| Madura Coats Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA- / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities and short-term debt programme of Madura Coats Pvt Ltd (MCPL).
The reaffirmation reflects strong business risk profile of the company, driven by market leading position in the sewing threads segment in India, large distribution network and diversified customer base, and marketing and operational support from parent, Coats Group PLC. It also takes into account the healthy financial risk profile driven by debt-free nature of operations, adequate internal accrual and healthy liquidity. These strengths are partially offset by financial impact of the parent’s repatriation policy, exposure to risks related to volatility in raw material prices and to competition from the unorganised sector.
Revenue is expected to grow 10-12% in calendar year (CY) 2022, while operating margin is expected to be at similar level as that of CY 2021 at around 9%. Earlier in CY 2021, the company posted revenue growth of 45% over low base of CY 2020 owing to healthy demand from end-users like ready-made garment industry and footwear players and strong recovery post covid-19. The financial risk profile remained healthy with nil debt and adjusted interest cover of over 20 times in CY 2021. Liquidity continues to remain strong. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the support from Coats Group PLC to MCPL. |
Key Rating Drivers & Detailed Description Strengths: Healthy market position and well-diversified clientele The company is the market leader in the sewing threads segment in India, with a wide product range for both domestic and industrial applications, large distribution network, and diversified customer base. It has 18 sales offices spread across 18 cities, supported by 5,000 dealers, and 11,000 direct and 200,000 indirect customers. Clientele includes domestic garment manufacturers, garment exporters, retail consumers, as well as group companies across the world.
The revenue has shown healthy year-on-year growth between January and April 2022 of 22% and operating margin of about 10%. The performance in the first half of the current fiscal remained healthy, however demand is expected to slow down in the second half due to tapering of export demand. The premium segment is performing well in the current year.
The company enjoys strong management, marketing, technical and procurement support from the parent. It leverages on the strength of Coats Group’s relationship with global consumer brands to secure domestic orders of the global brands. MCPL is strategically important to Coats Group, given that the latter has identified India as a key global manufacturing base for grey yarn and finished products.
Healthy financial risk profile Financial risk profile is driven by strong cash generation ability, nil debt obligations, and strong liquidity. MCPL had nil outstanding debt and liquidity in the form of cash and equivalents of Rs. 70 crore as on May 31, 2022. Networth remained at comfortable level.
The financial risk profile is expected to remain healthy due to nil debt, comfortable debt protection metrics and strong liquidity. Capital expenditure (capex) over the medium term would be financed through internal accruals and hence the company is expected to maintain its debt free status and strong liquidity.
Cost-efficient production process The company outsources processes such as yarn spinning for lower-end grey yarn, and winding of finished products into retail packages. It also uses strategic partners for its production processes. Its steam generator plant in Ambasamudram (Tamil Nadu) has been reducing power costs. With the installation of a reverse osmosis plant and zero discharge unit, the company has reduced its water consumption by over 75%, thus achieving cost efficiency. Operating efficiency is likely to remain healthy over the medium term driven by cost-efficient production processes.
Weakness: High financial impact of pay-out to parent The parent, Coats, has a policy of repatriating excess liquidity held by its operating entities, including MCPL, in the form of royalty, management fee, and dividend, applied consistently across group’s operating companies. MCPL may, therefore, continue to regularly repatriate surplus profit to parent. This restricts improvement in net worth, thereby limiting financial flexibility.
Volatility in raw material prices Susceptibility to fluctuations in the prices of key raw materials—polyester fibre, synthetic filament, and cotton fibre—persists. The prices of polyester fibre and filament are closely linked to crude oil rates, which remain volatile. Cotton fibre prices, too, exhibit cyclical volatility and depend on the monsoon and international demand and have remained high in the recent past. The company is able to pass on majority of the increases in raw material prices to its customers.
Competition from the unorganised sector The organised sector for manufacturing sewing threads has two large players—MCPL and Vardhman Yarns and Threads Ltd (rated ‘CRISIL AA-/Stable/CRISIL A1+’)—with the former being the leader. Despite this, the company continues to face competition from the unorganised sector, which accounts for a sizeable segment of the total threads market. |
Liquidity: Strong Liquidity is strong driven by healthy net cash accrual vis-à-vis nil debt repayments over the medium term. Liquid investments (including cash and cash equivalents) aggregated Rs 70 crore as on May 31, 2022. Excess cash is distributed in the form of dividend post meeting capital expenditure (capex) and working capital requirements. Dividend payout is expected to remain high over the medium term. In addition, funded facilities of Rs 100 crore remains largely unutilised. |
Outlook Stable CRISIL Ratings believes MCPL will continue to benefit from its established market position in the sewing threads segment in India. Financial risk profile should remain healthy over the medium term in the absence of any major capex, despite sizeable dividend payout. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company MCPL is a wholly owned subsidiary of Coats Group, the world's leading industrial thread manufacturer. The parent provides management input, export orders, product support (including technology upgrade) and assistance in raw material procurement to MCPL. The support received from Coats Group has helped the company to retain its leadership position in the threads industry in India. |
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)
^Interchangeable with other fund-based limits ^^Interchangeable with other non-fund-based limits |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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This Annexure has been updated on 16-Jun-2022 in line with the lender-wise facility details as on 31-Aug-2021 received from the rated entity.
^Interchangeable with other fund-based limits
^^Interchangeable with other non-fund-based limits
Criteria Details
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