KKP Textiles Pvt Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 133.39 Crs. of KKP Textiles Pvt Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (05 Jan 2021)	Present
Fund Based	90.55	127.89	Long Term	BWR BBB/ Stable Reaffirmation	BWR BBB /Stable Reaffirmation
	2.45	0.00	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
	(2.00)	(2.00)
	(5.00)	(0.00)
	(5.00)	(0.00)
	(2.00)	(2.00)
Non Fund Based	(5.00)	(0.00)	Long Term	BWR BBB/ Stable Reaffirmation	BWR BBB /Stable Reaffirmation
	(3.00)	(0.00)
	10.50	5.50	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
	(3.50)	(5.00)
	(5.00)	(5.00)
Grand Total	103.50	133.39	(Rupees One Hundred Thirty Three Crores and Thirty Nine 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
Note: Rating advisory issued on 05 Jan 2022

RATING ACTION / OUTLOOK

The reaffirmation of ratings reflects the operational track record of  KKP Textile Pvt Ltd (KTPL or the company), strong group support, experienced management, established clientele and moderate financial risk profile marked by consistent growth in revenue, moderate net worth, adequate liquidity and adequate debt protection metrics. The ratings remain constrained by the susceptibility to volatility in cotton prices in intensely competitive textile industry, exposure to foreign exchange fluctuations, supplier concentration risk and high working capital requirements of the business.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes KKP Textile Pvt Ltd’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if a sustained increase in scale of operations and higher than envisaged profitability result in an improved financial risk profile and better gearing and debt protection metrics. The outlook may be revised to Negative if lower than expected revenue or profitability, a stretch in the working capital cycle, delay in obtaining enhancement  in working capital limits , sizeable, unanticipated capex or weakening gearing impact the financial risk profile. Any sharp reversal in industry conditions may exert downward pressure on the ratings

KEY RATING DRIVERS

Credit Strengths:

• Strong group support, Experienced Management & Established track record :

  
  KTPL is a part of Namakkal (Tamil Nadu) based KKP group, which is engaged in the manufacturing of cotton  yarn, grey fabric, weaving fabric etc. The Group is reputed and has been in existence for around three decades now. The group is vertically integrated, with facilities across spinning, knitting, printing, stitching, embroidery. Also, operations are end-to-end spanning conversion of cotton to ready-made knitwear. The company, incorporated in 1984  is engaged in the business of manufacturing Cotton Yarns and Grey Fabric.  The established presence coupled with longstanding relationships with various stakeholders across the value chain has supported its performance across the business cycles
   

• Established relationships with reputed clientele :

  
  The Company is a part of the KKP group enjoys established relationships with well-diversified clients. The top five customers constitute ~25 % of the topline for FY21. The company enjoys the patronage of its customers for more than 5 years. The Company has an order book of ~ Rs 45 Crs, for execution in the next 1-2 months.
   

• Moderate financial risk profile :

  The Company’s financial risk profile is considered moderate as reflected by the modest scale of operations, adequate profitability margins, average net worth and adequate debt protection metrics. The revenue has improved from Rs.308.86 Crs in FY20 to Rs. 357.61 Crs in FY21. The EBITDA was at Rs.21.19 Cr in FY21 (PY Rs.24.81 Cr) and PAT stood at Rs.3.60 crs in FY21 from Rs. 2.81 Cr in FY20. Tangible Net worth was Rs. 51.07 Crs as on 31 Mar 2021 (PY Rs.47.50 Crs). Gearing continues to remain high at 2.68 times as on 31 Mar 2021 as against 2.56 times as on 31 Mar 2020. However, considering a portion of the non-interest bearing unsecured from the promoters as quasi-equity, the external debt gearing level works out to be around 1.40 times as on 31 Mar 2021. Debt protection metrics were adequate with DSCR at 1.47 times as on 31 Mar 2021 (PY 1.35 times) and ISCR at 1.66 times as on 31 Mar 2021 (PY 1.87 times). The company has achieved Rs. 355.45 Crs, with EBITDA of Rs. 26.80 Crs in 11MFY22, on a provisional basis.

Credit Risks:

• Supplier Concentration Risk :

  The company procures sources of viscose staple fibre majorly from Grasim Industries Ltd, the sole producer of viscose in the domestic market. In FY21, ~40% of the raw materials are procured from Grasim industries exposing the company to supplier concentration risk.

• Vulnerability of margins to volatility in cotton/ yarn prices. :

  The profitability of spinning mills depends largely on the prices of cotton and cotton yarn which are governed by various factors such as area under cultivation, monsoon, international demand-supply situation, etc. The cotton being the major raw material of spinning mills, movement in cotton prices without parallel movement in yarn prices impact the profitability of the spinning mills.

