| NSL Textiles Limited | ||||||
| Ratings upgraded to 'CRISIL BB+/Stable/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 upgraded the ratings on the bank facilities of NSL textiles limited (NSLTL) to ‘CRISIL BB+/Stable/CRISIL A4+’ from ‘CRISIL D/CRISIL D’.
The rating action reflects the regularization of accounts and timely servicing of debt obligations after the resolution plan has been implemented in July 2021. NSLT had been in default due to delay in servicing of interest and principal repayments during the restructuring process. The rating action also factors in the expected improvement in operating performance, which will enable the company to service its future debt obligations as well.
The restructuring plan, Rs 371.25 crore of fresh optionally convertible debentures (OCDs) with a coupon of 0.01% and tenor of 10 years were issued to the consortium bankers in lieu of existing OCDs (of same quantum which also had a coupon of 0.01%). There will not be any redemption premium on the new OCDs. The promoter infused Rs 60 crore as part of the restructuring, which was largely used to pay off overdue debt obligations and interest payments as of July 2021. The company has been timely servicing its debt obligations since then. Capex is capped at Rs.20 crore and the repayment of ICDs of Rs 28.17 crore ,CCD of Rs 270.7 cr payable to group companies cannot be exercised until all the term loans with banks are paid in full.
During fiscal 2021, operating income declined by 25% compared to previous year, mainly due to lower capacity utilization due to lockdown implemented for few months by Government of India on account of COVID19 Pandemic. Export sales were further impacted following the demand slowdown due to the pandemic. In H122 however, revenues and profitability improved with increase in plant utilisation (post bank allowing utilisation of working capital facilities) and favourable price trends of cotton yarn. The company made revenues of Rs 535 crore and OPBDIT of Rs 77 crore in H122. For the full year FY2022, the performance is expected to significantly improve; revenues are expected to cross Rs.1100 crores and EBITDA is expected to range at 130-140 crore. The significant reduction in interest rate from an average of 14.5% to 9% post the restructuring will support PAT and cash accruals.
Pressure on the liquidity eased post the restructuring process, infusion of additional capital by Promoters and with improved performance in H1’22. The company is expected to make annual cash accruals of over Rs 120 crore over the next three years against the repayment obligations of Rs 71 crore in FY 22 and Rs 34-39 crore each in FY23 and FY24. The accruals will also part fund the working capital requirements and capex. Debt addition therefore expected to decline gradually from fiscal 2022. Receipt of subsidy (Rs 168 crore pending as on October 31,2021) as and when happens and the promoters willingness and ability to support in case of exigencies further support liquidity.
The ratings continue to factor in fully integrated manufacturing process and presence across value chain and moderate; albeit improving profitability. These strengths are partially offset by NSL’s weak, though improving, financial risk profile, working-capital-intensive operations and susceptibility to volatility in cotton prices and foreign exchange (forex) fluctuations |
Key Rating Drivers & Detailed Description Strength Fully integrated manufacturing process and presence across value chain: NSLTL started out as a cotton yarn manufacturer and expanded its production capabilities through a series of acquisitions. Over the years, it has evolved into a complete textile player, with presence across the value chain including ginning, spinning, weaving, and fabric processing and dyeing. Integrated manufacturing facilities enhance the flexibility in NSLTL’s operations, allowing it to strategically plan and control raw material procurement and production policies resulting in healthy operational efficiencies.
Moderate; albeit improving profitability Operating profitability of NSLTL has been impacted in the past due to sub optimal capacity utilisation due to restrictions placed on working capital utilisation and adverse sector trends. The large subsidy pending with the Govt added to the woes. However, with improvement in capacity utilisation in H1’22 and favourable sector trends the operating margins are expected to increase substantially and reach double digits by fiscal 2022.
Weaknesses Weak financial risk profile: Financial risk profile remains constrained on account of sizeable debt level of Rs.711 crore as of March 2021 (including OCDs of Rs.371 crore). Gearing has been aggressive because of the large debt-funded capex undertaken in the past. Debt protection metrics in interest coverage ratio and net cash accruals to debt ratio remain weak at 1.8 times and 0.03 times respectively in fiscal 2021. However, with the implementation of restructuring plan and improvement in performance the debt protection metrics are expected to improve from fiscal 2022.
Working-capital-intensive operations and susceptibility to volatility in cotton prices and foreign exchange (forex) fluctuations: A significant portion of cotton—the key raw material—requirement for the next year is procured during peak cotton season (October to March) leading to large working capital requirement. Further, any sharp volatility in cotton prices, besides impacting working capital requirements, impacts the profitability as well depending on the demand supply dynamics of end-products such as yarn or fabrics. The company’s ability to mange these challenges effectively will remain critical for sustenance of improved performance. NSL is also moderately exposed to forex risk as it derives 25% of its turnover from exports. |
Liquidity: Adequate NSLTL’s liquidity has improved with implementation of restructuring and infusion of Rs.60 crore by the promoters to service the debt obligations. NSLTL’s repayment obligations are Rs 71 crore in fiscal 2022 (repaid Rs 35 crores in the first half of FY22) and Rs.34-39 crore per annum in fiscal 2023 & fiscal 2024. The repayment obligations will be met by internal accruals which is expected to be over Rs.120 crores per annum over the medium term. NSLTL‘s bank facilities of Rs 163.06 crore remains almost fully utilized (100%) during the 12 months ended October 2021. The company also has outstanding pending subsidy receipts from government worth Rs.168 crore which when received will help in building of working capital and support liquidity. |
Outlook: Stable CRISIL Ratings believes that NSLTL will continue to benefit over the medium term from its established client relationships, strong market position and its promoter's extensive industry experience. Financial profile will improve on progressive repayment of term loan and improvement in profitability leading to healthy cash accruals |
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About the Company NSLTL, set up in 2002 and promoted by Mr M Prabhakhar Rao, is part of the NSL group. The group has revenue of over USD 1 billion, and its businesses include seeds, textiles, power, infrastructure, and sugar. NSLTL is in the textile industry, and has spinning, weaving, yarn and fabric dyeing, processing, and garmenting capacities. NSLTL’s manufacturing facilities are spread over seven locations in Andhra Pradesh. |
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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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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