January 12, 2017 Sivaraj Spinning Mills Private Limited. Instruments Amount (Rs. crore) Rating Action (revised from 14.00)

Transcription

1 January 12, 2017 Sivaraj Spinning Mills Private Limited Instruments Amount (Rs. crore) Rating Action Long : Term loans (revised from 14.00) / reaffirmed Long : Fund-based limits (revised from 40.00) / reaffirmed Short : Non-Fund based limits / reaffirmed Long / Short : Fund based unallocated limits 2.75 (revised from 11.00) / / reaffirmed *Instrument details are provided in Annexure-1 Rating action ICRA has reaffirmed the long rating outstanding on the Rs crore 1 loans (revised from Rs crore), and the Rs crore (revised from Rs crore) fund based facilities of Sivaraj Spinning Mills Private Limited ( Sivaraj / The Company ) at (pronounced ICRA A plus) 2. The outlook on the long rating is Stable'. ICRA has also reaffirmed the short rating for the Rs crore non-fund based facilities of the Company at (pronounced ICRA A one). The ratings of / shall also apply to the proposed / unallocated fund-based limits facilities of the company to the tune of Rs crore (revised from Rs crore); depending on the usage of the instrument. Rationale The ratings remain supported by the long standing market presence of Shanmugavel Group (represents the eight entities rated by ICRA), its strong operational profile characterised by partially integrated operations, favourable scale economics enabled by its position as one of the largest cotton spinners in South India, and the group s long standing relationship with reputed clientele lending stability to volumes. The ratings also strongly derive comfort from the presence of large windmill capacities (175.5 MW), which enables optimal capacity utilisation apart from reduction in power costs. However the ratings are constrained by the prevailing weak demand scenario and the profitability pressures on spinners due to elevated cotton prices unmatched by equivalent rise in realisations. The ratings also consider the group s unfavourable product mix with higher skew towards low to medium counts, and the inherently competitive nature of the industry with threat from both domestic players and other low cost countries. The ratings further remain tempered by the financial support extended (in the form of loans) to some of its other group entities; although the exposure has reduced with no additional support in recent years. Key rating drivers Credit Strengths Significant experience of the promoters Benefits of scale economics being positioned as one of the largest spinners in the country Integrated nature of operations with presence across spinning, weaving and knitting results in cost efficiency and improves value addition Established customer profile and balanced geographical mix lends stability to volumes Large windmill capacities aids in better capacity utilisation and aids in margin expansion Favourable capitalisation and coverage indicators lakh = 1 crore = 10 million 2 For complete rating scale and definitions, please refer to ICRA s website or other ICRA Rating Publications

