Swaraj Suiting Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 95.00 Crs. of Swaraj Suiting Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (14 Sep 2021)	Present
Fund Based	36.51	94.51	Long Term	BWR BBB- /Stable Assignment	BWR BBB - /Stable Reaffirmation
Non Fund Based	0.49	0.49	Short Term	BWR A3 Assignment	BWR A3 Reaffirmation
Grand Total	37.00	95.00	(Rupees Ninety Five Crores 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) has reaffirmed the long term rating for fund based facilities of Rs 94.51 Crs at BWR BBB-/Stable and short term rating at BWR A3 for the non fund based facilities of Rs. 0.49 Crs of Swaraj Suiting Ltd (SSL or the company).

The reaffirmation of the ratings favorably factors in the significant experience of the promoters in the textile industry, the company’s established and reputed customer base which has aided in healthy order inflows and revenue growth over the years. The rating also factors in the company’s above average financial risk profile as indicated by comfortable capital structure and debt protection metrics and which are likely to moderate to some extent on account of the ongoing capex however are expected to remain at adequate levels.

The ratings, however, are constrained by working capital intensive operations owing to high inventory holdings requirements, vulnerability of the company’s profitability to fluctuations in prices of key raw materials, intensely competitive textile industry, which limits the pricing flexibility to an extent and high customer concentration risk which as per discussion with the management BWR understands is likely to improve gradually over the next six months. Further, BWR has taken note of the capex plan of Rs. 71.37 Crs by the company and we understand from the Management that SSL is on track to attain the COD of the new unit by May 2022.

BWR believes that SSL’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:

Extensive experience of promoters in the textile industry :

The promoters of the company have been involved in the textile business for around two decades. The company mainly caters to the domestic market.
Reputed and established customer profile with track record of repeat business :

The company manufactures and sells its products to reputed and established domestic players. Over the years, it has established a strong relationship with its customers. SSL is coming up with a new facility of dyeing, processing & finishing of denim fabric and is expected to commence operations from May 2022.
Above average financial risk profile :
The company has reported considerable growth in its top line in 9MFY22 vis-a-vis FY21 financials and growth is likely to continue in FY22E and FY23 onwards, supported by the ongoing capacity addition and healthy demand prospects. The company has reported improved revenue of Rs. 112.79 Crs for 9MFY22 vis-a-vis revenue of Rs. 60.01 Crs in FY21. The capital structure remained comfortable as indicated by a gearing of 1.11 times in FY21 (FY20: 1.16 times). The debt-coverage ratios remained stable for FY21 with a DSCR of 1.41 times (FY20: 1.29 times) and ISCR of 3.39 times (FY20: 3.64 times). The capital structure and debt coverage ratios are expected to moderate in the near term on account of the ongoing capex however the same are expected to remain at adequate levels. Nonetheless, the traction in the utilization level of the fresh capacity addition will aid the ramp up in the scale up of the operations of the company.

Credit Risks:

High customer concentration risk :

The customer concentration risk is high with the top five customers accounting for ~95% of the total sales with the top customer accounting for 90% plus sales. However, the reputed and established customer profile mitigates the counterparty credit risk to a significant extent. BWR understands that post the ongoing capex plan, the customer concentration risk is expected to reduce gradually to 30-40% range over the next six months.
Pressure on operating profit margins :
The company has reported revenue growth of ~88% for 9MFY22 vis-a-vis FY21 and revenue growth is likely to continue for FY22E and the same is expected to sustain going forward on account of the ongoing capex plan. However the EBITDA margins are expected to decline significantly FY22 onwards. Based on the discussion with the company’s management, BWR understands that FY22 onwards, the focus of the company is mainly towards manufactured sales (Grey and Fabric; 93-95%) and Job work would be around (5%-7%). The job work activity has relatively much higher margins than manufacturing as the revenue booked was only for the conversion of yarn to fabric (cost of yarn not included) and the cost of raw materials doesn’t get factored in. Under sale of fabric revenue, both conversion charges and cost of yarn will be included, along with comparatively increased labor cost and hence the margins are relatively lower. Going forward, while margins are expected to remain at (reduced) FY22E levels, in absolute terms the EBIDTA is expected to improve significantly.
Capex Plan :
The company has a capex of around Rs. 71.37 Crs, which is expected to be funded by a debt of Rs. 43 Crs (tied up, Rs. 37.40 Crs infused as on 30 March 2022) and balance from equity/unsecured loans (Rs. 28.18 crs infused as on 30 March 2022, the projected infusion was of Rs. 28.37 Crs). ~92.5% of the cost has been incurred as on 30 March 2022. On account of the on-going capex there would be some moderation in the capital structure however the same is expected to be at comfortable levels.
High working capital intensity :

The company’s working capital intensity of operations remains high, owing to high inventory holdings, with inventory days of 212 days in FY21 (FY20: 189 days). Moreover, the average working capital utilization level stood at 89.77% for the past 12 months ending March 2022 with maximum percentage utilization level being at 99.27%.
Intense competition :

The Indian textile industry is highly fragmented with the presence of numerous organised and unorganised players, which restricts the pricing flexibility.
Profitability susceptible to volatility in raw material prices :
With limited control over the prices of its key inputs, the company’s profitability remains exposed to volatility in raw material prices.

