RATING RATIONALE
13Jan2022
Arthanari Loom Centre (Textile) Pvt Ltd
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 197.72 Crs. of Arthanari Loom Centre (Textile) Pvt Ltd
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (15 Dec 2020) |
Present | ||
| Fund Based | 133.69 | 197.72 | Long Term |
BWR BBB/Stable
Reaffirmation |
BWR BBB
/Stable Reaffirmation |
| (8.50) | (20.00) | Short Term |
BWR A3
Reaffirmation |
BWR A3
Reaffirmation |
|
| (1.00) | (5.00) | ||||
| Non Fund Based | (10.00) | (10.00) | Short Term |
BWR A3
Reaffirmation |
BWR A3
Reaffirmation |
| Grand Total | 133.69 | 197.72 | (Rupees One Hundred Ninety Seven Crores and Seventy Two lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
The reaffirmation of ratings of Arthanari Loom Centre (Textile) Pvt Ltd ('ALC' or the 'company') continues to factor the established operational track record and experienced promoters, diversified customer and supplier base, locational advantage, and above-average financial profile. BWR also notes the improved year to date performance for 8M FY22 post a subdued performance in FY21. However, the ratings remain constrained by susceptibility to profitability to volatility in raw material prices, Moderate scale of operations, intense competition in industry and working capital intensive operations, regulatory requirements and impact of Covid-19.
BWR notes that the company had availed relief under the COVID-19 moratorium package during Mar'20 - Aug'20 involving deferment of interest and emergency credit lines. The company has been regular in debt obligation payments in the post-moratorium period, as confirmed by the lenders. BWR also notes the company has not availed for one-time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.
The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. Brickwork Ratings believes that ALC’s business and financial risk profile will be maintained over the medium term. The outlook may be revised to positive if the company reports a significantly better-than-estimated growth in its operations, profitability and liquidity position while maintaining its credit risk profile. The outlook may be revised to negative if there is lower than expected revenue or profitability and deterioration of gearing and debt coverage metrics, any adverse impact of COVID-19 on the business profile resulting in a weaker liquidity position of the company.
KEY RATING DRIVERSCredit Strengths:
-
Established operational track record and experienced promoters :
The promoters have over two decades of experience in the manufacturing of fabrics. It has a cotton yarn dyeing plant, denim dyeing plant, fabric weaving facilities with modern airjet looms and hi-tech fabric process house in its manufacturing unit. BWR also notes the company's future capex with backward integration and modernization plans. The established presence in the market over a long period and promoters’ understanding of the industry dynamics are beneficial for the Company’s business. Also, the promoters have the ability to contribute to the business through long term unsecured loans as and when needed.
-
Diversified customer and supplier base and locational advantage :
The Company has limited customer and supplier concentration risk as the sales and purchases are not concentrated enough with a few customers/suppliers so as to have an adverse affect on business due to business problems of any customers/suppliers. The manufacturing unit is located in Tamil Nadu which is one of the main cotton yarn producing states in India. The Company sources the cotton yarn from Tamil Nadu and Andhra Pradesh and dyes and chemicals from within Tamil Nadu. Rayon yarn has to be imported from Indonesia as per the requirements placed by the customers.
-
Above average financial profile :
The company in FY21 achieved revenue of Rs.242.21 Crs as against Rs.320.14 Crs in FY20. The decline is mainly attributed to the impact of Covid-19. The EBITDA and PAT stood at Rs.33.48 Crs and Rs.3.53 Crs respectively in FY21 as against Rs.37.78 Crs and Rs.5.49 Crs respectively in FY20. The operating margin improved from 11.80% in FY20 to 13.82% in FY21. The tangible net worth of the company stood at Rs.91.18 Crs as on 31 Mar 2021 as against Rs.87.65 Crs as on 31 Mar 2020. The gearing was moderate at 1.69 times as on 31 Mar 2021. The ISCR and DSCR of the company stood at 2.60 times and 1.59 times as on 31 Mar 2021 as against 2.84 times and 1.28 times as on 31 Mar 2020. On a provisional basis, the company has achieved a sales of Rs.263.91 Crs for 8MFY22
-
Susceptibility of profitability to volatility in raw material prices :
The Company’s profitability is vulnerable to volatility in raw material prices as raw material cost comprises roughly 50-55% of the annual net sales. The Company mainly uses cotton and rayon yarn. The profitability relies on the price of cotton which is affected by agro-climatic conditions, Minimum Support Price (MSP) decided by the Central government and the demand from raw cotton export market. The rayon yarn is imported from Indonesia as and when needed, which makes it susceptible to foreign exchange fluctuations. However, the forex risks are hedged with Packing Credit facility in foreign currency and forward contracts.