2 Credit Weakness Weak yarn demand and falling yarn realisations Low contribution from value-added products to total revenues Intense competition in a highly fragmented industry impacts pricing flexibility Earnings vulnerable to exchange rates and cotton price fluctuations Description of key rating drivers highlighted above: The company is part of the Shanmugavel group of companies which has an installed capacity of ~4.6 lakh spindles, 11,840 rotors, 230 looms and 261 knitting machines making it one of the largest textile groups in South India. With presence in spinning of cotton / open-ended yarn, knitted fabric and woven fabric, the group s operations are fairly diversified. The promoter, Mr. P S Veluswamy and his brother Mr. C Kandaswamy are actively involved in the operations and possess vast experience in the textile industry which has supported the group in building an established client base and strong brand name over years. The group has also made large investments in wind energy over years; its aggregate capacity of 175.5MW meets almost the group s entire power requirements (at optimal generation levels) apart from providing stable income. Availability of continuous power is critical for maintaining plant utilizations at optimum levels and for achieving consistent yarn quality. During FY2016, the group s revenues witnessed a modest 3% YoY growth; while the volume growth during the year was healthy led by favourable overseas demand, realisations fell steeply on the back of tepid domestic yarn demand and falling cotton prices. Weak realisations coupled with poor wind generation due to issues over evacuation and poor velocity resulted in a near 200 bps contraction in operating and net margins. In the current fiscal, the group s revenues is expected to be flat or may fall marginally owing to subdued yarn demand (both domestic and overseas) and continuing fall in yarn realisations. However, the strong wind generation in the absence of any major evacuation related issues is likely to boost the operating profits thus offsetting the subdued performance of spinning segment. With stable accruals and in the absence of any debt funded capital expenditure, the group s debt protection metrics and liquidity profile continue to remain comfortable. As on March 31, 2016, the group s capital structure stood at 0.6x, Total debt to operating profits stood at 2.6x and the average working capital utilisation stood at 48% of the total sanctioned lines. Analytical approach: For arriving at the ratings, ICRA has consolidated the operational and financial risk profiles of the eight companies in the group - (a) Sri Shanmugavel Mills Private Limited, (b) Sudhan Spinning Mills Private Limited, (c) Sivaraj Spinning Mills Private Limited, (d) Adisankara Spinning Mills Private Limited, (e) Sri Velayudhaswamy Spinning Mills Private Limited, (f) Prabhu Spinning Mills Private Limited, (g) Vedha Spinning Mills Private Limited, and (h) Sri Matha Spinning Mills Private Limited. The combined entity is collectively referred to as Shanmugavel Group ( The Group ). Links to applicable Criteria Corporate Credit Rating - A Note on Methodology Rating Methodology for Textiles - Spinning About the Company Sivaraj Spinning Mills Private Limited (Sivaraj), one of the oldest companies of the group was set up in The company currently operates with an installed capacity of 31,872 spindles manufacturing cotton yarn. The company produces counts ranging from 28s to 40s with some presence in value added products such as compact yarn. The company acts as one of the principle aggregators of export orders for the group given the fact that the Shanmugavel brand has been able to establish itself in various export markets. Over years, Sivaraj has invested steadily in windmills and as on date it has an installed capacity of 14.2 MW. Group Profile Founded in 1981 by Late Mr. S. Chennimalai Gounder, the Shanmugavel group ( the group ) is one of the largest textile groups in South India with interests in cotton yarn, knitted and woven fabric and engineered steel products. The groups flagship company, viz. Sri Shanmugavel Mills (P) Limited (Shanmugavel) was set up in 1981 with an installed capacity of 24,640 spindles. Over the years the group has expanded its operations and has diversified into manufacture and sale of products such as combed cotton yarn, compact yarn, OE yarn, knitted fabric, and woven fabric. As of September , the group has an installed capacity of 4,59,360 spindles, 11,840 rotors, 230 looms and 261 knitting machines manufacturing products across the textile value chain. The group has 229 windmills with a capacity to generate 175.5MW power.

3 Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Table: Rating History Current Rating Type S. Name of the No. Instrument 1 Fund based 2 3 Non-Fund based Fund based (proposed) 4 Term loans Long Short Long / Short Long Rated amount (Rs. Crores) Month - year & rating Month- year & Rating in FY2016 Chronology of Rating History for the past 3 years Month - year & Rating in FY2015 Month - year & Rating in FY2014 Jan 2017 Dec 2015 Dec 2014 Jun 2014 Nov 2013 Jun (positive) / / / (positive) Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website -

4 Annexure-1 Details of Instruments Name of the instrument Date of issuance Coupon rate Maturity Date Size of the issue (Rs. Cr) Current Rating and Outlook Term loans Jan % 31/7/ Cash credit Letter of credit Fund based / (proposed) Source: Company; Bank sanction letters Name and Contact Details of the Rating Analyst(s): Analyst Contacts Subrata Ray subrata@icraindia.com K Srikumar k.srikumar@icraindia.com Name and Contact Details of Relationship Contacts: L Shivakumar shivakumar@icraindia.com About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody s Investors Service is ICRA s largest shareholder. For more information, visit Copyright, 2017, ICRA Limited. All Rights Reserved Contents may be used freely with due acknowledgement to ICRA ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.

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