Detailed Rationale Due to inadequate information and in line with the Securities and Exchange Board of India guidelines, CRISIL Ratings had migrated its ratings on the bank facilities of Pasupati Spinning and Weaving Mills Ltd (PSWML) to ‘CRISIL B+/Stable/CRISIL A4 Issuer Not Cooperating'. However, the management has subsequently started sharing requisite information for carrying out a comprehensive review of the ratings. Consequently, CRISIL Ratings is migrating its ratings on the bank facilities of PSWML to ‘CRISIL B+/Stable/CRISIL A4’.
The ratings continue to reflect the susceptibility to volatile raw material prices, weak debt protection metrics and large working capital requirement. These weaknesses are partially offset by the extensive experience of the promoter in the textile manufacturing industry along with diversified product profile and moderate scale of operations. |
Analytical Approach Unsecured loans (Rs 14.24 crore as on March 31, 2023) extended by the promoter have been treated as 25% debt and 75% equity as these loans are subordinated to bank debt and are expected to remain in the business over the medium term. |
Key Rating Drivers & Detailed Description Weaknesses
The price of the main raw material (polyester) is linked to crude oil prices, which remain volatile. Polyester is obtained from Reliance Industries Ltd directly and through dealers. Since the cost of procuring the raw material accounts for 30-40% of total production cost, even a slight variation in price can drastically impact the operating margin. The margin declined to 3.5% in fiscal 2023 from 5.8% in fiscal 2022.
Debt protection metrics are likely to remain constrained by low profitability. Interest coverage ratio stood at 1.06 times and net cash accrual to total debt ratio at 0.08 time in fiscal 2023.
The working capital cycle is likely to remain stretched and will be closely monitored. Gross current assets were around 173 days as on March 31, 2023, driven by moderate debtors of around 77 days and huge inventory of 80 days. The working capital is, however, partially supported by creditors of 58 days extended by the suppliers.
Strengths
The promoter has nearly four decades of experience in the textile manufacturing industry; his strong understanding of market dynamics and healthy relationships with vendors and customers should continue to support the business. The promoter has efficiently diversified the clientele, such that no single customer contributes more than 25% to the total revenue. The product portfolio is also varied, comprising sewing thread, reels, finished yarn and readymade garments.
The scale of operations marked by revenue levels improved to Rs 141.5 crore in fiscal 2023 from Rs 105.7 crore in fiscal 2022, on account of better demand and the shift of job work to manufacturing business. The company has achieved revenue of Rs 28.03 crore till June23 and expects the revenue level of Rs 140 crore for fiscal 2024. |
Liquidity: Stretched Net cash accrual, projected at Rs 2.5-3.0 crore in fiscal 2024, remains tight to meet the repayment obligation of Rs 3.5-4.0 crore. Bank limit utilization was around 80% for the 12 months through September 2023. The current ratio stood at 1.14 times as on March 31, 2023. Liquidity will remain supported by the timely, need-based funding support (unsecured loans) extended by the promoter. |
Outlook: Stable PSWML will continue to benefit from the extensive experience of its promoter. |
Rating Sensitivity Factors Upward factor
Downward factor
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About the Company PSWML, incorporated in 1979 by Mr Ramesh Kumar Jain, is a New Delhi-based company that manufactures cotton yarn, polyester grey and dyed sewing thread and knitted fabric. It has a sewing thread manufacturing facility in Kala Amb (Himachal Pradesh) and polyester viscose yarn manufacturing and spinning units in Dharuhera (Haryana). |
Key Financial Indicators
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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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Criteria Details
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