Sri Lakshmi Godavari Spinning Mills Pvt. Ltd. (erstwhile Sri Lakshmi Godavari Spinning Mills Ltd.)

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 63.00 Crs. of Sri Lakshmi Godavari Spinning Mills Pvt. Ltd. (erstwhile Sri Lakshmi Godavari Spinning Mills Ltd.).

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (25 Mar 2021)	Present
Fund Based	62.74	59.82	Long Term	BWR BB+ /Stable Reaffirmation	BWR BB + /Stable Reaffirmation
	5.00	3.00	Short Term	BWR A4+ Reaffirmation	BWR A4 + Reaffirmation
Non Fund Based	0.18	0.18	Short Term	BWR A4+ Reaffirmation	BWR A4 + Reaffirmation
Grand Total	67.92	63.00	(Rupees Sixty Three 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

The reaffirmation of ratings reflect the operational track record, experience of the directors, locational advantages in terms of availability of raw materials, diversified customer and supplier base and overall improvement in financial risk profile in FY21. However, the ratings are constrained by moderate scale of operation, working capital intensive operations and low pricing power due to commoditized nature of cotton yarn. The ratings are further constrained by the technological risks and associated capital costs for upgradation and margin-based competition from competitors in a highly fragmented industry.

OUTLOOK : STABLE

BWR believes that the business risk profile of Sri Lakshmi Godavari Spinning Mills Private Limited 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. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.

BWR has essentially relied upon the audited financial statements of "Sri Lakshmi Godavari Spinning Mills Private Limited" of FY20, FY21. provisional financial statements of FY22 and projected financial statements of FY23 and FY24 and information and information / clarifications provided by the entity’s management.

KEY RATING DRIVERS

Credit Strengths:

• Experienced Management :

  The business operations of the company is managed by its three directors who have more than two decades of business experience in the cotton industry. The company benefits from the promoters’ understanding of the dynamics of the industry and established relationships with customers and raw material suppliers.

• Established Operational Track Record :

  The company has an operational track record of around 17 years. The company is primarily engaged in the manufacturing and sale of cotton yarn. The company sources its raw materials from its existing suppliers spread across Andhra Pradesh and Telangana. The company is equipped with automated yarn manufacturing machines with 10785 Tons to manufacture yarn counts which includes 32s, 34s and 40s.

• Improved Financial Risk Profile :

  Total Operating Income of the company was Rs 191.81 Crs in FY20. Total Operating Income was marginally declined to Rs. 188.85 Crs due to the then prevailing COVID-19 pandemic. Going ahead as per FY22 provisional financials, the company has increased its revenue to Rs. 289.13 Crs. The company’s gearing has improved marginally with Total Debt to Tangible Net Worth of 1.30 times in FY21 as against 1.39 times in FY20. The company’s profit margins were also increased with Operating Profit Margin increased from 7.86% in FY20 to 9.31% in FY21 and Net Profit Margins increased from 0.92% in FY20 to 2.13% in FY21. As per FY22, provisional Financials, the Operating Profit Margin is 10.68% and Net Profit Margin is 5.26%.

Credit Risks:

• Adequate Debt Service Coverage Ratios :

  Debt Service Coverage Ratios of the company were not adequate in FY20 with DSCR of 0.87 times and  ISCR is at moderate level of 2.21 times. In FY21, the Debt Coverage Ratios improved and stood at moderate levels with DSCR of 1.36 times and ISCR of 2.60. Going ahead as per FY22, provisional financials, the DSCR and ISCR levels are 1.76 times and 4.12 times respectively.

• Susceptibility of Profit Margins to Volatility in Raw Material Prices :

  The profitability of the company, similar to other companies in the industry, remains exposed to volatility in cotton prices, which depend on various factors such as seasonality, climatic conditions, global demand and supply situation and export policy.

• Working Capital Intensive Nature of Business and Exposure to Intense Competition :

  The Company’s operations are capital intensive owing to the nature of the business. The cotton yarn industry is highly fragmented, consisting of integrated and commodity players across both organized and unorganized sectors. The integrated players have both backward and forward integration across the value chain in varying proportions, while commodity players are engaged in spinning and/or weaving operations and supply of yarn and/or fabric in bulk. Due to the commoditized nature of the cotton yarn, the players have limited pricing power. So, any variation in input cost hits the margins due to limited flexibility to pass on that cost to the customers. In this scenario, the Company needs to rely on an increase in scale of operations, augmentation of sales volume, diversification and moving up the value chain, long term contracts with buyers and suppliers and establishment of its brand in the market to win over its competition.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, Brickwork Ratings has applied its rating methodology as detailed in the Rating criteria below (hyperlinks provided at the end of this rationale). The Company does not have any subsidiary

RATING SENSITIVITIES

Ability of the company to improve its scale of operations and profitability, improve gearing, debt coverage metrics and liquidity position, prudently manage working capital requirements and strengthen its overall credit profile would be the key rating sensitivities.