• Intense competiton :

  The cotton yarn industry is highly commoditized. The high degree of fragmentation and commoditized nature has caused intense competition among cotton processing units. Entry barriers in cotton processing business are low on account of limited capital and technology requirements and low differentiation in end product. This leads to intense competition and limits players’ pricing power, resulting in low profitability. Since raw cotton is an agricultural commodity, its availability is limited and primarily depends on the monsoon

• Working capital intensity :

  The Company has large working capital requirements, as reflected in the moderately high inventory holding and receivable days over the last three years. Further, cash conversion cycle stood at 124 days (PY - 130 days) owing to a high receivable of 86 days (PY 93 days) and inventory of 66 days (PY 91 days) in FY21. The utilization of working capital remains high at around 90-95% over the last 12 months in line with the general industry trends.

ANALYTICAL APPROACH - Standalone

BWR has adopted the standalone approach for the rating of the bank loan facilities of the company. 

RATING SENSITIVITIES

The ability of the company to scale up sales and profitability on a sustained basis, improve its business profile, effectively manage the adverse impact of any socio-political changes across the globe on the business profile, ensure efficient manage its working capital cycle, liquidity and gearing thereby strengthening its credit risk profile would be the key rating sensitivities.

Positive 

• Significant improvement in scale of operations and profitability.
• Prudent working capital management

Negative

• Deterioration in key credit metrics on account of weaker than expected business performance and sustained pressure on net margins.
• Specific credit metrics which may result in a rating downgrade include deterioration in EBITDA to <5% and DSCR and ISCR declining to below unity on a sustained basis
• Deterioration in the credit profile of the group resulting in weakening of liquidity

LIQUIDITY INDICATORS - Adequate

The liquidity position is considered adequate with the current ratio at 1.67 times as on 31 Mar 2021. Cash Equivalents were Rs. 2.10 cr as on 31 Mar 2021. The company’s average utilization of working capital continues to be around 95% over the last 12 months, due to the working capital intensive nature of the business. EBITDA of Rs. 21.19  crs in FY21 is sufficient to cover the interest and finance charges of Rs 12.76 Crs in FY21 and net cash accruals of Rs. 10.42 Crs in FY21 is adequate to service debt obligation of Rs.3.03 Crs. Similar trend is expected in FY22 and FY23. BWR also takes note of the demonstrated ability of the directors and the group entities to support the liquidity on as and when required basis.

ABOUT THE ENTITY

K.K.P. Textiles Pvt Ltd (KTPL), incorporated in March 1984 at Namakkal (Tamil Nadu), is engaged in the business of manufacturing Cotton Yarns and Grey Fabric. The plant is located at Namakkal and is operating with an installed capacity of 57792 Spindles and 2440 Rotors. The Company is also focused on diversification by manufacturing Viscose yarn, Modal yarn, Micro Modal yarn, Tencel Yarn and blended yarn which is a mixture of cotton  modal. The company also operates windmill with 1.50 MW capacity for its captive usage.
Mr. P Chinnasamy is the Managing Director. Mr P Nallathambi, Mr. N. Sathesh Kumar, Mr. N. Subhash Kumar, Mrs C Selvi and Mrs. N. Bakkialakshmi are the other directors.

 The company belongs to the Namakkal based KKP group, set up by Mr. K Periyasamy, father of Mr. P Nallathambi, who is the present chairman of the group. The Group consists of six operating companies, all engaged in textiles viz. K.K.P. Spinning Mills Pvt Ltd [engaged in the business of manufacturing Cotton Yarns and Grey Fabric; rated BWR BBB+/Stable/A2], K.K.P. Fine Linen Pvt Ltd [engaged in vertically integrated textile production and exports; rated BWR BBB/ Stable/ A3+], K.K.P. Textiles Pvt Ltd [engaged in spinning, weaving and finishing of textiles; rated BWR BBB/ Stable/A3+], K.K.P. Hi Tech Weaving India Pvt Ltd [engaged in the business of spinning, weaving and finishing of textiles; rated BWR BBB-/Stable/A3], K.K.P. Weaving and Processing Mills Pvt Ltd [Engaged in manufacturing of cotton yarn and yarn fabric; rated BWR BBB- /Stable/ A3] and K.K.P. Garments Pvt Ltd [Engaged in manufacturing of pillow ticks, napkins and tablecloth; rated BWR BB+/Stable]. KKP Group has Ring spinning capacity of 1,00,000 Spindles and 1800 Rotors for Open-end spinning. The Group produces more than 50 Tons of optimal quality yarn per day, with counts ranging from Ne6’s, 10’s, 16’s, 20’s, 30’s, 40’s, 60’s. All the Group Companies are ISO 9001 certified and have common management and complement each other’s operations, thereby improving the efficiency of operations and also have a centralised system for procurement of raw materials and marketing arrangements, which has resulted in the synergy of business operations.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	357.61	308.86
EBITDA	Rs.Crs.	21.19	24.81
PAT	Rs.Crs.	3.60	2.81
Tangible Net Worth	Rs.Crs.	51.07	47.50
Total Debt/Tangible Net Worth	Times	2.68	2.56
Current Ratio	Times	1.67	1.42

