Credit Assessment Note

ABC Private Limited (“ABC” or “The Company”)

Amount (Rs. Cr) Ratings

Bank Facilities Tenure Proposed
Previous Present Previous
(To be assigned)
Fund Based 44.02 79.94 BBB+; Stable BBB; Stable
Long Term
(35.00) (55.00) (Upgrade)
A2 A3+
Non-Fund Based 1.50 1.50 Short Term
(Upgrade)
(Rupees Eighty-One Crores and
Total Facilities 45.52 81.44
Forty-Four lakhs Only)

RATING ACTION

The ratings upgrade factors in the significant growth in ABC’s operating income driven by volumetric
sales, improved liquidity position and financial risk profile of the company. Further, the ratings
continue to factor in the extensive experience of the promoters in the textile business and the location-
specific benefit arising out of its presence in Surat, which is a textile hub of Gujarat. The ratings,
however, continue to remain constrained by ABC’s moderate capital structure & profit margins,
susceptibility of the company to volatile raw material prices coupled with foreign exchange rates and
presence in cyclical, fragmented and competitive textile industry.

BACKGROUND

ABC Private Limited (ABC’s), promoted by Agarwal family was incorporated in 2009 and started its
commercial operations in 2013. The company is engaged in manufacturing of polyester texturized
yarn from partially oriented yarns (POY) with an installed capacity of 36,000 MT per annum. The
company is a three-star export house, Oeko-Tex, ISO 9001:2015, & Authorized Economic Operator
T2(AEO) certified company. The export business forms 70% - 80% of the annual revenues with a
strong presence in 45-50 countries across Europe, Africa, Australia, and Asia Pacific. The promoters
together hold 100% shares in the company.

KEY FINANCIAL INDICATORS

Financial Indicators Audited Projected

Particulars Units FY19 FY20 FY21 FY22 FY-23 FY-24
Total Operating
Rs Crore 266.45 251.00 240.71 447.28 498.12 523.02
Income
EBITDA Rs Crore 8.67 11.54 30.03 28.73 37.32 39.66
Operating Margin % 3.22 4.53 12.35 6.25 7.49 7.58
Net Profit Rs Crore 4.69 5.09 19.57 21.70 22.18 24.25
Net Profit Margin % 1.74 2.00 8.05 4.72 4.45 4.64
Net Cash Accrual Rs Crore 3.47 6.28 19.36 19.13 24.93 27.00
Tangible Net Worth Rs Crore 22.22 27.32 46.64 68.34 90.52 114.77
Long term Debt Rs Crore 12.85 19.80 8.42 19.23 15.83 11.43
Short term Debt Rs Crore 35.15 30.50 40.04 75.37 66.00 66.00
Current Portion of Rs. Crore 1.60 3.24 3.03 2.93 3.40 4.40

Page 1 of 4
 Credit Assessment Note

long-term debt
Total Debt Rs Crore 49.59 53.54 51.49 97.52 85.23 81.83
TD/TNW Times 2.23 1.96 1.10 1.43 0.94 0.71
ROCE % 9.83 11.64 29.77 19.16 19.84 19.47
ISCR Times 2.38 2.36 7.30 9.88 7.43 8.63
DSCR Times 1.80 1.92 3.57 4.62 3.77 3.95
NCA/TD Times 0.07 0.12 0.38 0.20 0.29 0.33
TD/EBITDA Times 5.72 4.64 1.71 3.39 2.28 2.06
Debtor Days Days 38 39 44 38 47 48
Inventory Days Days 27 31 48 40 47 47
Creditor Days Days 3 2 2 1 2 2
Conversion Cycle Days 62 67 91 76 92 93
Current Ratio Times 1.39 1.47 1.51 1.58 1.88 2.08

SWOT ANALYSIS

Strengths
 Experienced promoters with over 30 years of experience in textile industry
 Established market presence with domestic & international recognition of the products since 2013
 Optimum utilization of installed capacity over last three years.
 Sustained improvement in the scale of operations over last four year, with significant growth in
FY22
 Healthy debt coverage indicators marked by ISCR & DSCR of 9.88 times & 4.62 times in FY22
 Healthy ROCE which remains in the range of 11% to 29.77% during past three year ended FY22
 Diversified and reputed customer profile with the top 5 customers comprising 24.40% of the net
sales in FY22 (as against 24.10% in FY21)

Weakness
 Moderate tangible net worth of company of Rs. Rs.76.30 crore as on March 31,2022 including
quasi equity of Rs. 7.96 crore.
 The company’s primary raw material is POY, which is indigenously procured from established
suppliers mostly based in Surat, Gujarat. POY price is highly volatile which is linked to crude oil
prices. Due to which there is significant fluctuation in the operating profit margin which remain in
the range of in the range of 4.53% to 12.23% during last three year ended FY22.
 The company converts POY (partially oriented yarn) into textured yarn, which is used to make
fabric. The overall value addition in converting POY into textured yarn is limited.