-
Moderate scale of operations, intense competition in industry and working capital intensive operations :
The company has moderate scale of operations in a competitive landscape which is highly fragmented and consists of both organized and unorganized sectors. The high competition limits the company's ability to pass on any adverse RM cost variation to the customers. The profitability remains susceptible to such associated inherent risks. The company's operations are working capital intensive which are reflected in the moderately high inventory holding and receivable days over the last 3 years. BWR notes that the cash conversion cycle increased from 111 days as on 31 mar 2020 to 184 days as on 31 Mar 2021 owing to the increase in inventory days from 88 days to 148 days and receivables days from 44 days to 59 days during the said period. Working capital management remains a key monitorable.
-
Regulatory requirements :
The process of fabric manufacturing consists of various processes such as bleaching, dyeing and printing which use chemicals at various stages, and the waste emanating out of them has to be disposed carefully to prevent harm to geological ecology. Adherence to statutory requirements and pollution control measures adds to the overall cost of operations. The Company has a full-fledged Effluent Treatment Plant which is reportedly adequate for the present level of operations.
-
Impact of Covid 19 :
The unprecedented situation arising out of Covid-19 induced lockdown led to Subdued FY21 performance. The impact of the second wave of the pandemic on the company sales and operations has been minimal till date. However, the onset of the reported third wave and its impact , if any, on the business is key monitorable.
BWR has adopted a standalone approach while arriving at the ratings and applied its rating methodology as detailed in the Rating criteria below (hyperlinks provided at the end of this rationale). The Company has over 65% investment in three partnership firms: A.P. Textiles, Pushpam Textiles and Aadithya Textiles. The Company does not prepare consolidated financials. The Company does not prepare consolidated financials based upon legal opinion and its board’s interpretation of Section 129(3) of the Companies Act, 2013
RATING SENSITIVITIES
The ability of the company to significantly scale up its operations and profitability on a sustained basis, improve its business profile, effectively manage impact of Covid-19 pandemic on business operations, efficiently manage its working capital cycle, liquidity and gearing are considered key rating sensitivities. Furthermore, the company ability to generate the estimated net cash accrual to support the debt obligations which is expected to increase due to the proposed fresh debt shall also be key rating monitorables
Positive:
- Significant improvement in scale of operations and profitability on a sustained basis
- Prudent working capital management to improve the liquidity profile of the company
Negative:
- Weaker than expected growth in revenue and profitability margins leading to deterioration in business and financial risk profile
- Specific credit metrics which may result in a rating downgrade include deterioration in EBITDA margin to <10%, gearing above 2.00 times and DSCR and ISCR declining to below 1.50 times on a sustained basis
- Total Debt/ EBIDTA exceeding 4.0 times on a sustained basis.
The liquidity position continues to be adequate marked by the net cash accruals of Rs.18.78 Crs as on 31 Mar 2021 sufficient to meet the debt obligations of Rs.16.90 Crs during the year. The position is expected to be maintained in FY22 and FY23. The company however continues to be working capital intensive with average utilisation of ~ 90% for the last 12 months. The cash and cash equivalents was moderate at Rs.1.47 Crs as on 31 Mar 2021. The Net Cash Accruals/Total Debt stood at 0.12 times for FY21. The current ratio was moderate at 1.33 times in FY21. BWR also takes note of the liquidity support in the form of unsecured loans from the promoters on as and when needed basis. The company's ability to achieve the envisaged profitability and free net cash slow as against the debt obligations remains a key monitorable considering the proposed capex in the short term.
