T.C. Spinners Pvt. Ltd.

Brickwork Ratings reaffirms the ratings with a revision in outlook for the Bank Loan Facilities of Rs. 187.53 Crs. of T.C. Spinners Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (29 Apr 2021)	Present
Fund Based	80.01	178.53	Long Term	BWR BBB/Stable Reaffirmation	BWR BBB /Stable to Positive Reaffirmation and change in Outlook
Non Fund Based	12.00	9.00	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Grand Total	92.01	187.53	(Rupees One Hundred Eighty Seven Crores and Fifty Three 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

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) has reaffirmed the long-term and short-term rating for the bank loan facilities of T.C. Spinners Pvt Ltd (“TCPL” or “The Company”) at BWR BBB and BWR A3+ respectively, with a revision in the outlook to Positive. The rating reaffirmation draws comfort from the experienced promoters and the established track of operations, improvement in the operating performance during 9M FY 22, comfortable financial risk profile with expected improvement in the next fiscal, geographically diversified revenue base and adequate liquidity. The rating is, however, constrained by the working capital intensive operations, risk associated with the timely completion of the ongoing CAPEX, susceptibility of profitability margins due to volatile raw material prices and intense competition.

The Outlook has been revised to “Positive” as BWR expects TCPL’s business and financial risk profile to improve over the short term supported by improved networth, gearing and revenue levels, backed by positive industry outlook on the back of improved realizations and volumes for the cotton yarn sector as the same can be seen in 9M FY 22 performance and expected to continue in the next financial year.

BWR has essentially relied upon the audited financials of the company till FY21, management certified provisional financials for 9M FY22, projected financials upto FY 24, publicly available information and information/clarifications provided by the company’s management.

KEY RATING DRIVERS

Credit Strengths:

Experienced promoters and established track of operations :
TCPL is promoted by Mr. Satia and family, and is a part of the Satia Group. The company has been in the business of yarn manufacturing for more than a decade. The promoters possess diversified experience through the group companies and thorough knowledge of the market, which continues to support the business risk profile.
Improvement in operational performance in FY22 and revenue visibility :

As per the management certified provisional numbers provided, the company has already surpassed the 12M revenue of FY 21 in the 10M FY22 period. The company has achieved Rs. 331 crs of revenue during April to Jan 2022, with a projected revenue of Rs 400 crs in 12M FY22, translating to ~60% growth in FY22 over FY21. Further, the OPM of the company has remained steady in the range of 8.79%-9.35% over the past three years ending FY21. The company is undertaking a capex resulting in an increase in the installed capacity, which would lead to further improvement in the revenue in FY 24, post the capex completion in FY 23.
Comfortable and improved financial risk profile :

There has been a significant improvement in the TNW (total net worth) and D/E (debt to equity) during 9M FY22 as per the provisional figures. As of 31Dec2021, TNW and D/E are reported at Rs. 86.26 crs and 0.98x respectively. The directors had extended USL, which would be converted into preference share capital in FY 22, leading to a comfortable TNW base of Rs. 94.10 crs and D/E of 0.35x in FY22 as against Rs. 38.22 crs and 3.31x in FY21. Further, with the fresh term loan proposed in FY23, the D/E will be moderated at 1.53x, still improved over FY 21 level. The ISCR stood at 3.65x in FY21, and projected at 6.76x in FY22. The interest on the term loan availed in FY23 will be capitalized for FY 23 or till the capex is completed. The company has also received in-principle sanction from two banks, and hence the risk associated with the financial closure for the project loan is mitigated.
Diversified customer and geographical base :

The company has been dealing with top customers since the past 4-5 years and has a fairly diversified customer and geographical base. The top five customers constituted ~36.60 % of the topline for FY21 providing adequate diversification. Further, the operations of the company are well-spread across various states in North India.
Positive Industry Outlook :
The overall outlook for the cotton yarn manufacturing sector is positive on the back of increased yarn prices leading to better realizations and also better volumes. Recovery in the domestic market due to the opening up of the economy continues to support the volume and increased demand. The sustenance of the increased prices over a medium term remains to be seen.

