Rating Rationale for JKCL Ltd

Rating Rationale
Brickwork Ratings assigns ‘BWR BB+’ & ‘BWR A4+’ rating for Bank Credit
Facilities aggregating ₹ 61.75 Cr of Sumeet Poly Power Ltd.
Brickwork Ratings (BWR) has assigned the Ratings1 of ‘BWR BB+’ for the long term Bank
credit facilities of ₹ 58.00 Cr and ‘BWR A4+’ for the Short term Bank credit facilities of ₹ 3.75 Cr
of Sumeet Poly Power Ltd. (“SPPL” or “the Company”)1, availed through various banks.
Facility
Limits
(₹ Cr)
Term Loan (o/s)
46.00
CC Limits
12.00
EPC/FBD (Sublimit
of CC)
LC
Bank Guarantee
Total Proposed
Limits
Tenure
Rating
Long Term
BWR BB+
(Pronounced BWR Double B Plus)
Outlook : Stable
Short Term
BWR A4+
(Pronounced BWR A Four Plus)
(3.00)
2.00
1.75
61.75
(INR Sixty One Crores and Seventy Five Lakhs only)
The rating reflects promoters experience and established track record in textile industry,
corporate guarantee by Sumeet Industries Limited (BWR BBB/A3+), healthy profitability
expected on account of better demand and high price realizations, location advantage with
proximity to raw material and market, tax incentives and other subsidies from government to
support operations in near term, state of the art machineries will result in better operational
efficiencies and good quality product, promoters ability to infuse funds as per business
requirement.
The rating is however constrained by relatively modest scale of operations, profitability highly
susceptible to volatility in cotton prices, intense competition in highly fragmented and cyclical
textile industry leading to low pricing power,working capital intensive nature of business.
Background & Operations
Sumeet Poly Power Ltd. is incorporated under the Companies Act, 1956 and that the Company is
Limited, registered with the office of Registrar of Companies (ROC), Dadar & Nagar Haveli,
Gujarat vide Corporate Identity No. U40106GJ2010PLC063028, dtd. 25.11.2010, having its
Registered Office and Corporate Office situated at 504, Trividh Chamber, Ring Road, Opp. Fire
Brigade Station, Surat 395002. The company is mainly engaged in manufacturing of Combed
cotton yarn and Compact cotton yarn and has manufacturing set up in Surat. The company has
1
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started commercial production from August 2014; 5 months after projected date of April 2014
however no cost escalation was incurred. The company has 19584 spindles with annual capacity
of 3506 MPTA. The total cost of the project was Rs. 83.52 crores which was funded by
promoter’s equity contribution & loans from group concern amounting to Rs. 37.52 crores and
bank loan under TUFS amounting to Rs. 46 crores.
Till Oct-2014 the company has recorded sales of Rs. 15 crs and expected to record revenue of Rs.
40 crs for FY15. Majority of sales takes place via commission agent and the company pays 1%
commission to agents. The company has appointed many reputed Dealers and agents regionally
and has penetrated into the market speedily.
SPPL is one of the group concerns of Surat based SOMANI GROUP. SOMANI GROUP is mainly
engaged in the activities of synthetic textile yarn manufacturing, processing of textile fabrics and
export of yarn and fabrics. The flagship company of the company is Sumeet Industries Limited
which is engaged in manufacturing of POY/FDY and PPMFY. The Promoter – Directors of the
group are Mr. Shankarlal Somani, Mr. Maheshkumar Somani. Mr. Raj Kumar Somani, Mr.
Bajrang Lal Somani, and their next generation. The Somani’s, who are originally hailing from
Sikar in Rajasthan, are in the textile business at Surat for last 36 years. All the Promoters are
well qualified. They have vast experience in Textile business.
Financial performanceProjected Revenue for FY15 is expected to be Rs. 40 crs mainly on account of better domestic
demand for cotton yarn and better demand prospects going ahead. The company had projected
revenues of Rs. 60 crs based on COD of April 2014; however the company started commercial
production from August- 2014. Looking at the experience of the promoters in textile industry
and good customer contacts, company will be in better position to achieve the projected target of
revenues of Rs. 40 Crs for FY15. The company is targeting the operating margin of 27% mainly
on account of better price realization and good volumes.
Working capital requirement of the company is modest going ahead, mainly on account of better
inventory and receivables management. Debt levels mainly consist of project Term loan and
working capital limits. Debt levels are expected to decrease going further on account of
repayment of term loan.
Debt Equity ratio has increased in FY14, and is expected to further increase going ahead mainly
on account of increase in debt levels partly offset by improving overall capital structure. Interest
coverage ratio and DSCR is expected to remain at comfortable levels backed by better operating
performance. The company has lower interest obligations on account of subsidy received under
TUFS. Current ratio and NCA/Total debt is expected to remain at comfortable levels.
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Outlook
Going forward, the Company’s ability to stabilize the operations with substantial growth in
revenues and maintain the profitability as envisaged, while maintaining favourable capital
structure and effectively manage its working capital along with the substantial improvement in
cash accruals would be key rating sensitivities for the firm. The outlook is expected to be stable
over the coming year and the performance is estimated to be steady and in line with past
performance.
Analyst Contact
Relationship Contact
[email protected]
[email protected]
Phone
Media Contact
1-860-425-2742
[email protected]
Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources,
which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or
completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty
of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR
should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses
incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any
reasons.
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