ICRA : assigns long-term rating of BB+ on the bank facilities of Ashwinram Spinning Mills Private Limited

June 07, 2017

Ashwinram Spinning Mills Private Limited

Summary of rated instruments

Instrument*	Rated Amount (in crore)	Rating Action
Fund-based - Cash Credit	9.00	[ICRA]BB+ (Stable); Assigned
Total	9.00

*Instrument details are provided in Annexure-1

Rating action

ICRA has assigned the long-term rating of [ICRA]BB+ (pronounced ICRA double B plus)1to the Rs. 9.00-crore2fund-based bank facilities of Ashwinram Spinning Mills Private Limited (ASMPL). The outlook on the long-term rating is 'Stable'.

Rationale

The assigned rating favorably factors in the promoter's experience in the textile industry for over two decades, financial profile of the company characterized by moderate gearing and adequate debt protection metrics. The rating also takes into account the considerable growth in revenues in FY2017 on the back of capacity expansion. The rating is, however, constrained by the small scale of operations of the company that restricts economies of scale; high customer concentration, which is however mitigated to an extent by the long standing relationship with clients. ICRA's rating also takes into account the company's exposure to volatility of price of cotton and yarn markets and intense competition in the industry restricting pricing flexibility.

Going forward, ability to sustain the profitability and improve its scale will be the key rating sensitivities.

Key rating drivers Credit strengths

• Track record of operations in the textile industry for over two decades

• Improvement in capacity aiding the revenue growth in FY2017

• Financial profile characterized by moderate gearing and adequate debt protection metrics

  Credit weaknesses

• Small scale of operations restricting economies of scale and financial flexibility

• High customer concentration with around 90% of the revenues derived from a single customer group; mitigated to an extent by the long standing relationship with them

• Industry profile characterized by intense competition, restricting pricing flexibility

1 For complete rating scale and definitions, please refer to ICRA's websitewww.icra.in or other ICRA Rating Publications

2 100 lakh = 1 crore = 10 million

Description of key rating drivers:

ASMPL was incorporated with the main objective of manufacturing cheese form of cotton yarn and started manufacturing of cotton yarn from January 1990 onwards. Cotton waste is used as primary raw material and is procured from reputed cotton-spinners in order to obtain high quality of cotton waste. Owing to the availability of raw material spread throughout the year, the company has the flexibility to stock less than two months of inventory. The company derives a major portion of the sales (~90% of revenues) from a single customer group in Ichalkarangi with whom it has a long standing relationship; thereby mitigating high customer concentration to an extent. Over the last two fiscals the company has incurred capital expenditure for expansion of facilities which has led to substantial growth in revenues in FY2016. However leverage has remained moderate on account of improvement in net-worth. Debt protection metrics has remained adequate over the years and interest coverage was at 3.2 times in FY2016. Operating margin of the company had improved in FY2016, and the management expects similar trend to remain in FY2017 as well. Sustaining the operating margin at the current levels enables the company to maintain adequate leeway in servicing of its debt.

The company has recorded improvement in the profitability in FY2016 on the back of increase in revenues and minimization of expenses. The key sensitivity is in the ability of the company in sustaining the margins by improving the revenue growth going forward.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. Links to applicable criteria:

Corporate Credit Rating Methodology

Rating Methodology for Indian Textiles Industry - Spinning

About the company:

Incorporated in 1990, ASMPL is primarily engaged in producing cotton yarn, primarily open end yarn, in the count ranges from 8s to 20s. ASMPL caters primarily to domestic markets of Maharashtra and Tamil Nadu. The Company operates with an installed capacity of 3,464 rotors and its manufacturing facility is located near Coimbatore.

In FY2016, the company reported a net profit of Rs. 1.0 crore on an operating income of Rs. 49.5 crore, as compared to a net profit of Rs. 0.5 crore on an operating income of Rs. 48.7 crore in the previous year.

Status of non-cooperation with previous CRA: Not applicable Any other information: Not applicable Rating history for last three years: Table:

S. No.	Instrume nt	Current Rating (2017)	Chronology of Rating History for the past 3 years
	Type	Amount Rated (Rs. Crore)
June 2017	Oct 2016	Jun 2015	Jul 2013
1	Cash Credit	Long Term	9.00	[ICRA]BB+ (Stable)	[ICRA]BB+ (Stable) Suspended	[ICRA]BB+ (Stable)/ [ICRA]A4+	[ICRA]BB+ (Stable)/ [ICRA]A4+

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 www.icra.in

Instrument	Date of Issuance / Sanction	Coupon Rate	Maturity Date	Amount Rated (Rs. Crore)	Current Rating and Outlook
Cash Credit	-	-	-	9.00	[ICRA]BB+ (Stable)

Annexure-1 Instrument Details

Source: Ashwinram Spinning Mills Private Limited