| Vardhman Acrylics Limited | ||||||
| Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities of Vardhman Acrylics Limited (VAL).
The ratings take into consideration the established market position of the company in the acrylic fibre segment in India, being one of the top three players with installed capacity of 20,000 TPA. Expected recovery to pre-Covid levels in the second half of fiscal 2021 and subsequently fiscals 2022 and 2023 after weak operating performance in the first half of fiscal 2021 will be driven by revival in the demand from the end-user industry and higher capacity utilisation levels. This is however, partially offset by vulnerability to volatile raw material prices linked to crude oil prices, and the presence of a low-cost substitute, polyester staple fibre.
VAL has a comfortable financial risk characterised by healthy networth levels and neglibile debt. The company has modest maintenance capex scheduled in the forthcoming fiscals, which is to be funded through internal accruals. VAL has a cash surplus of over Rs. 300 crores which is expected to remain within the company over the medium term. Net cash accruals expected for fiscal 2022 and 2023 is expected to be in the range of Rs. 18-25 crores annually.
The ratings are further strengthened by the strong managerial support that VAL receives from VTXL which has a shareholding of 70.74% in VAL. In first nine months of fiscal 2021, the company posted revenue of Rs 176 crores and operating margin of 17% during the same period. Debt protection metrics continue to be healthy, with interest coverage at 140 times owing to minimal debt of Rs 1 crore as on March 31, 2020. Performance is expected to remain steady over the medium term, despite volatility in the operating margins. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the extent of operational and managerial support VAL receives from VTXL being a 70.74%% subsidiary of VTXL, with shared name and past instances of support. |
Key Rating Drivers & Detailed Description Strengths:
VTXL holds a 70.74% stake in VAL and extends strong managerial and operational support. The ratings of Vardhman Textiles Limited was reaffirmed at CRISIL AA+/Stable/CRISIL A1+ in December 2020 owing to healthy business and financial risk profile and presence of healthy liquidity of about Rs 2500 crore. Operating performance has recovered to pre-covid levels in 9MFY21 owing to strong demand from export markets. The financial risk profile remains robust with healthy cash accrual and moderate debt levels. The net debt to earnings, before interest, tax, depreciation and amortization (EBIDTA) which stood at 1.3 times in 2019, improved to 1.1 times in 2020 and is expected to remain below 1 times over medium term owing to strong liquidity. VTXL in the past has also extended intercorporate loans to VAL to manage its liquidity. Being one of the leading acrylic fibre manufacturers in India, VAL is critical to VTXL, and enables the parent to be a diversified player in the textile spectrum.
The top three players hold around 90% of total operational capacity in the domestic acrylic fibre industry. With an installed capacity of 20,000 tonne per annum, Val continues to be one of the leading players in the industry.
The financial risk profile is supported by negligible debt, healthy networth and low capital expenditure (capex). Sufficient cash accruals of Rs. 17-20 crores annually will aid in keeping net cash accruals comfortable at 35-40 times. VAL has superior interest coverage of over 140 times in line with its minimal debt and total outside liabilities to total net worth of 0.2 times.
Weaknesses:
Acrylonitrile, the basic raw material, is a derivative of crude oil and is thus exposed to fluctuation in prices. As acrylonitrile prices move in tandem with crude oil prices, inability of manufacturers to pass on the increase in input cost continues to constrain operating margin. Vardhman Acrylics' operating margin has ranged from 7 to 13% over the past five years primarily due to fluctuations in raw material prices.
The acrylic fibre industry faces intense competition from substitutes such as polyester and cotton, and increasing imports. Vardhman Acrylics will continue to face pressure on realisation because of demand-supply mismatches. |
Liquidity: Strong Liquidity has been comfortable, with cash and equivalent (including investments) of Rs 312 crore as on March 31, 2021. The company has nil long-term debt. The company also has undrawn fund based limits of Rs. 9 corers on an average which coupled with cash accruals of Rs. 17-20 crores annually is more than sufficient to shield the company in case of any exigencies. |
Outlook: Stable CRISIL Ratings believes VAL will benefit over the medium term from managerial and operational support of VTXL. |
Rating Sensitivity factors .Upward factors
Downward factors
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About the Company Vardhman Acrylics is among the large players in the domestic acrylic fibre market, with capacity of 20,000 tonne per annum. Vardhman group holds a 74.28% stake in Vardhman Acrylics, which has manufacturing facilities at Jhagadia, Gujarat. Vardhman Acrylics markets acrylic fibre under the Varlan brand. Acrylic fibre is used to manufacture hand-knitted yarn, blankets, jerseys, sweaters, saris, upholstery, and carpets.
For first nine months of fiscal 2021, the company has reported an operating income of Rs. 176 crores and profit after tax of Rs. 20 crores. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
^Interchangeable with other non-fund Based Facilities |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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