KKP Spinning Mills Pvt Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 176.64 Crs. of KKP Spinning Mills Pvt Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#@
Facilities**	Previous	Present	Tenure	Previous (18 Aug 2021)	Present
Fund Based	162.61	160.64	Long Term	BWR BBB+ /Stable Upgrade	BWR BBB + /Stable Reaffirmation
	(22.50)	(22.50)
	(40.00)	(40.00)
	(0.00)	(30.00)	Short Term	BWR A2 Upgrade	BWR A2 Reaffirmation
	(0.00)	(20.00)
	(0.00)	(20.00)
	(0.00)	(20.00)
	(10.00)	(21.00)
	(10.00)	(15.00)
	(36.00)	(46.00)
Non Fund Based	16.00	16.00	Short Term	BWR A2 Upgrade	BWR A2 Reaffirmation
	(0.00)	(6.00)
	(0.00)	(6.00)
	(0.00)	(4.00)
	(0.00)	(4.00)
Grand Total	178.61	176.64	(Rupees One Hundred Seventy Six Crores and Sixty Four 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
@This rating pertains to an existing assignment received prior to 6 October 2022

RATING ACTION / OUTLOOK

The reaffirmation of the bank loan ratings of KKP Spinning Mills Private Limited ('KSMPL' or 'company') continues to factor in the experienced management, established operational track record with integrated operations at the group level, long-standing relationships with its customers and suppliers along with a stable moderate financial risk profile. The ratings, however, remain constrained by the susceptibility to volatility in cotton prices in an intensely competitive textile industry, exposure to foreign exchange fluctuations and working capital intensive nature of operations.

The Stable outlook indicates a low likelihood of rating change over the medium term. BWR believes KKP Spinning Mills 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, backed by the capacity enhancement, 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 timely enhancement in working capital limits, sizeable, unanticipated capex or weakening gearing impact the financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

Strong group support & established track record :
KSMPL 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, and embroidery. Also, operations are end-to-end spanning the conversion of cotton to ready-made knitwear. KSMPL, incorporated in 1993 is engaged in the manufacturing of Cotton Yarn and Grey Fabric. The company benefits from the timely financial and operational support from the other group companies.
Experienced management :
The management is experienced and the promoters have an experience of more than 30 years in the cotton ginning & textiles industry. They are ably supported by a team of qualified professionals. 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 clients and suppliers :
The Company has running contracts with reputed customers in domestic & export markets. During FY22, ~77% of revenue was through domestic sales and many domestic customers are dealing with KSMPL for the past 5-10 years. The top five customers constitute ~16% of the topline for FY22 providing adequate diversification. The Company sources most of its raw material requirements domestically from Gujarat, Tamil Nadu. Currently, the company has orders worth ~Rs.181 crores in hand for execution in the next 2-3 months.
Moderate and stable financial risk profile :
Total revenue generated by the company improved to Rs.648.73 crores in FY22 against Rs. 539.23 crores in FY21. EBITDA and PAT were Rs.31.87 crores and Rs. 7.53 crores respectively in FY22 and Rs.30.22 crores and Rs.6.22 crores respectively in FY21. Tangible net worth was Rs. 74.41 crores as on 31 Mar 2022 (PY Rs. 66.88 crores). Gearing was 2.19 times as on 31Mar2022 (PY : 2.29 times). Debt protection metrics remained adequate, reflected by ISCR and DSCR of 2.75 times and 1.59 times respectively as on 31Mar2022. The company achieved revenues of Rs. 352 crores as on 30Sep2022 on a provisional basis.

Credit Risks:

Susceptibility of profitability to volatile cotton and cotton yarn prices, demand trends in key export markets and currency movements :
Similar to other spinning companies, KSMPL’s profitability remains exposed to volatility in cotton prices, since cotton is stocked during the harvest season from October to March. The commoditised nature of its products and intense competition constrains it from fully passing on any increase in raw material prices to its end customers, which may adversely impact its profitability. Besides, KSMPL derives some portion of its revenues from exports, thereby exposing its turnover and profitability to demand trends in the key export markets as well as fluctuations in foreign exchange rates. However, BWR notes that the company hedges its forex exposure through forward contracts and packing credit facilities availed in foreign currency.
Intense competition in the textile industry :
KSMPL operates in a highly competitive and commoditised spinning industry, characterised by minimal product differentiation and fragmented nature, which restricts pricing flexibility.
Working capital intensive nature of operations :
The Company has large working capital requirements, as reflected in the moderately high inventory holding and receivable days over the last 3 years. BWR notes the marginal decline in cash conversion cycle a son 31 Mar 22 due to a decline in receivable days. Yet, the company's utilization of working capital remains high at around 90-95% over the last 12 months.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale). The Company does not have any subsidiaries as on 31Mar22.

