The Ruby Mills Ltd

Brickwork Ratings revises the ratings for the Bank Loan Facilities of Rs.280.32 Crs. of The Ruby Mills Ltd. (TRML or The Company)

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (12 Oct 2020)	Present
Fund Based	268.50	267.52	Long Term	BWR BB+ /Stable Reaffirmation	BWR BBB - /Stable Upgrade
Non Fund Based	12.80	12.80	Short Term	BWR A4+ Reaffirmation	BWR A3 Upgrade
Grand Total	281.30	280.32	(Rupees Two Hundred Eighty Crores and Thirty Two 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

The rating upgrade takes into account the sustained improvement in the financial performance marked by improved profitability margins and improvement in capital structure. The ratings further derive comfort from the established track record of promoters and the predominantly LRD nature of its long-term debt. The ratings continue to remain constrained due to the modest scale of operations, fragmented nature of the textile industry, and the inherent risks associated with the cyclical nature of the real estate industry.

BWR believes TRML’s business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of a rating change over the medium term.

KEY RATING DRIVERS

Credit Strengths:

• Substantial recovery in revenue and robust profitability margins :

  The company generates revenues through two segments viz - Textile and Real Estate (inclusive of commercial leasing) with Textiles contributing a significant portion of revenue (approx. 76% in FY21). Although the revenue was ~33% down yoy in FY21, there is an improvement in the current fiscal with half-yearly revenues improving by over 200% of the previous fiscal supported by the recovery in operations, growth in demand, and efficient utilization of capacities. Moreover, real estate revenue remains in line in spite of the global pandemic and industry slowdown. With total revenue of Rs.110.02 Crs. till Nov’21, the company achieved ~ 90% of its FY21 revenues and ~50% behind the projected revenue for FY22.
  The profitability is robust as reflected in the Operating profit margin (OPM) at 31.06% in FY21 (FY20: 24.60%) and the net profit margin (NPM) at 20.96% in FY21 (FY20: 15.13%). The same though has declined in 1HFY22 as well with OPM at 20.54% and NPM at 6.48%. Profitability is expected to improve over the medium term supported by efficient utilization levels, cost control measures, and upgraded technology.

• The healthy financial risk profile :

  Networth is robust at Rs.498.22 Crs. as on 31-Mar-2021, the capital structure is healthy with Gearing and TOL/TNW at 0.77 times (FY20: 0.80 times)and 1.10 times (FY20: 1.18 times) respectively as on 31-Mar-2021. Further if adjusted for unsecured loans from family and friends the same improves further to below 0.5 times. In the absence of any near-term capex plans and gradual repayment of term debt along with accretion to reserves, the capital structure and network are expected to improve further over the medium term.
  Debt protection metrics, although declined, remained comfortable with an ISCR of 4.87x in FY21 (FY20: 8.85x) despite the company being impacted by the Covid-19 pandemic. The adjusted DSCR for the company is also healthy at over 1.6x.
  The LRD facility which accounts for 86% of overall term debt is further secured with a DSRA of average of 2-months of principal and interest. Also, there are no near-term ending contracts and rental inflow is expected to support through the LRD tenure.

• Established track record of operations and experienced management :

  TRML is a decade-old listed Mumbai-based textiles manufacturing company that was incorporated in the year 1917 as a Composite Textile Mill. Mr. Hiren M.Shah is taking care of the operations of the company in the capacity of Executive Chairman. He is a qualified Textile Technologist with over 40 years of industry experience. He was also appointed as the youngest Chairman of the Bombay Mill Owners Association,an august body of the Textile Industry, in 2001. He was also Chairman of Confederation of Indian Textile Industry (formerly ICMF) in 2006,

• Order book position and revenue visibility :

  As on 30-November-2021, the company has an active order of approx. Rs.27.54 Crs. (27 lacs meters). Moreover, the company also adopted many measures and technological advancements to ensure that the Indian consumers can now get fabrics with world-class quality, without any compromise.
  In real estate the company has a development agreement to develop The Ruby Tower which has 36 Floors and out of which for 17 floors the company already received Occupancy Certificate. For the remaining the company has made substantial payment of premium to the MCGM to amend the plans and to enable the endorsement of CC for “The Ruby” tower and the company is expecting to get occupancy certificates for the balance floors in stages commencing from Q4FY22.
  The outstanding payment of premium towards the OC is Rs.40 Crs., of which Rs.25 Crs. is expected to be paid in January 2022. Supported by the additional available for sale/lease units the potential for revenue from the real estate segment is expected to improve significantly. Nonetheless, timely completion and realization of receivables will continue to be monitorable.

Credit Risks:

• Vulnerability against raw material prices :

  The profitability of TMRL is exposed to the fluctuation in the prices of the key raw materials i.e. cotton and polymers. However, a significant portion of the purchases is order-backed which enables the company to pass on the price increase, if any, to its customers to a major extent.

• Exposure to intense competition :

  The ready-made garment manufacturing segment is fragmented and intensely competitive. Despite the group's presence in the business for nearly a century and established relationships with customers and suppliers, the company has a moderate scale of operations and remains exposed to competition from various players in India and other low-cost ready-made garment manufacturers from other countries. This places pressure on its business risk and financial risk profiles.

• Termination/non-renewal of any of the ongoing lease deeds and timely clearance of Occupancy Certificate :

  Any discontinuation of the ongoing lease rental agreements would adversely affect the cash flows of TMRL. However, the prime location (Dadar, Mumbai) of the property, which is an established commercial hub, mitigates this risk to an extent. Moreover, the company has completed substantial payment of premium to the MCGM to amend the plans and to enable the endorsement of CC and simultaneously OC but the company is yet to receive it and is pending with the respective authority. Timely receipt of the clearances, sales of the property, and realization of the sale proceeds is the key sensitivity factor for any real estate project. Any strikes by workers as was witnessed in the past could also impact cash flows.

