Rating Rationale
November 21, 2024 | Mumbai
Vardhman Acrylics Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.145 Crore
Long Term RatingCRISIL AA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (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 AA/Stable/CRISIL A1+’ ratings on the bank loan facilities of Vardhman Acrylics Ltd (VAL).

 

The ratings continue to reflect the robust financial risk profile of VAL and strong support from parent Vardhman Textiles Ltd (VTXL). The operating performance of the company moderated in fiscal 2024 after improvement in fiscal 2023, primarily due to reduced capacity utilisation and significant decrease in sales realisations on account of large export of acrylic fibre at low prices to India by nations like China, Peru and Thailand, which led to decrease in price realisation for domestic acrylic fibre manufacturers as well as some loss of volumes. The operating income for fiscal 2024 declined to Rs 298 crore (as against Rs 427 crore in fiscal 2023), while operating margin moderated to ~5.1% for fiscal 2024 (as against ~9.5% for fiscal 2023). Operating margin for fiscal 2025 is expected to moderate to 2-3%, primarily on account of reduction in operating margin in the first half of fiscal 2025 to ~2.3% due to increased competition from other exporting countries, which have significantly increased exports to India at low prices on account of overall reduced demand in Europe, resulting in lower realisations. The performance for the second half of fiscal 2025 is projected to be similar to that in the first half of fiscal 2025 and operating income in fiscal 2025 is expected to moderate to Rs 250-280 crore. The financial profile is expected to be strong, with nil external debt, liquidity of ~Rs 170 crore and unutilised bank limits of Rs 75 crore. It is one of the top three acrylic fibre manufactures with installed capacity of 21,000 tonne per annum (TPA). This is however, partially offset by vulnerability to volatile raw material prices linked to crude oil prices, the presence of a low-cost substitute, polyester staple fibre and strong competition from exporting countries.

 

VAL has a comfortable financial risk profile characterised by healthy networth and nil debt. The company has only normal maintenance capital expenditure (capex) scheduled in fiscal 2025, which is to be funded through internal accruals. Cash equivalent of ~Rs 170 crore is expected to remain in the company over the medium term. Net cash accrual is expected to be around Rs 0-4 crore in fiscal 2025 and Rs 7-10 crore in fiscal 2026.

 

The ratings are further strengthened by the strong managerial support that VAL receives from VTXL, which has a shareholding of 70.74% in VAL. Company, in fiscal 2023, has repaid it entire debt and is expected to remain debt-free in the medium term. Performance is expected to moderate in fiscal 2025, owing to strong competition in the domestic market from acrylic fibre dumped in India at lower prices.

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:

  • Strong support from the parent, VTXL: VTXL holds a 70.74% stake in VAL and extends strong managerial and operational support. The ratings of VTXL were reaffirmed at ‘CRISIL AA+/Stable/CRISIL A1+’ in November 2024 owing to healthy business and financial risk profiles and presence of liquidity of about Rs 1300 crore in the form of cash and equivalent. The group’s strong business position in the textiles business is reinforced by its healthy operating capability. The group has continuously invested towards enhancing its spinning productivity. It has a strong market position in the cotton yarn and fabrics segment, backed by large capacity and established relationships with leading global apparel manufacturers. It is one of the largest spinners in the domestic market and has installed capacity of 12.3 lakh spindles, accounting for 2% of the total installed spindles in India.

 

  • Established position in the acrylic fibre industry: The top three players hold around 90% of total operational capacity in the domestic acrylic fibre industry. With an installed capacity of 21,000 tonne per annum (TPA), VAL continues to be one of the leading players in the industry.

 

  • Comfortable financial risk profile: Financial risk profile is supported by nil debt, healthy networth and low capex. In fiscal 2024, VAL recorded net cash accrual of Rs 3 crore on account of dividend paid of Rs 20 crore, with a cash surplus of about Rs 170 crore. Despite net cash accrual being expected to moderate in fiscal 2025, cash surplus is expected to be maintained at similar levels.

 

Weaknesses:

  • Volatility in the price of basic raw material, acrylonitrile: 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. Even though price of crude oil is expected to be stable in fiscal 2025, it will remain a key monitorable.

 

  • Availability of cheaper substitutes and strong competition: The acrylic fibre industry faces intense competition from cheaper substitutes such as polyester. Fiscal 2024 and the first half of fiscal 2025 also witnessed strong competition in the domestic acrylic industry from exporting countries. VAL 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 169 crore as on March 31, 2024. The company has nil long-term debt. The company also has undrawn fund-based limits of Rs 75 crore on average, which are more than sufficient to shield the company in case of any exigencies.

Outlook: Stable

CRISIL Ratings believes VAL will continue to benefit over the medium term from the managerial and operational support of VTXL.

Rating sensitivity factors

Upward factors:

  • Increase in the scale of the company for instance, revenue remaining above Rs 500 crore along with operating margin over 10% on a sustained basis
  • Upward rating action on VTXL’s bank facilities and debt programmes

 

Downward factors:

  • Downward rating action on VTXL’s bank facilities and debt programmes
  • Sustained deterioration of operating margin below 5% beyond fiscal 2025

About the Company

VAL is among the large players in the domestic acrylic fibre market, with capacity of 21,000 TPA. VTXL holds a 70.74% stake in VAL, which has manufacturing facilities at Jhagadia, Gujarat. VAL markets acrylic fibre under the VARLAN brand. Acrylic fibre is used to manufacture hand-knitting yarn, blankets, jerseys, sweaters, saris, upholstery, and carpets.

 

For fiscal 2024, the company has reported an operating income of Rs. 298 crore and profit after tax of Rs 18 crore.

Key Financial Indicators

Particulars

Unit

2024

2023

Revenue

Rs crore

298

427

Profit after tax (PAT)

Rs crore

18

33

PAT margin

%

6

8

Adjusted debt/Adjusted networth

Times

0.00

0.00

Interest coverage

Times

72.73

153.01

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 Fund-Based Facilities NA NA NA 25 NA CRISIL AA/Stable
NA Non-Fund Based Limit& NA NA NA 120 NA CRISIL A1+

& - Interchangeable with other non-fund Based Facilities 

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 25.0 CRISIL AA/Stable   -- 28-08-23 CRISIL AA/Stable 03-06-22 CRISIL AA/Stable 24-03-21 CRISIL AA/Stable CRISIL AA/Stable
      --   --   -- 30-05-22 CRISIL AA/Stable   -- --
Non-Fund Based Facilities ST 120.0 CRISIL A1+   -- 28-08-23 CRISIL A1+ 03-06-22 CRISIL A1+ 24-03-21 CRISIL A1+ CRISIL A1+
      --   --   -- 30-05-22 CRISIL A1+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 15 ICICI Bank Limited CRISIL AA/Stable
Fund-Based Facilities 10 ICICI Bank Limited CRISIL AA/Stable
Non-Fund Based Limit& 120 ICICI Bank Limited CRISIL A1+
& - Interchangeable with other non-fund Based Facilities
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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