ANALYTICAL APPROACH - Standalone

BWR has factored in the company’s standalone business and financial risk profile to arrive at the rating. Reference may be made to the Rating Criteria hyperlinked below. There is a change in the analytical approach to standalone, considering the reduction in the stake by SSL to less than 50% in erstwhile subsidiary viz; Cyan Textile Pvt. Ltd.

RATING SENSITIVITIES

Positive factors:

Significant growth in scale whilst improving profitability and liquidity position on a sustained basis and moderation in customer concentration risk

Negative factors:

Significant delay in ramp-up of projected revenues, material deterioration in margins, time or cost overrun in capex implementation, stretch in working capital cycle or any cash outflow weakening the capital structure

LIQUIDITY INDICATORS - Adequate

The liquidity position of the company remains adequate with free cash/liquid investments of Rs. 1.51 Crs as of 31 March 2022 and availability of cushion in form of undrawn working capital limits. The company has term debt outstanding of Rs. 61.69 Crs (term debt undisbursed amount stood at Rs. 4.50 Crs) as March 2022 end. The company has principal repayment obligations of Rs. 8.51 Crs in FY23, Rs. 12.01 Crs in FY24 and Rs. 11.34 Crs in FY25. Its accruals are anticipated to remain sufficient to meet the repayment obligations.

ABOUT THE ENTITY

The Company was originally incorporated as “Swaraj Suiting Private Limited” in 2003 and is promoted by Mr. Mohammad Sabir Khan. SSL is presently producing/ weaving finish and grey fabrics.The company will be able to Integrate Dying of yarn used for weaving and Finishing of fabric after the COD for the new facility is achieved in Neemuch. The company is expected to commence operations by the end of May 2022.The company got listed on NSE (NSE SME exchange) on 28 March 2022 at an issue price of INR 56/-. The company has raised equity of Rs. 12.12 Crs in Pre IPO and Rs. 10.68 Crs during the IPO and funds raised have mainly been used in the ongoing capex plan and working capital requirements.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	60.01	58.34
EBITDA	Rs.Crs.	9.98	13.28
PAT	Rs.Crs.	2.61	3.26
Tangible Net Worth	Rs.Crs.	37.62	30.45
Total Debt/Tangible Net Worth	Times	1.11	1.16
Current Ratio	Times	1.65	1.36

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities. The company has also provided their confirmation as of 02 May 2022 that it has complied with all the covenants mentioned in the rated facilities sanction letter.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

ANY OTHER INFORMATION

NIL

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	94.51	BWR BBB-/Stable (Reaffirmation)	14Sep2021	BWR BBB- Stable (Assignment)	NA	NA	NA	NA
Non Fund Based	ST	0.49	BWR A3 (Reaffirmation)	14Sep2021	BWR A3 (Assignment)	NA	NA	NA	NA
Grand Total		95.00	(Rupees Ninety Five Crores 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
Satish Jaiprakash Jewani Ratings Analyst satish.j@brickworkratings.com	Chintan Dilip Lakhani Director- Ratings chintan.l@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Swaraj Suiting Ltd.

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	Term Loan - Sanctioned	31.93	_	31.93
2	Bank of Baroda	Cash Credit - Sanctioned	4.00	_	4.00
3	Bank of Baroda	Bank Guarantee - Sanctioned	_	0.49	0.49
4	State Bank Of India (SBI)	Proposed loan - Sanctioned	_	_	0.00
5	State Bank Of India (SBI)	Term Loan - Sanctioned	18.63	_	18.63
6	State Bank Of India (SBI)	Cash Credit - Sanctioned	11.00	_	11.00
7	Un tied portion	Cash Credit - Proposed	3.95	_	3.95
8	Union Bank of India	Term Loan - Sanctioned	15.00	_	15.00
9	Union Bank of India	Cash Credit - Sanctioned	10.00	_	10.00
Total			94.51	0.49	95.00
TOTAL (Rupees Ninety Five Crores Only)

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