Rating Rationale
July 04, 2024 | Mumbai
Shree Bhavya Fabrics Limited
Ratings reaffirmed at 'CRISIL B+/Stable/CRISIL A4'
 
Rating Action
Total Bank Loan Facilities RatedRs.41.1 Crore (Reduced from Rs.51 Crore)
Long Term RatingCRISIL B+/Stable (Reaffirmed)
Short Term RatingCRISIL A4 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL B+/Stable/CRISIL A4’ ratings on the bank loan facilities of Shree Bhavya Fabrics Ltd (SBFL). Also, CRISIL Ratings has withdrawn its rating on the Rs 9.9 crore Proposed Long Term Bank Loan Facility on the request of the company. This rating action is in line with the withdrawal policy of CRISIL Ratings.

 

Operating income declined to Rs 170 crore in fiscal 2024 from Rs 196 crore in fiscal 2023 due to deferment of orders in the fourth quarter of fiscal 2024 following the government guidelines of paying MSME (micro, small and medium enterprises) companies within 45 days. Revenue is expected to improve on the back of volumetric growth as cotton prices have stabilized. Operating margin was 6.2% in fiscal 2024 and remains susceptible to volatility in cotton prices. The margin is expected to be around 6% in the near term due to softening of input prices and decline in fuel cost.

 

The company has been meeting its debt obligation on time. Net cash accrual is expected to improve to more than Rs 3.8 crore from fiscal 2025, backed by growing business and better margin, thereby resulting in higher cushion between cash accrual and debt repayment.

 

The ratings continue to reflect the extensive experience of the promoters in the textiles industry, established relationships with suppliers and customers, and moderate scale of operations. These strengths are partially offset by the below-average financial risk profile and large working capital requirement.

Analytical Approach

Unsecured loans of Rs 4.6 crore (expected as on March 31, 2024) have been treated as neither debt nor equity as these are expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description

Weaknesses:

  • Working capital-intensive operations: Gross current assets (GCA) were estimated at 290-300 days as on March 31, 2024, due to large inventory and stretched receivables of 160-170 days and 190-200 days, respectively. The GCAs are expected to remain high at 260-280 days over the medium term due to continued high receivables and inventory levels of 180-190 days and 130-145 days, respectively. The working capital requirement is met through the bank limit and payables, which are expected at 70-85 days. Prudent working capital management over the medium term will be closely monitored.

 

  • Below-average financial risk profile: Gearing was estimated to be moderate at 1.86 times as on March 31, 2024, but is expected to improve marginally to 1.5-1.6 times over the medium term with no plans to contract additional debt. High reliance on payables led to weak total outside liabilities to tangible networth (TOLTNW) ratio of 3.5-3.6 times as on March 31, 2024. Debt protection metrics were also muted, with estimated interest coverage and net cash accrual to total debt ratios of 1.4-1.6 times and around 0.05 times, respectively, for fiscal 2024. The ratios are expected to improve to 1.7-1.8 times and around 0.08 times, respectively, over the medium term.

 

Networth was comfortable at around Rs 28.4 crore as on March 31, 2024, and is expected to improve further to Rs 31-32 crore over the medium term, backed healthy accretion to reserves and no plans for dividend payout.

 

Strengths:

  • Extensive experience of the promoters: Presence of over three decades in the textiles industry has enabled the promoters to gain a sound understanding of market dynamics and establish healthy relationships with suppliers and customers. These factors have helped to sustain operating margin even during uncertainty and industry slowdown.

 

  • Moderate scale of operations: Revenue was Rs 170 crore in fiscal 2024. With expected stabilisation of cotton prices over the medium term, demand is likely to improve, resulting in an increase in volume sales.

Liquidity: Stretched

Bank limit utilisation averaged 91% over the 12 months through May 2024. Net cash accrual of Rs 2.87 crore was insufficient to meet debt obligation of Rs 3.4 crore in fiscal 2024; the funding gap was bridged through unsecured loans from the promoters. Accrual is expected to be Rs 3.8-5 crore per annum against yearly debt obligation of Rs 2-3 crore, over the medium term. The current ratio was estimated to be around 1.43 times as on March 31, 2024.

Outlook: Stable

The company will continue to benefit from its established market position in the textiles industry and strong relationships with customers and suppliers.

Rating Sensitivity factors

Upward factors:

  • Growth in revenue backed by steady rise in volumes, and sustenance of operating margin above 5.5%, resulting in net cash accrual over Rs 3.25 crore.
  • Better working capital management and larger networth resulting in improved TOLTNW ratio and debt protection metrics.

 

Downward factors:

  • Sharp decline in operating margin below 4% or net cash accrual under Rs 2.5 crore
  • Further stretch in working capital cycle, or large, debt-funded capital expenditure resulting in deterioration in TOLTNW ratio.

About the Company

SBFL was set up as Anjani Dram Industries Ltd in 1988 by Mr Purushottam R Agarwal, Mr Anjani R Agarwal and Mr Radheshyam Agrawal. The company processes grey cloth and undertakes jobwork contracts for fabrics received from third parties. It has an established network for procurement of grey cloth and a strong marketing set-up across India. The company is listed on the Bombay Stock Exchange. Operations are managed by Mr Purushottam Agarwal, who is the Chairman and Managing Director.

Key Financial Indicators

Particulars

Unit

2024

2023

Operating income

Rs crore

170.5

196.3

Profit after tax (PAT)

Rs crore

1.9

1.5

PAT margin

%

1.1

0.7

Adjusted debt/adjusted networth

Times

1.8

2.1

Interest coverage

Times

1.4

1.4

Status of non cooperation with previous CRA:

SBFL has not cooperated with Brickwork Ratings India Pvt Ltd, which has classified it as non-cooperative vide release dated October 13, 2022. The reason provided by Brickwork is non-furnishing of information for monitoring of ratings.

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

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Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 34 NA CRISIL B+/Stable
NA Inland/Import Letter of Credit NA NA NA 6.5 NA CRISIL A4
NA Proposed Long Term Bank Loan Facility NA NA NA 9.9 NA Withdrawn
NA Working Capital Term Loan NA NA Jul-2025 6 NA CRISIL B+/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 44.5 CRISIL B+/Stable   -- 13-04-23 CRISIL B+/Stable 29-09-22 CRISIL B+/Stable 31-03-21 CRISIL B /Stable(Issuer Not Cooperating)* CRISIL BB- /Stable(Issuer Not Cooperating)*
      --   --   -- 30-05-22 CRISIL B /Stable(Issuer Not Cooperating)*   -- --
Non-Fund Based Facilities ST 6.5 CRISIL A4   -- 13-04-23 CRISIL A4 29-09-22 CRISIL A4 31-03-21 CRISIL A4 (Issuer Not Cooperating)* CRISIL A4+ (Issuer Not Cooperating)*
      --   --   -- 30-05-22 CRISIL A4 (Issuer Not Cooperating)*   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15.5 Bank of India CRISIL B+/Stable
Cash Credit 18.5 Bank of Baroda CRISIL B+/Stable
Inland/Import Letter of Credit 6.5 Bank of Baroda CRISIL A4
Proposed Long Term Bank Loan Facility 9.9 Not Applicable Withdrawn
Working Capital Term Loan 0.6 Bank of India CRISIL B+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Cotton Textile Industry

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