• Competitive and cyclical real estate industry :

  The real estate industry in India is highly fragmented with most of the real estate developers having a region-specific presence. The Company is exposed to the cyclicality associated with the real estate sector which has direct linkage with the general macroeconomic scenario, interest rates, and level of disposable income available with individuals. In the case of real estate companies, the profitability is highly dependent on property markets and the current pandemic, including the rising cases of Covid due to the new variant of the virus, adds to the uncertainty.

ANALYTICAL APPROACH - Standalone

To arrive at its ratings, BWR has applied its rating methodology as detailed in the Rating criteria below (hyperlinks provided at the end of this rationale). BWR has analyzed TRML’s on a standalone basis to arrive at the rating. BWR has principally relied upon the audited financial results up to FY21, 1HFY22 key numbers, projections of FY22, FY23, publicly available information, and information/clarification provided by the management.

RATING SENSITIVITIES

Upward: Significant improvement in operations, timely receipt of Occupancy Certificate for remaining floors, sustenance of key financial metrics, and reduction in overall debt levels.

Downward: Material decline in topline, discontinuation in any of the ongoing lease rental agreements, any debt-funded capital expenditure adversely impacting the financial risk profile, deterioration in debt coverage indicators, and/or working capital cycle.

LIQUIDITY INDICATORS - Adequate

TRML's liquidity position stands adequate with regard to the business size. For FY22 and FY23, cash accruals of Rs.44.86 Crs. and Rs.47.44 Crs. respectively are expected against term obligations of Rs.20.68 Crs. and Rs.22.66 Crs. respectively. The company had opted for a moratorium period for repayment of certain loans. The same had been converted into FITL and was serviced before time. As on 14-Dec-2021, the company’s liquidity position is as below:

TRML’s fund-based limit utilization is between 25% to 30% for the last 6-months ended November 2021 which provides sufficient cushion in case of any exigencies.

ABOUT THE ENTITY

The Ruby Mills Limited (TRML) was incorporated in 1917 and started its commercial operations in 1921. The management of the unit was taken over by the late Shri C N Shah in 1946. The company started with the manufacturing of cotton/ blended yarn and fabric. The company had its plants in Dadar (Mumbai), Kharsundi, and Dhamni (Raigad, Maharashtra). In 2007, TRML shifted part of its operations from Dadar to Raigad resulting in the availability of land at prime locations for real estate development. In 2010, the company completely shifted its manufacturing operations from Dadar and meanwhile has entered into a development agreement with Mindset Estate Private Limited (MEPL, a 100% subsidiary of Rohan Lifescapes (Rating Withdrawn on 26-Nov-2021)) to construct an IT Park on the available land. The project named “The Ruby” has been developed on the aforementioned land. It has a total leasable/saleable area of 9.05 lakh sq ft. TRML is engaged in both selling and leasing of the area in IT Park.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	123.33	183.08
EBITDA	Rs.Crs.	38.31	45.04
PAT	Rs.Crs.	25.85	27.70
Tangible Net Worth	Rs.Crs.	498.22	472.04
Total Debt/Tangible Net Worth	Times	0.77	0.80
Current Ratio	Times	0.85	0.92

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	267.52	BWR BBB-/Stable (Upgrade)	12Oct2020	BWR BB+ Stable (Reaffirmation)	06Sep2019	BWR BB+ Stable (Reaffirmation)	05Apr2018	BWR BB+ Stable (Upgrade)
		NA	NA	03Jun2020	BWR BB+ Credit Watch with Negative Implications (Reaffirmation)	NA	NA	NA	NA
Non Fund Based	ST	12.80	BWR A3 (Upgrade)	12Oct2020	BWR A4+ (Reaffirmation)	06Sep2019	BWR A4+ (Reaffirmation)	05Apr2018	BWR A4+ (Upgrade)
		NA	NA	03Jun2020	BWR A4+ (Reaffirmation)	NA	NA	NA	NA
Grand Total		280.32	(Rupees Two Hundred Eighty Crores and Thirty Two 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.

Analytical Contacts
Gaurav Agnihotri Senior Rating Analyst gaurav.a@brickworkratings.com	Chintan Dilip Lakhani Director- Ratings chintan.l@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 Baroda	Cash Credit - Sanctioned	3.25	_	3.25
2	Bank of India	Term Loan - Sanctioned	2.33	_	2.33
3	Bank of India	FLC(DA/DP) - Sanctioned	_	5.00	5.00
4	Bank of India	Working Capital (CC) - Sanctioned	6.25	_	6.25
5	HDFC Bank	Lease Rental Discounting - Sanctioned	192.94	_	192.94
6	IDBI Bank	Term Loan - Sanctioned	_	_	0.00
7	IndusInd Bank	Term Loan - Sanctioned	9.40	_	9.40
8	IndusInd Bank	Lease Rental Discounting - Sanctioned	25.02	_	25.02
9	IndusInd Bank	Lease Rental Discounting - Sanctioned	14.83	_	14.83
10	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	1.80	1.80
11	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	_	0.00
12	State Bank Of India (SBI)	Working Capital Term Loan - Sanctioned	8.97	_	8.97
13	Un tied portion	Letter of Credit - Proposed	_	6.00	6.00
14	Un tied portion	Working Capital Demand Loan - Proposed	4.53	_	4.53
Total			267.52	12.80	280.32
TOTAL (Rupees Two Hundred Eighty Crores and Thirty Two lakhs Only)