PAT	Rs.Crs.	51.41	18.82
Tangible Net Worth	Rs.Crs.	196.21	144.79
Total Debt/Tangible Net Worth	Times	1.06	1.34
Current Ratio	Times	1.59	1.29

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

NONE

ANY OTHER INFORMATION

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	230.27	BWR A-/Stable (Reaffirmation)	27Jul2020	BWR A- (Stable) (Reaffirmed)	06Jun2019	BWR A- (Stable) (Upgraded)	11Apr2018	BWR BBB+ (Stable) (Reaffirmed)
Fund Based	ST	5.00	BWR A2+ (Reaffirmation)	27Jul2020	BWR A2+ (Reaffirmed)	06Jun2019	BWR A2+ (Upgraded)	11Apr2018	BWR A2 (Reaffirmed)
FB SubLimit	ST	(40.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(10.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(18.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(5.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(12.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	15.00	BWR A2+ (Reaffirmation)	27Jul2020	BWR A2+ (Reaffirmed)	06Jun2019	BWR A2+ (Upgraded)	11Apr2018	BWR A2 (Reaffirmed)
NFB SubLimit	ST	(1.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		250.27	(Rupees Two Hundred Fifty Crores and Twenty Seven 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.

Analytical Contacts
Sumit Saharan Senior Rating Analyst Board : +91 172 5032 295 / 6 sumit.s@brickworkratings.com	Ashwini Mital Director - Ratings Board : +91 172 5032 295 / 6 ashwinimital@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

ST Cottex Exports Private Limited

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.)
1	Bank of Baroda	Cash Credit - Sanctioned	18.00	_	18.00
2	Bank of Baroda	Term Loan - Out-standing	1.35	_	1.35
3	Bank of India	Term Loan - Out-standing	2.98	_	2.98
4	Bank of India	Term Loan - Sanctioned	7.02	_	7.02
5	HDFC Bank	Term Loan - Out-standing	23.71	_	23.71
6	HDFC Bank	Export Packing Credit (EPC) - Sanctioned	_	5.00	5.00
7	IDBI Bank	Cash Credit - Sanctioned	17.00	_	17.00
	Sub-Limit (EPC/PCFC) - Sanctioned		(12.00)
8	IDBI Bank	ILC/FLC/BG - Sanctioned	_	5.00	5.00
9	IDBI Bank	Term Loan - Out-standing	2.65	_	2.65
10	Others	Proposed loan - Proposed	20.10	_	20.10
11	Punjab National Bank	Term Loan - Out-standing	14.46	_	14.46
12	Punjab National Bank	ILC/FLC - Sanctioned	_	5.00	5.00
13	Punjab National Bank	Cash Credit - Sanctioned	30.00	_	30.00
	Sub-Limit (EPC/PCFC) - Sanctioned		(18.00)
	Sub-Limit (FOBP/FOUBP/FABC) - Sanctioned		(5.00)
14	State Bank Of India (SBI)	Cash Credit - Sanctioned	70.00	_	70.00
	Sub-Limit (EBP (Non LC)) - Sanctioned		(10.00)
	Sub-Limit (EPC/PCFC) - Sanctioned		(40.00)
15	State Bank Of India (SBI)	ILC/FLC - Sanctioned	_	5.00	5.00
	Sub-Limit (BG) - Sanctioned		(1.00)
16	State Bank Of India (SBI)	Term Loan - Out-standing	3.00	_	3.00
17	Yes Bank	Term Loan - Sanctioned	20.00	_	20.00
Total			230.27	20.00	250.27
TOTAL (Rupees Two Hundred Fifty Crores and Twenty Seven lakhs Only)

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