| HP Cotton Textile Mills Limited | ||||||
| Ratings downgraded to 'CRISIL BB+/Negative/CRISIL A4+’ | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its ratings on the bank facilities of HP Cotton Textile Mills Limited (HCTML) to 'CRISIL BB+/Negative/CRISIL A4+' from 'CRISIL BBB-/Stable/CRISIL A3'.
The downgrade reflects the weakening business risk profile of the company on account of decline in revenue to Rs 19.8 crore in the first quarter of fiscal 2023 from Rs 30.9 crore in the corresponding period of the previous fiscal. Furthermore, operating margin plunged to negative 4.4% from 14.9% due to lower economies of scale, fluctuations in raw material prices and reduced ability to pass them on to customers. Ability to return to the historic level of revenue and profitability is a key monitorable.
The ratings reflect the extensive experience of the promoters in the cotton industry and the moderate financial risk profile of the company. These strengths are partially offset by modest revenue and declined operating margin and working capital-intensive operations. |
Key Rating Drivers & Detailed Description Strengths:
Experience of over 35 years in the cotton industry has given the promoters a strong understanding of the market dynamics and helped establish healthy relationships with suppliers and customers, which will continue to support the business.
The financial risk profile was supported by comfortable networth and healthy gearing of Rs 30 crore and 1.01 time, respectively as on March 31, 2022. However, high reliance on payables resulted in high total outside liabilities to tangible networth ratio of 2.4 times. Debt protection metrics were comfortable as indicated by interest coverage of 4.8 times and net cash accrual to adjusted debt ratio of 33% in fiscal 2022.
Weaknesses:
Revenue increased from Rs 96 crore in fiscal 2021 to Rs 132 crore in fiscal 2022 but remains modest. It declined to Rs 19 crore in the first quarter of fiscal 2023 from Rs 32 crore a year earlier. Operating margin was negative 4.39% in the first quarter of fiscal 2023 because of the lower economies of scale, fluctuation in raw materials prices and reduced ability to pass them on to customers. CRISIL Ratings believes the profitability of HCTML will remain susceptible to fluctuations in raw material prices.
The company had sizeable gross current assets (GCAs) of 167 days, largely because of inventory of 101 days and receivables of 50 days, as on March 31, 2022. However, the working capital requirement is largely met through payables (163 days as on March 31, 2022). Operations will remain working capital intensive. |
Liquidity: Stretched Liquidity will remain stretched with limited cushion between expected net cash accrual and term debt obligation. Bank lines were utilised extensively at 88% on average during the 12 months through January 2022. |
Outlook: Negative The business risk profile of HCTML will remain under pressure due to sharp fluctuations in raw material prices and inability to pass them on to customers, resulting in subdued turnover and operating margin and stretched working capital cycle over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1981, HCTML was formerly part of the DORA group. The company manufactures sewing threads for retail and industrial purposes. It is managed by Mr Kailash Kumar Agarwal and Mr RaghavKumar Agarwal. It has operations in Hisar, Haryana, and its corporate office is in New Delhi. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 24-Aug-22 in line with the lender-wise facility details as on 22-Apr-22 received from the rated entity.
Criteria Details
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