| Ganga Acrowools Limited | ||||||
| Rating Action | ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings on the bank facilities of Ganga Acrowools Limited (GAL) continues to reflect the company’s healthy business risk profile with strong track record in the worsted acrylic yarn business and diversified customer base. The ratings also factor in healthy operating efficiency and robust financial risk profile. These strengths are partially offset by susceptibility to fluctuations in foreign exchange (forex) rates and large working capital requirement.
CRISIL Ratings had upgraded its rating on the long-term bank facilities of GAL to 'CRISIL A+/Stable' from 'CRISIL A/Stable’ on March 31, 2022.
The rating upgrade reflects the continued improvement in GAL’s credit risk profile, with revenue growth of more than 22% in fiscal 2021, improving operating margin and reduced debt resulting in a robust financial risk profile. Sales increased to ~Rs 477.8 crore in fiscal 2021 from ~Rs 391.90 crore in fiscal 2020 on account of higher exports. The company achieved sales of Rs 510 crore till December 31, 2021, in fiscal 2022, and will likely cross Rs 600 crore for the full fiscal. The growth has been driven by increase in price realisations and strong export volume growth.
The operating margin improved to 29.8% in fiscal 2021 from 20.6% in the previous fiscal backed by increasing realisations because of higher composition of value added/premium products in the sales mix, along with benign raw material prices. The margin moderated to 24.7% for the first nine months of fiscal 2022 due to exponential rise in ocean freight and rising raw material prices. The margin is expected at 23-25% for fiscal 2022 and will sustain over the medium term.
Capital expenditure (capex) in the previous fiscals for value-added products and debottlenecking of facilities enabled higher sales contribution of premium yarn categories (hand-knit and fancy yarns). GAL has enhanced capacity for value added yarn, fancy yarn, dyeing and finishing alongside balancing and modernising of facilities. The enhanced capacity became fully operational in December 2021 and will start contributing to the topline from fiscal 2023.
Growth in revenue and sustained healthy profitability are expected to increase cash accrual, and consequently, liquidity. Cash accrual is expected at Rs 100-120 crore over the medium term. The company has prepaid most of the term loan instalments till March 2023 and cash accrual will be used towards routine capex and incremental working capital requirement. The financial risk profile has been robust with total outside liabilities to tangible networth ratio estimated at 0.50 times as on March 31, 2022. |
Key rating drivers and detailed description Strengths:
The company has a track record of more than two decades in the value-added dyed yarn segment and a diversified product profile used in manufacturing blankets, rugs, carpets, sweaters, socks, shawls and scarves. Exports to countries across the northern and southern hemispheres insulate the company from slowdown in any one region and ensure sustained year-long demand due to contrasting seasons. GAL has enhanced its export focus and has increased exports to 70-75% of its output from around 40%. Higher sales to key customers in the US and new markets of the UK and Canada, backed by enhanced capacities and new product launches, increased the export volume in fiscal 2021 and the first nine months of fiscal 2022.
The fully integrated in-house manufacturing facility supports continuous product innovation, thereby enhancing growth prospects, and will help the company sustain its established market position.
Operating margin improved to 29.8% in fiscal 2021 from 20.6% in fiscal 2020, and to 24% in the the first nine months of fiscal 2022 backed by increasing realisations because of higher proportion of value added/premium products in the sales mix. Over the past four years, GAL invested in modernising and enhancing capacity for value added yarn and processing. This has enabled production of more value added products and, hence, higher realisations.
Networth was strong at Rs 299 crore as on March 31, 2021, supported by healthy profitability and accretion to reserves. Gearing was healthy below 1 time over the three fiscals through 2021 despite capex in the recent past. Debt reduced to Rs 112.6 crore as on March 31, 2020, from Rs 138.1 crore a year earlier, and should decline further considering the company’s record of of prepaying debt. The gearing is expected below 0.5 time over the medium term.
Debt protection measures have improved with interest coverage at 17.5 times for fiscal 2021 on account of reduction in debt resulting in lower interest expenses. The debt protection metrics are expected to improve further over the medium term as the company plans no major debt-funded capex other than maintenance capex and has a policy of prepaying debt.
Weaknesses:
The company remains vulnerable to fluctuations in forex rates as a significant proportion of revenue comes from exports, and this has increased in fiscal 2022. Although sizeable raw material import and export credit limit and letters of credit provide a natural hedge, the unhedged exposure is substantial.
The company had gross current assets of 148 days as on March 31, 2021, largely due to inventory of 2-3 months on account of the long manufacturing process. The inventory increased slightly in fiscal 2021 because of the lockdown imposed in March 2021. The company offers credit of close to 15-45 days to dealers depending on the season (peak or lean) and of 30-45 days to end customers, while exports take around 90 days for realisation. The company gets credit of 10-15 days from suppliers. The GCAs are projected at 140-150 days as on March 31, 2022, as the company increased inventory keeping in mind the uncertainty in the market and continuously increasing raw material prices. The GCAs are expected at140-180 days over the medium term. |
Liquidity: Strong Cash accrual is expected at Rs 100-120 crore over the medium term. GAL has prepaid most of the term loan instalments till March 2023. Bank limit utilisation was moderate at 27% on average in the 12 months through December 2021. Current ratio was moderate at 2.59 times as on March 31, 2021. |
Outlook: Stable GAL will benefit from the healthy revenue share of exports, which have better realisations, supported by enhanced capacity for value-added products. |
Rating sensitivity factors Upward Factors:
Downward Factors:
|
About the company Set up by Dr Ravinder Verma in 1994, GAL manufactures worsted acrylic yarn (grey and dyed) and other blended yarns. Its worsted acrylic yarn products include fine and medium-count yarn used in machine knitting, hosiery, hand knitting and weaving; and coarse-count yarn used in carpets. The manufacturing unit in Ludhiana, Punjab, has installed capacity of 12,250 tonne per annum. |
Key financial indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 25 | Axis Bank Limited | CRISIL A+/Stable |
| Cash Credit & Working Capital Demand Loan | 32 | HDFC Bank Limited | CRISIL A+/Stable |
| Cash Credit & Working Capital Demand Loan | 2 | State Bank of India | CRISIL A+/Stable |
| Foreign Letter of Credit | 16 | HDFC Bank Limited | CRISIL A1 |
| Letter of Credit | 3 | Axis Bank Limited | CRISIL A1 |
| Long Term Loan | 11 | Axis Bank Limited | CRISIL A+/Stable |
| Long Term Loan | 21.5 | Axis Bank Limited | CRISIL A+/Stable |
| Long Term Loan | 9 | Axis Bank Limited | CRISIL A+/Stable |
| Long Term Loan | 8.81 | HDFC Bank Limited | CRISIL A+/Stable |
| Long Term Loan | 2.72 | HDFC Bank Limited | CRISIL A+/Stable |
| Long Term Loan | 13.85 | HDFC Bank Limited | CRISIL A+/Stable |
| Long Term Loan | 21.75 | HDFC Bank Limited | CRISIL A+/Stable |
| Long Term Loan | 8 | HDFC Bank Limited | CRISIL A+/Stable |
| Proposed Working Capital Facility | 28.37 | Not Applicable | CRISIL A+/Stable |
This Annexure has been updated on 08-Mar-2023 in line with the lender-wise facility details as on 24-Feb-2023 received from the rated entity.
Criteria Details
|