Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Established market presence: NDL’s promoters, the Chirpal family, has been engaged in the textile industry for over 50 years. This has given them an understanding of the dynamics of the market, and enabled them to establish relationships with suppliers and customers. Further, the company has a large integrated manufacturing capacity for yarn, denim, shirting and benefits from the consequent economies of scale. NDL primarily caters to mass market denim and has a wide distributor base. NDL moderate scale provides an operating flexibility in the intensely competitive industry. In 9 months to December 2021, the company clocked a turnover of Rs. 1467 cr recovering sharply from Rs. 1097 cr turnover in the previous full year.

Moderate financial profile: NDL has healthy net worth and total outside liabilities to adjusted tangible networth (TOL/ANW) of Rs. 471 cr and 1.51 times as on March 31, 2021. NDL’s debt protection measures were suppress in fiscal 2021 with interest coverage of 1.86 times and net cash accurals to total debt (NCATD) ratio of 0.11 times on account of fall in the turnover during the year. The unprecedented lockdown and covid-19 related disruptions had affected the revenue during fiscal 2021.

In current year (ending March 2022), company is estimated to clock its historically highest turnover and profit. NDL’s TOL/ANW ratios is estimated to remain steady with net worth rising over Rs. 530 cr. Its interest coverage ratio is also estimated to be much improved around 3.5 times for fiscal 2022.

Weaknesses

Working capital intensive operations: Operations are working capital intensive with usual gross current assets of around 5 months. This is driven by inventory of around 2 moths and receivables of just over 2 months. The working capital requirements are partially supported by credit from its suppliers.

High repayment obligations: Company has annual repayment obligations of around Rs. 80-90 cr over medium term. These shall continue to absorb significant share of accruals generated from business and restrain the liquidity profile.

Competition and susceptibility to volatility in raw material prices Competition is intense in the textile weaving industry due to low entry barriers on account of limited capital and technology requirements and little differentiation in end products. Moreover, revenue and profitability will remain susceptible to fluctuation in the prices of raw material: cotton and yarn.