RATING SENSITIVITIES

The ability of the company to significantly scale up its operations and profitability on a sustained basis, further improve its financial profile, efficiently manage its working capital cycle, liquidity and gearing are considered key rating sensitivities.

Upward:

Significant improvement in scale of operations and profitability on a sustained basis
Prudent working capital management to improve the liquidity profile of the company
Improvement in gearing to below unity on a sustained basis.

Downward:

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 downward rating action include EBITDA margin to <4%, Total Debt/TNW exceeding 3 times, DSCR declining to below unity and ISCR below 1.5 times on a sustained basis

LIQUIDITY INDICATORS - Adequate

The company's utilization of working capital remains high at around 90-95% over the last 12 months ending Oct 2022 on account of the nature of business and is in line with the general industry trend. However, the surplus net cash accruals would provide a cushion for working capital requirements. The current ratio was 1.36 times and Cash and Cash Equivalents were modest at 2.79 crores as on 31 Mar 2022. EBITDA was sufficient to cover the finance charges in FY21 and FY22. The net cash accrual at Rs.17.93 crores in FY22 was adequately covering the debt obligation of Rs.6-7 crores. The Projected cash accruals of ~Rs. 23 crores each for FY23 & FY24 are considered sufficient to meet the annual debt repayment obligations of ~Rs.12-14 crores for the same period. Going forward, timely enhancement of working capital facilities to support liquidity would be important for smooth operations. The company also benefits from the KKP group support.

ABOUT THE ENTITY

K.K.P. Spinning Mills Pvt Ltd ('KSMPL' or 'the company'), incorporated in Dec 1993 at Namakkal (Tamil Nadu), is engaged in the business of manufacturing Cotton Yarns and Grey Fabric. KSMPL is a part of Namakkal (Tamil Nadu) based KKP group, which is vertically integrated, with facilities across spinning, knitting, printing, stitching, embroidery. The Group is reputed and has been in existence for around four decades.

KSMPL has two spinning units situated at Perumalpatti Village, Thuraiyur Road, Namakkal, with 13,680 Spindles in Unit I and 23,328 Spindles in Unit II. The plant is operating at above 90% capacity. The manufacturing plant also has 178 Looms. 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. In addition, the Company has its own in-house product development & design team. The company also operates windmill with 3.55 MW capacity for its captive usage.

Mr. P. Nallathambi is the Managing Director. Mr. N. Sathesh Kumar, Mr. N. Subhash Kumar and Mrs. N. Bakkialakshmi are the other directors.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	648.73	539.23
EBITDA	Rs.Crs.	31.87	30.22
PAT	Rs.Crs.	7.53	6.22
Tangible Net Worth	Rs.Crs.	74.41	66.88
Total Debt/TNW	Times	2.19	2.29
Current Ratio	Times	1.36	1.43

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

India Ratings, vide its press release dated 28Jul2022 have maintained the ratings of the bank loan facilities of KKP Spinning Mills Pvt Ltd in Issuer Not Cooperating* category on account of non-cooperation from the company in the surveillance exercise.

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	160.64	BWR BBB+/Stable (Reaffirmation)	18Aug2021	BWR BBB+ Stable (Upgrade)	01Jul2020	BWR BBB/Stable (Reaffirmation)	21Oct2019	BWR BBB/Stable (Reaffirmation)
FB SubLimit	LT	(22.50)	BWR BBB+/Stable (Reaffirmation)	18Aug2021	BWR BBB+ Stable (Upgrade)	01Jul2020	BWR BBB/Stable (Reaffirmation)	21Oct2019	BWR BBB/Stable (Reaffirmation)
		(40.00)	BWR BBB+/Stable (Reaffirmation)	18Aug2021	BWR BBB+ Stable (Upgrade)	01Jul2020	BWR BBB/Stable (Reaffirmation)	21Oct2019	BWR BBB/Stable (Reaffirmation)
FB SubLimit	ST	(30.00)	BWR A2 (Reaffirmation)	18Aug2021	BWR A2 (Upgrade)	01Jul2020	BWR A3+ (Reaffirmation)	NA	NA
FB SubLimit	ST	(20.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(20.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(20.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(21.00)	BWR A2 (Reaffirmation)	18Aug2021	BWR BBB+ Stable (Upgrade)	01Jul2020	BWR BBB/Stable (Reaffirmation)	21Oct2019	BWR BBB/Stable (Reaffirmation)
FB SubLimit	ST	(15.00)	BWR A2 (Reaffirmation)	18Aug2021	BWR BBB+ Stable (Upgrade)	01Jul2020	BWR BBB/Stable (Reaffirmation)	21Oct2019	BWR BBB/Stable (Reaffirmation)
FB SubLimit	ST	(46.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	16.00	BWR A2 (Reaffirmation)	18Aug2021	BWR A2 (Upgrade)	01Jul2020	BWR A3+ (Reaffirmation)	21Oct2019	BWR A3+ (Reaffirmation)
NFB SubLimit	ST	(6.00)	BWR A2 (Reaffirmation)	18Aug2021	BWR A2 (Upgrade)	01Jul2020	BWR A3+ (Reaffirmation)	21Oct2019	BWR A3+ (Reaffirmation)
		(6.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(4.00)	BWR A2 (Reaffirmation)	18Aug2021	BWR A2 (Upgrade)	01Jul2020	BWR A3+ (Reaffirmation)	21Oct2019	BWR A3+ (Reaffirmation)
		(4.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		176.64	(Rupees One Hundred Seventy Six Crores and Sixty Four lakhs Only)

