Kaytee Corporation Pvt. Ltd.

Brickwork Ratings revises the ratings for the Bank Loan Facilities of Rs. 27.70 Crs. of Kaytee Corporation Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (29 Sep 2020)	Present
Fund Based	24.20	24.20	Long Term	BWR BB/Stable Downgrade/ISSUER NOT COOPERATING*	BWR BB + /Stable Upgrade
	(11.50)	(11.50)
	(3.50)	(3.50)
	(2.00)	(2.00)
Non Fund Based	3.50	3.50	Short Term	BWR A4 Downgrade/ISSUER NOT COOPERATING*	BWR A4 + Upgrade
	(1.00)	(1.00)
Grand Total	27.70	27.70	(Rupees Twenty Seven Crores and Seventy 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 has upgraded the long term rating at BWR BB+ (Stable) and short-term rating at BWR A4+ for the Bank Loan Facilities of Rs. 27.70 Crore of Kaytee Corporation Private Limited. BWR believes that Kaytee Corporation Private Limited 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 backed by a favourable industry scenario. The rating outlook may be revised to 'Negative' if the revenues and profit margins show lower than expected figures.

BWR has essentially relied upon the audited financial statements of Kaytee Corporation Private Limited for FY18, FY19,FY20, Provisional of FY21 and projections of FY22 and FY23 and publicly available information and information/clarifications provided by the entity’s management.

The rating draws strength from the experienced management, favourable Geographical location, increase in revenue and established relationship with its supplier and customer base. The rating is constrained by the Moderately low profitability margins, Moderately leveraged capital structure and debt coverage indicators, elongated working capital cycle, intense competition in the industry and foreign exchange fluctuation risk.

Going forward the ability of the company to improve its margins, working capital cycle, gearing, along with strengthening its overall financial risk profile would be its key rating sensitivity.

KEY RATING DRIVERS

Credit Strengths:

• Company Existence & Experience Promoters :

  The company has been in existence for 47 years and has seen complete business cycles & Have a good track record of company and Promoter have experience of more than four decades in garment trading and manufacturing business.

• Geographical Advantage :

  The locational advantage of the unit. As the plant is located at Tirupur which is known as knitwear capital of India.

• Established relationship with its supplier and customer base: :

  Over the years of operations, KCPL has established long-term relationships with its customers and suppliers. The supplier base remained diversified with top 5 supplier contributing ~30% of the total purchases in FY21. However, the customer profile remained  concentrated with top 5 customers comprised ~99% of the total sales in FY21. Nevertheless, the customer concentration risk is mitigated to an extent on the back of healthy credit profile of these reputed clients.  

• Modest Scale of operations: :

  The Total Operating Income for FY21 stood modest with a y-o-y increase in TOI with a CAGR of 4.09% for the past three years ended FY21. Although the same has marginally improved by 0.89% over last year and stood at Rs.149.07 Crore against Rs.148.32 crore in FY20, Moreover during FY20(A) the TOI has improved by 8.27% over FY19. The firm has achieved TOI of Rs.149.07 crore for  provisional FY21 a increase of around as compared to FY20. During H1FY22 the company has reported TOI of Rs.80.84 Crore. Thus the projections seems to be achievable.

Credit Risks:

• Working capital intensive nature of operations: :

  The operations of KCPL are working capital intensive in nature due to funds blocked in debtors and inventory. As a result of the same, GCA days stood higher at 96 days in FY21 (vis-à-vis 89 days in FY21) due to higher credit period extended to its customers along with high inventory holding due to process driven nature of operations. On the other hand, the company receives moderate credit from its suppliers which led to high working capital.

• Moderately low profitability margins: :

  The profitability margin remained moderately low although the same has improved at PBILDT margin and stood at Rs.4.04 crore contributing 2.71% of the total sales(vis-a-vis Rs.1.01 Crore and 0.68% in FY20). Despite improvement in PBILDT, the PAT margin has declined and stood at Rs.0.67 crore contributing 0.45%(vis-a-vis 1.47% in FY20)  however, FY20 was the exceptional year the as the company has posted non-operating income of Rs.4.52 crore in FY20 which includes currency fluctuation against 0.08 crore in FY21. 

• Moderately leveraged capital structure and debt coverage indicators: :

  The capital structure of the company stood moderately leveraged on back of high levels of debt into the business although the same has marginally improved and stood at 2.67 times as on March 31, 2021 (vis-a-vis  2.76 times as on March 31, 2020) owing y-o-y increase in Net worth base on back of accretion of profits into the business for past three years ended FY21. ISCR has also improved and stood moderate at 1.80 times  in FY21 (Prov.) as against 1.56 times  in FY20 owing to improvement in PBILDT margin during the year.DSCR remained weak at 0.84 times on back of low level profitability.