Credit Risks:

Working capital intensive operations :
The operations of the company are working capital intensive driven by higher inventory holding period, which is inherent in the industry owing to the seasonal nature of the raw material. The inventory holding period during FY21 stood at 114 days, leading to an overall conversion cycle of 134 days.
Timely completion of the capex :

The company is undertaking a capex with total cost of Rs 157.17 crs for capacity expansion from existing 28,800 spindles to 65,360 spindles with incremental manufacturing capacity of 19000 kgs/day. The capex is expected to be completed in FY 23. The total project cost of Rs 157.17 crs to be funded by equity shares, internal accruals, and promoters contribution of Rs. 49.17 crs, term loans from bank of Rs 88.00 crs and working capital loans from bank of Rs 20.00 crs. There exists the risk of delays in the project completion or cost overruns, impacting the timely inflows of the revenue from the incremental capacity and profitability.
Industry inherent risk :
The company operates in a highly competitive market characterized by minimal product differentiation and fragmented nature, which restricts pricing flexibility. Further, the profitability remains exposed to volatility in cotton prices due to demand supply dynamics of the market and government regulations and intense competition from peers

ANALYTICAL APPROACH - Standalone

BWR has factored in the standalone business parameters and financial risk profile of the company to arrive at the rating. Reference may be made to the Rating Criteria hyperlinked detailed below.

RATING SENSITIVITIES

Positive: Significant improvement in scale of operations and profitability margins, and timely completion of capex within estimated cost and achievability of projections.

Negative: Substantial decline in revenues, profitability and overall liquidity profile of the company.

LIQUIDITY INDICATORS - Adequate

Fund based limit utilization during the last six months ending January 2022 remains at 75% owing to the working capital intensive nature of operations. As at 31.03.2021, the current ratio stood at 1.36x. The cash and cash equivalents stood at Rs 0.13 crs as of 31Dec2021 including fixed deposits of Rs 0.03crs. The net cash accruals are estimated to be Rs. 25.23 crs against repayment obligation of ~Rs. 12.16 crs in FY22 and Rs. 26.39 crs against repayment obligation of Rs. 3.20 crs in FY 23. The proposed term loan of Rs 88 crs to be availed in FY22-23 is expected to have 1.5 years of moratorium, the repayment of the same is expected to commence from October 2023 onwards.

ABOUT THE ENTITY

Incorporated in the year 2006, T.C. Spinners Pvt Limited (TCPL) is engaged in the manufacturing of cotton yarn, polyester yarn, and spun sewing thread. Its manufacturing facility is located at Mohali, Punjab. The company is presently being managed by Mr. Satia and family are also promoters of Satia Industries Limited (SIL) which is engaged in the manufacturing of writing and printing paper. The company currently has 28800 spindles and is undertaking expansion to install an additional 36,480 spindles which is expected to be completed in FY 23.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	249.34	274.46
EBITDA	Rs.Crs.	21.93	25.35
PAT	Rs.Crs.	1.42	3.50
Tangible Net Worth	Rs.Crs.	38.22	36.65
Total Debt/Tangible Net Worth	Times	3.31	3.68
Current Ratio	Times	1.36	1.36

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 Ratings has migrated the ratings of the company under the Issuer Not Co-operating category on account of non-availability of requisite information due to non-cooperation by the company with CARE’s efforts to undertake a review of the outstanding rating. Latest rating CARE B/A4, ISSUER NOT COOPERATING vide press release dated 04 Mar 2021.

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	178.53	BWR BBB/Stable to Positive (Reaffirmation and change in Outlook)	29Apr2021	BWR BBBStable (Reaffirmation)	20Apr2020	BWR BBBStable (Reaffirmation)	26Mar2019	BWR BBBStable (Assignment)
Non Fund Based	ST	9.00	BWR A3+ (Reaffirmation)	29Apr2021	BWR A3+ (Reaffirmation)	20Apr2020	BWR A3+ (Reaffirmation)	26Mar2019	BWR A3+ (Assignment)
Grand Total		187.53	(Rupees One Hundred Eighty Seven Crores and Fifty Three 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
Srishti Kaushik Rating Analyst srishti.k@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

T.C. Spinners 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	Central Bank of India	Cash Credit - Sanctioned	43.00	_	43.00
2	Central Bank of India	Inland Letter of Credit (ILC) - Sanctioned	_	9.00	9.00
3	Central Bank of India	Forward Contract - Sanctioned	_	_	0.00
4	Central Bank of India	Warehouse Receipts (WHR) - Sanctioned	20.00	_	20.00
5	Central Bank of India	Term Loan - Out-standing	7.53	_	7.53
6	Indian Bank	Term Loan - Proposed	88.00	_	88.00
7	Indian Bank	Working Capital (CC) - Proposed	20.00	_	20.00
Total			178.53	9.00	187.53
TOTAL (Rupees One Hundred Eighty Seven Crores and Fifty Three lakhs Only)

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