Rating Advisory, as on 29Aug2022
Press Release, as on 29Aug2022
The rating review was due on 18 Aug 2022. An advisory was issued citing the delay in conducting the review mainly due to the non-receipt of essential information required.

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
Vineet Krishnan Nair Senior Ratings Analyst vineet.kn@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

KKP Spinning Mills Pvt 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	HDFC Bank	Term Loan - Sanctioned	30.00	_	30.00
	Sub-Limit (Letter of Credit) - Sanctioned		(30.00)
2	HDFC Bank	Cash Credit - Sanctioned	20.00	_	20.00
	Sub-Limit (Post Shipment credit) - Sanctioned		(20.00)
	Sub-Limit (Pre Shipment Credit) - Sanctioned		(20.00)
	Sub-Limit (WCDL) - Sanctioned		(20.00)
3	HDFC Bank	Letter of Credit - Sanctioned	_	4.00	4.00
	Sub-Limit (SBLC ) - Sanctioned		(4.00)
4	HDFC Bank	GECL - Out-standing	3.11	_	3.11
5	HDFC Bank	GECL 2.0 - Out-standing	1.61	_	1.61
6	IDBI Bank	GECL 2.0 - Sanctioned	_	_	0.00
7	IDBI Bank	Cash Credit - Sanctioned	_	_	0.00
8	Kotak Mahindra Bank	Bill Discounted (BD) - Sanctioned	_	_	0.00
	Sub-Limit (FBN) - Sanctioned		(6.00)
9	Kotak Mahindra Bank	Term Loan - Out-standing	12.18	_	12.18
10	Kotak Mahindra Bank	Letter of Credit - Sanctioned	_	6.20	6.20
	Sub-Limit (SBLC ) - Sanctioned		(6.00)
11	Kotak Mahindra Bank	GECL 2.0 - Out-standing	5.60	_	5.60
12	Kotak Mahindra Bank	GECL - Out-standing	10.22	_	10.22
13	Kotak Mahindra Bank	Line of Credit to Vendors - Sanctioned	51.00	_	51.00
	Sub-Limit (Cash Credit) - Sanctioned	(22.50)
	Sub-Limit (EPC/PCFC/FBD/LCBD) - Sanctioned		(46.00)
	Sub-Limit (WCDL) - Sanctioned	(40.00)
14	RBL Bank	Letter of Credit - Sanctioned	_	5.80	5.80
	Sub-Limit (Standby LC) - Sanctioned		(4.00)
15	RBL Bank	GECL - Out-standing	3.72	_	3.72
16	RBL Bank	Bill Discounted (BD) - Sanctioned	_	_	0.00
17	RBL Bank	Cash Credit - Sanctioned	21.00	_	21.00
	Sub-Limit (Pre/Post shipment credit) - Sanctioned		(15.00)
	Sub-Limit (WCDL) - Sanctioned		(21.00)
18	RBL Bank	GECL 2.0 - Out-standing	2.20	_	2.20
19	State Bank Of India (SBI)	Cash Credit - Sanctioned	_	_	0.00
20	State Bank Of India (SBI)	GECL - Sanctioned	_	_	0.00
21	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	_	0.00
22	State Bank Of India (SBI)	CECL - Sanctioned	_	_	0.00
Total			160.64	16.00	176.64
TOTAL (Rupees One Hundred Seventy Six Crores and Sixty Four lakhs Only)

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