| Cheviot Co Ltd | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||||
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL A+/Stable/CRISIL A1+' ratings on the bank facilities of Cheviot Co Ltd (CCL). |
| Key Rating Drivers & Detailed Description |
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Strengths: * Strong financial risk profile The networth was robust at Rs 460 crore as on March 31, 2019 (including revaluation of Rs 61.8 crore) and estimated at around Rs 500 crore as on March 31, 2020. It has increased from Rs 408.13 crore as on March 31, 2018, supported by healthy accretion to reserves due to sizeable revenue and healthy operating profitability margin. The margin increased to 14.26% in fiscal 2019 from 15.06% in fiscal 2018. The peak gearing over the past five fiscals was low, at 0.05 time as on March 31, 2015, and estimated 0.01 time as on March 31, 2020, due to healthy cash accrual, limited working capital requirement, and low debt-funded capital expenditure (capex). Capex for technology upgrade and replacement of old machinery is generally through internal funding. Moreover, modernisation of facilities enhances productivity and increases cash generating ability. * Robust business risk profile The business risk profile is supported by a diversified product profile, wide reach, healthy operating efficiency, and the experience of the promoters. Since the current promoter-family took over the company in 1976, it started manufacturing various speciality jute products such as yarn and superior-quality hessian and fabrics. This diversifies revenue and limits the risk of any one product becoming obsolete. Besides processing jute, the company produces high-yielding, value-added products such as yarn, hessian, and superior hessian cloth. Its yarn and superior hessian have wide acceptance in the international market, and generate high profitability. The business risk profile should remain healthy over the medium term, driven by a strong market position, an increasing awareness for eco-friendly products, a diversified product profile, and a wide distribution network. * Efficient working capital management: Gross current assets were moderate at 129 days as on March 31, 2019 (121 days a year earlier), owing to receivables and inventory of 30 days and 97 days, respectively, with negligible credit of 9 days from suppliers. The working capital cycle is estimated to have increased slightly in fiscal 2020 due to the lockdown in March 2020. Weakness: * Exposure to risks related to the regulated nature of the jute industry and easy availability of cheaper substitutes The domestic jute industry is highly regulated by the Government of India, especially in key areas such as pricing and trading. Minimum support price (MSP) for raw jute has been announced by the Cabinet Committee on Economic Affairs to prop up jute prices and ensure security for farmers. The MSP, which varies from state to state and with jute variety, influences the end-price of products. Also, the government, under the Jute Packaging Material (compulsory use in packaging commodities) Act, 1987 (JPMA), has made it mandatory to use 90% of jute bags for packaging food grains for consignments of 10-100 kilogram (kg), and 20% of jute bags for packaging sugar for a consignment of 25-100 kg. This regulation is the key growth driver for the jute industry. Consumer packs of 25 kg and below for sugar, 10 kg and below for food grains, and packaging for export of commodities are exempted from this act. Regulated nature of the industry makes the company susceptible to any change in policies. |
| Liquidity Strong |
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Liquidity will continue to be supported by investments in debt and equity, and an unencumbered cash balance. As on March 31, 2020, the unencumbered cash balance was around Rs 8 crore (Rs 8.93 crore as on March 31, 2018), and investments around Rs 284 crore (Rs 277 crore) in debt and equity mutual funds, government securities, equities of listed companies, and gold exchange-traded funds. These investments are not likely to be liquidated over the medium term as per management plans. Total investments are estimated to increase over the medium term as demand improves. Capex plans entail an outgo of around Rs 10 crore in fiscal 2021, to be funded through current cash accrual without hurting liquidity. Cash accrual is expected to dip to Rs 33-34 crore in fiscal 2021 due to a decline in exports, which yield better profits. Thereafter, with recovery in the overall industry, cash accrual should improve to previous levels of around Rs 47 crore per fiscal. The current ratio was adequate, estimated at 10-15 times at the end of fiscals 2019 and 2020. |
| Outlook: Stable |
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CRISIL believes CCL will continue to benefit from the experience of the promoters, diversified product profile, and wide distribution network, and maintain a strong financial risk profile. |
| Rating Sensitivity factors |
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Upward factors * Improvement in revenue to above Rs 450 crore per fiscal while sustaining profitability * Further build-up of liquid funds along with an increase in safe investments Downward factors * A decline in revenue to below Rs 300 crore per fiscal and in the operating profitability margin to below 10% * A stretch in the working capital cycle, leading to weakening of liquidity * Any increase in long-term investment in risky avenues |
| About the Company |
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Incorporated in 1897, CCL is the flagship company of the Cheviot group, which has interests in the jute, tea, and leather businesses. The company got its current name in 1976, when Mr B D Kanoria took it over. Currently, his son Mr H V Kanoria is the chairman and managing director. CCL manufactures and exports high-value, non-traditional, diversified jute yarn and fabric, such as precision fine jute yarn, sacking cloth, hessian cloth and bags, sacking bags (for packing food grain and other allied purposes), 4-36 pound jute yarn and superior hessian cloth. It has two manufacturing units in West Bengal: at Budge-Budge and Falta Special Economic Zone (an export-oriented unit). The company generates 30-35% of revenue from exports. It also has a captive power plant with an installed capacity of 3.14 megawatt; power requirement is, however, sourced from CESC Ltd, and the captive plant is used as a stand-by arrangement. |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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| For further information contact: | ||||||
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