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 Shahlon Silk Industries Ltd (SSIL) to ‘CRISIL BB-/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 has downgraded its ratings on the bank facilities of SSIL to ‘CRISIL D/CRISIL D’.
The downgrade in ratings factors the continuous over utilisation in the channel financing limit for more than 30 days. The ratings also consider stretched liquidity owing to high bank limit utilisation (97.46% on average during the 12 months through May 2024).
The ratings continue to reflect the exposure to volatility in raw material prices and large working capital requirement. These weaknesses are partially offset by the extensive experience of the promoters in the textile industry. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of SSIL. ` |
Key Rating Drivers & Detailed Description Weaknesses: Exposure to volatility in raw material price Since cost of procuring the raw materials (synthetic yarn, fabric, texturised, twisted and sized yarn) accounts for 70-75% of the operating income, even a slight variation in price can drastically impact the operating margin. Further, the company has limited ability to pass any price hike to customers in a timely manner. Steady improvement in profitability will remain monitorable.
Large working capital requirement Gross current assets were sizeable at 272 days as on March 31, 2024, driven by high debtors of 179 days and huge inventory of 103 days. The working capital is, however, partly supported by payables of 82 days. Improvement in the working capital cycle will remain a key rating sensitivity factor over the medium term.
Strengths: Extensive experience of the promoters The promoters have more than three decades of experience in the textile industry; their strong understanding of market dynamics and healthy relationships with customers and suppliers will continue to support the business. Revenue -- estimated at Rs 309.65 crore in fiscal 2024 – may further grow, driven by customer addition, steady order flow and offtake from the capacity enhancement. Low customer concentration and adequate diversification in the domestic and export profiles should boost the business risk profile |
Liquidity: Poor Bank limit utilisation was high at 97.28% during the 12 months through May 2024. Cash accrual is projected at more than 15 crore per annum, against yearly debt obligation of Rs 7-10 crore over the medium term. The current ratio stood at 1.44 times on March 31, 2024. The promoters are likely to extend need-based funds (equity and unsecured loans) to support operations. |
Rating Sensitivity Factors Upward Factors
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About the Company SSIL, incorporated in 2008, manufactures texturised, twisted and sized yarn and grey fabric; it is based in Surat, Gujarat, The company also trades in partially oriented and fully drawn yarn and is a del credere agent for Reliance Industries Ltd. The company is owned and managed by Mr Dhiraj R Shah, Mr Jayanti R Shah, Mr Arvind R Shah, Mr Nitin R Shah and Mr Mahendra R Shah. |
Key Financial Indicators
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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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