Positive :

1. Increase in scale of operations and profitability on a sustained basis.

2. Efficient working capital management and strengthening of liquidity position.

Negative :

1. Significant decline in turnover and profitability on a sustained basis.

2. Deterioration in liquidity and debt coverage ratios.

LIQUIDITY INDICATORS - Adequate

The current ratio of the company was moderate at 1.15 times as on 31 March 2021 as against 1.05 times as on 31 March 2020. The company had a conversion cycle of 70 day in FY21 as against 72 days in FY20. Net cash accruals to total debt stood at 0.12 times as on 31 March 2021 as against 0.09 times as on 31 March 2020. Cash and Cash Equivalents of the company was on lower side with Rs. 0.03 Crs in FY21 as against Rs. 0.08 Crs in FY20. The debt coverage ratios of the company with adequate ISCR of 2.60 times and moderate DSCR of 1.36 times in FY21. As per FY22, provisional financials, debt coverage ratios of the company were improved with ISCR of 4.12 times and DSCR of 1.76 times  The average working capital utilization of the company stood at ~ 95 %  during January 2022 to July 2022. 

ABOUT THE ENTITY

Sri Lakshmi Godavari Spinning Mills Private Limited was incorporated in 2005 with registered office at Guntur, Andhra Pradesh. Recently the company, on 27 May 2021 converted to a Private Limited Company from  Limited company and the name has been changed from  "Sri Lakshmi Godavari Spinning Mills Ltd." to "Sri Lakshmi Godavari Spinning Mills Private Limited". The company is engaged in manufacturing and selling of 100% cotton yarn with its manufacturing unit located at Chebrolu in Guntur district of Andhra Pradesh.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	188.85	191.81
EBITDA	Rs.Crs.	17.58	15.08
PAT	Rs.Crs.	4.02	1.77
Tangible Net Worth	Rs.Crs.	57.33	53.31
Total Debt/TNW	Times	1.30	1.39
Current Ratio	Times	1.15	1.05

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

CARE has retained the ratings for the bank loan facilities of Rs. 73.27 Crores of "Sri Lakshmi Godavari Spinning Mills Limited " in the ‘Issuer Not Cooperating’ category on 07 July 2022, with ratings of “CARE BB-/ Stable and BWR A4; ISSUER NOT COOPERATING”.

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	59.82	BWR BB+/Stable (Reaffirmation)	25Mar2021	BWR BB+ Stable (Reaffirmation)	09Mar2020	BWR BB+ Stable (Assignment)	NA	NA
Fund Based	ST	3.00	BWR A4+ (Reaffirmation)	25Mar2021	BWR A4+ (Reaffirmation)	09Mar2020	BWR A4+ (Assignment)	NA	NA
Non Fund Based	ST	0.18	BWR A4+ (Reaffirmation)	25Mar2021	BWR A4+ (Reaffirmation)	09Mar2020	BWR A4+ (Assignment)	NA	NA
Grand Total		63.00	(Rupees Sixty Three 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

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt

Analytical Contacts
Soubhagya Ranjan Kahalsingh Ratings Analyst Board : +91 80 4040 9940 soubhagya.rs@brickworkratings.com	Ramesh N Associate Director - Ratings ramesh.n@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	Union Bank of India	Term Loan - Out-standing	_	_	0.00
2	Union Bank of India	Open Cash Credit / Cash Credit (Hypothecation/Pledge) - Sanctioned	45.00	_	45.00
3	Union Bank of India	Bills Purchase (BP) - Sanctioned	_	3.00	3.00
4	Union Bank of India	Bank Guarantee - Sanctioned	_	0.18	0.18
5	Union Bank of India	Emergency Credit Line Guarantee Scheme (ECLGS) - Out-standing	9.35	_	9.35
6	Union Bank of India	GECL 2.0 - Out-standing	5.47	_	5.47
Total			59.82	3.18	63.00
TOTAL (Rupees Sixty Three Crores Only)