• Foreign Currency Fluctuation risk & Fragmented Industry :

  Susceptibility to volatility in profitability due to fluctuations in raw material prices & foreign exchange price movements along with a presence in a highly competitive and fragmented industry

ANALYTICAL APPROACH - Standalone

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 company’s ability to improve the scale of operations, improve and maintain profitability, the debt servicing capability & liquidity will be the key rating sensitivities.

Positive: The rating will be upgraded if the company is able to achieve significant growth in revenue and improvement in profitability backed by a favourable industry scenario.

Negative: The rating may be downgraded if there is lower than expected revenues affecting the profitability margins, coverage ratios, liquidity and gearing ratios adversely

LIQUIDITY INDICATORS - Adequate

The  liquidity position remains adequate driven by average cash credit utilization stands at only ~11%  in the last 9 months indicating sufficient liquidity cushion. Further, the company has two way interchangeability of its cash credit limit to EPC/PCFC to an extent of Rs.3.00 Crore. The current ratio stood moderate at 1.41 times as on March 31, 2021 as against 1.39 times as on March 31, 2020, whereas the conversion cycle stood slightly elongated at 72 days in FY21 as against 61 days and 62 days in FY20 & FY19 with an inventory period of 52 days in FY21 as against 49 days in FY20. The average fund-based working capital utilization stood low at 11.01% for the past 9 months ended September 2021.Cash and cash balance stood at Rs.1.85 crore for FY21(vis-a-vis Rs.1.33 Crore for FY20). The company has unsecured loans to the tune of Rs.1.66 crore as on March 2021.

ABOUT THE ENTITY

Kaytee Group was originally formed in 1944 for trading in Cotton and Yarn and fabrics. In 1974, the Group diversified into manufacturing and exporting of ready made garments by setting up a firm Kaytee Corporation Private Limited. The firm was subsequently converted to a private Limited company in 1994. The Company is currently managed by Mr Premal Udani, who is the Chairman and the Managing Director. KCPL is engaged in manufacturing of knitted garments and specialise in children, ladies, mens wear. The company is mainly engaged in the exports with Europe being its major market. The Company’s operations are located in Tirupur, Tamil Nadu. 

 

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	148.32	137.57
EBITDA	Rs.Crs.	1.01	5.52
PAT	Rs.Crs.	2.19	1.11
Tangible Net Worth	Rs.Crs.	11.75	9.57
Total Debt/Tangible Net Worth	Times	2.76	3.52
Current Ratio	Times	1.39	1.32

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	24.20	BWR BB+/Stable (Upgrade)	29Sep2020	BWR BBStable (Downgrade/ISSUER NOT COOPERATING*)	13Sep2019	BWR BB+ Stable (Upgrade)	NA	NA
FB SubLimit	LT	(11.50)	BWR BB+/Stable (Upgrade)	NA	NA	NA	NA	NA	NA
		(3.50)	BWR BB+/Stable (Upgrade)	NA	NA	NA	NA	NA	NA
		(2.00)	BWR BB+/Stable (Upgrade)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	3.50	BWR A4+ (Upgrade)	29Sep2020	BWR A4 (Downgrade/ISSUER NOT COOPERATING*)	13Sep2019	BWR A4+ (Upgrade)	NA	NA
NFB SubLimit	ST	(1.00)	BWR A4+ (Upgrade)	NA	NA	NA	NA	NA	NA
Grand Total		27.70	(Rupees Twenty Seven Crores and Seventy lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - NA

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
• Manufacturing Companies
• Trading Entities
• Short Term Debt

Analytical Contacts
Durga Lalit Purohit Ratings Analyst durga.lp@brickworkratings.com	Sushil Kumar Chitkara Director - Ratings Board : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@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	Bank of India	Cash Credit - Sanctioned	5.20	_	5.20
2	Bank of India	Packing Credit (PC) - Sanctioned	17.00	_	17.00
	Sub-Limit (EPC/PCFC) - Sanctioned	(11.50)
	Sub-Limit (FBP) - Sanctioned	(3.50)
	Sub-Limit (IBP/IBD) - Sanctioned	(2.00)
3	Bank of India	Letter of Credit - Sanctioned	_	2.00	2.00
	Sub-Limit (BG) - Sanctioned		(1.00)
4	Punjab National Bank	ILC/FLC - Sanctioned	_	1.50	1.50
5	Punjab National Bank	PC/PCFC - Sanctioned	2.00	_	2.00
Total			24.20	3.50	27.70
TOTAL (Rupees Twenty Seven Crores and Seventy lakhs Only)