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	127.89	BWR BBB/Stable (Reaffirmation)	05Jan2021	BWR BBB Stable (Reaffirmation)	NA	NA	31Oct2019	BWR BBB Stable (Reaffirmation)
Fund Based	ST	0.00	NA	05Jan2021	BWR A3+ (Reaffirmation)	NA	NA	NA	NA
FB SubLimit	ST	(2.00)	BWR A3+ (Reaffirmation)	05Jan2021	BWR A3+ (Reaffirmation)	NA	NA	31Oct2019	BWR A3+ (Reaffirmation)
FB SubLimit	ST	(2.00)	BWR A3+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Non Fund Based	LT	0.00	NA	05Jan2021	BWR BBB (Reaffirmation)	NA	NA	NA	NA
NFB SubLimit	LT	NA	NA	05Jan2021	BWR BBB Stable (Reaffirmation)	NA	NA	31Oct2019	BWR BBB Stable (Reaffirmation)
Non Fund Based	ST	5.50	BWR A3+ (Reaffirmation)	05Jan2021	BWR A3+ (Reaffirmation)	NA	NA	31Oct2019	BWR A3+ (Reaffirmation)
NFB SubLimit	ST	(5.00)	BWR A3+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(5.00)	BWR A3+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		133.39	(Rupees One Hundred Thirty Three Crores and Thirty Nine lakhs Only)

Rating Advisory, as on 05Jan2022
Press Release, as on 05Jan2022
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
• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt
• Ratings based on Group Support

Analytical Contacts
Kaushik Srikanth V Rating Analyst kaushik.s@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	Federal Bank	Term Loan - Sanctioned	3.10	_	3.10
2	Federal Bank	Cash Credit - Sanctioned	44.00	_	44.00
	Sub-Limit (Letter of Credit) - Sanctioned		(5.00)
3	Federal Bank	GECL - Sanctioned	12.65	_	12.65
4	HDFC Limited	GECL - Sanctioned	1.00	_	1.00
5	HDFC Limited	Term Loan - Sanctioned	10.00	_	10.00
6	HDFC Limited	Cash Credit - Sanctioned	8.00	_	8.00
7	IDBI Bank	Cash Credit - Sanctioned	_	_	0.00
	Sub-Limit (EPC/PCFC/F BP/FBD/FBN/ EBRD) - Sanctioned		(0.00)
	Sub-Limit (FCNR(B)) - Sanctioned		(0.00)
	Sub-Limit (LC/BG) - Sanctioned	(0.00)
	Sub-Limit (LER) - Sanctioned	(0.00)
8	IDBI Bank	Line of Credit to Vendors - Sanctioned	_	_	0.00
9	IDBI Bank	GECL - Sanctioned	0.99	_	0.99
10	Lakshmi Vilas Bank	Letter of Credit - Sanctioned	_	_	0.00
11	Lakshmi Vilas Bank	Cash Credit - Sanctioned	_	_	0.00
12	Lakshmi Vilas Bank	Term Loan - Sanctioned	_	_	0.00
13	Others	Cash Credit - Proposed	_	_	0.00
14	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	0.50	0.50
15	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	5.00	5.00
	Sub-Limit ((FBDN (Non LC))/EBR) - Sanctioned		(2.00)
	Sub-Limit (SBLC) - Sanctioned		(5.00)
16	State Bank Of India (SBI)	Covid -19 Emergency Line Credit - Sanctioned	_	_	0.00
17	State Bank Of India (SBI)	GECL - Sanctioned	5.26	_	5.26
18	State Bank Of India (SBI)	Cash Credit - Sanctioned	29.50	_	29.50
	Sub-Limit (EPC/PCFC) - Sanctioned		(2.00)
19	State Bank Of India (SBI)	Term Loan - Sanctioned	13.39	_	13.39
Total			127.89	5.50	133.39
TOTAL (Rupees One Hundred Thirty Three Crores and Thirty Nine lakhs Only)