Opportunities
 Strategic location of the manufacturing unit in Surat, which is a major textiles Hub in Gujarat,
with proximity to the weavers and textile processing mills, thereby ensuring steady supply of raw
material and lower transportation cost. It also provides exposure to a large and strong customer
base, which provides an opportunity to increase its market reach within the industry.
 Varied application of Polyester across home furnishing, apparel industry, automotive industry,
sportswear, technical textiles, etc.
 Potential growth in demand for polyester yarn due to increase in share of non-cotton fabric in total
fabric production on account of lower availability of cotton and rise in the price of cotton.

Page 2 of 4
 Credit Assessment Note

Threats
 India has concluded / is in the process of concluding Free Trade Agreements (FTA) with number
of countries like Sri Lanka, Thailand, Bangladesh, and Vietnam etc. This will lead to lower tariffs
all round and may affect Indian textile units, including ABC’s.
 Presence in highly competitive textile industry with several unorganized players thereby limiting
the bargaining power of the company.
 Linkages of POY being the primary raw material to crude oil prices, thus exposing the company
to volatility in raw material prices.
 Exposure to foreign exchange fluctuation risk with more than 80% revenue generated from
export.

REASONS FOR UPGRADE

 Sustained improvement in the revenues with CAGR of over 21.83% over the past 3 years ended
FY22
 Achieved capacity utilization over 100% in respect of PTY during FY22 (vis-à-vis 70.06% in
FY21)
 Increase in sales volume from 26,505.91 MT in FY20 to 33,759.86 MT in FY22 due to
improvement in the market sentiments.
 Improvement in sales realization from 96.53 per kg in FY21 from Rs.132.49 per kg in FY22
owing to increase in raw material prices during that period.
 Overachievement of FY22 projected numbers in terms of TOI by 45.56%, EBITDA by 25.67%,
Net Profit increased by 73%, tangible net worth by 16.72% along with other parameters.
 Improvement in operating profit margin from pre-Covid levels of 3.22% in FY19 and 4.53% in
FY20 to 6.25% in FY22. However, in FY21 the operating profit margin shot up exceptionally to
12.23% due to higher inventory gain resulting from sharp crude fluctuation in crude oil prices.
 Improvement in net Profit margins from pre-Covid levels of Rs. 1.74% in FY19 and 2.00% in
FY20 to 4.72% in FY22.
 Significant improvement in the tangible net worth over the years due to accretion to reserves.
 Improvement in the debt coverage indicators marked by improvement in ISCR to 9.88 times in
FY22 from 7.30 times in FY21 and DSCR to 4.62 in FY22 from 3.57 times in FY21.
 Absence of any debt funded capital expenditure.
 Installation of solar plant of 2.5 MW for captive consumption entirely through internal accruals
during FY22.
 Adequate Liquidity: The current ratio stood moderate at 1.58 times as on March 31, 2022
(FY21:1.50 times). The company is expected to generate net cash accruals worth Rs.24.93 crore
and Rs.27.00 crore in FY23 and FY24 respectively, which would be more than sufficient to repay
the debt obligation in the respective years. Moreover, the company is having free cash & balance
of Rs.3.00 crore and unutilized limit working capital limit of Rs. 6.00 crore as on Sep 30,2022 to
provide additional cushion.
 Comfortably better placed than peers.

ANALYTICAL APPROACH: Standalone

RATING SENSITIVITIES

Positive Factors

Page 3 of 4
 Credit Assessment Note

 Sustained and substantial increase in the scale of operations coupled with sustenance of profit
margins, capital structure, debt coverage indicators & liquidity position.
 Improvement in overall working capital management efficient inventory management and thereby
maintaining collection efficiency.

Negative Factors

 Material deterioration in financial profile owing to lower sales and profitability

 Any un-envisaged aggressive debt-funded expansion and its adverse impact on the financial and
liquidity profile of the company

Details of Bank Facilities

Amount
Type of facility Tenure Remarks
(Rs. Crore)
Term Loan o/s LT 0.74 Repaid in Sep 2023
Sub-Limit PC/PCFC/FCNR) -
Cash Credit LT 55.00
Sanctioned 55.00 Crore
Stand line credit LT 11.00 -
BG ST 1.50
GECL LT 13.20
Total LT 79.94
Total ST 1.50
Total 81.44

Peer Comparison

Net Operatin
Rated FY Net PAT Overall
Company Profit g Profit TNW
Amount considere Sales (Rs. ISCR Gearing Rating
Name Margin Margin (Rs. Cr)
(Rs. Cr) d (Rs. Cr) Cr) (times)
(%) (%)
FY21(A) 243.10 19.57 8.05 12.35 46.64 7.30 1.10 BBB+;
ABC Private
81.44 Stable/
Limited FY22(A) 459.99 21.70 4.72 6.25 68.34 9.88 1.43
A2(Proposed)
BBB: Stable/
Peer 1 54.40 FY21(A) 224.19 4.48 2.00 4.18 37.59 4.41 0.85
A3
A-Negative/
Peer 2 390.32 FY21(A) 656.23 13.93 2.12% 9.13% 188.40 4.85 0.79
A2+
BBB+/
Peer 3 125.00 FY21(A) 316 16.82 5.3% - 93.65 31.90 0.03
Positive/ A2
Peer 4 83.75 FY21(A) 366.65 16.39 4.47% 10.04% - 8.52 0.16 A: Stable/ A1

Page 4 of 4