ABOUT THE ENTITYArthanari Loom Centre (Textile) Pvt Ltd was incorporated in 1991 at Salem, Tamil Nadu. The Company is engaged in manufacturing of yarn dyed fabrics and indigo fabrics. Its factory is located at Erumapalayam Post, Salem. The plant has cotton yarn dyeing plant, denim dyeing plant, fabric weaving facilities with modern airjet looms and hi-tech fabric process house. The plant has installed capacity of 233 looms with production capacity of 285 lakh metres per annum as on 31Mar2021.The company primarily uses electronically cleared, spliced and autoconed cotton combed/compact yarn from counts 5s to 80s and 2/20s to 2/100s along with the rayon yarn and dyes and chemicals. The Company has a captive wind mill with installed capacity of 1.25 MW and recently commissioned Solar plant of 6MW for captive usage.
The Company is promoted by Mr. Arthanari Alagarasan and his family members. The Board of Directors consists of Mr. Arthanari Alagarasan (Managing Director), Mrs. A Pushpa (Dy. M.D.), Mr. A Aadhithya (Joint M. D.) and Mrs. D. Naga Aarthhi (Director).
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 242.21 | 320.14 |
| EBITDA | Rs.Crs. | 33.48 | 37.78 |
| PAT | Rs.Crs. | 3.53 | 5.49 |
| Tangible Net Worth | Rs.Crs. | 91.18 | 87.65 |
| Total Debt/Tangible Net Worth | Times | 1.69 | 1.45 |
| Current Ratio | Times | 1.33 | 1.13 |
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)
| Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 197.72 |
BWR BBB/Stable
(Reaffirmation) |
NA |
NA
|
15Dec2020 |
BWR BBBStable
(Reaffirmation) |
15Nov2019 |
BWR BBBStable
(Reaffirmation) |
| Fund Based | ST | NA |
NA
|
NA |
NA
|
15Dec2020 |
BWR A3
(Reaffirmation) |
15Nov2019 |
BWR A3
(Reaffirmation) |
| FB SubLimit | ST | (20.00) |
BWR A3
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| (5.00) |
BWR A3
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| Non Fund Based | ST | NA |
NA
|
NA |
NA
|
15Dec2020 |
BWR A3
(Reaffirmation) |
15Nov2019 |
BWR A3
(Reaffirmation) |
| NFB SubLimit | ST | (10.00) |
BWR A3
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| Grand Total | 197.72 | (Rupees One Hundred Ninety Seven Crores and Seventy Two 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.
Hyperlink/Reference to applicable Criteria| Analytical Contacts | |
|---|---|
|
Priyanka RS Rating Analyst Board : +91 044 24663326 priyanka.rs@brickworkratings.com |
Saakshi Kanwar Senior Manager Ratings saakshi.k@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 | Canara Bank | Term LoanSanctioned | 17.67 | _ | 17.67 | |
| 2 | Canara Bank | Term LoanProposed | 5.25 | _ | 5.25 | |
| 3 | Canara Bank | GECLSanctioned | 4.75 | _ | 4.75 | |
| 4 | HDFC Bank | GECLSanctioned | 2.00 | _ | 2.00 | |
| 5 | HDFC Bank | Term LoanSanctioned | 16.00 | _ | 16.00 | |
| 6 | HDFC Bank | Term LoanSanctioned | 0.81 | _ | 0.81 | |
| 7 | HDFC Bank | Cash CreditSanctioned | 10.00 | _ | 10.00 | |
| 8 | State Bank Of India (SBI) | Covid -19 Emergency Line CreditSanctioned | 1.09 | _ | 1.09 | |
| 9 | State Bank Of India (SBI) | Funded Interest Term LoanSanctioned | _ | _ | 0.00 | |
| 10 | State Bank Of India (SBI) | GECLSanctioned | 14.67 | _ | 14.67 | |
| 11 | State Bank Of India (SBI) | Term LoanProposed | 57.00 | _ | 57.00 | |
| 12 | State Bank Of India (SBI) | Cash CreditSanctioned | 50.00 | _ | 50.00 | |
| Sub-Limit (FBDN/EBR) Sanctioned | (5.00) | |||||
| Sub-Limit (LC) Sanctioned | (10.00) | |||||
| Sub-Limit (PCFC/EPC) Sanctioned | (20.00) | |||||
| 13 | State Bank Of India (SBI) | Term LoanSanctioned | 18.48 | _ | 18.48 | |
| Total | 197.72 | 0.00 | 197.72 | |||
| TOTAL (Rupees One Hundred Ninety Seven Crores and Seventy Two lakhs Only) | ||||||
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