Rating Rationale

Mercury Fabrics Pvt. Ltd. 20 Mar 2019

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of 47.79 Crores of Mercury
Fabrics Pvt. Ltd.

Particulars

Facility Tenur Rated Rating Assigned^

e Amount
(Rs.in Crs)

Fund Based

Term Loan 29.04 BWR BBB-

(Pronounced as BWR
Long
Cash Credit 9.25 Triple B Minus) Outlook:
Term
Stable

Bill Discounting 5.00

Non Fund based

Non Fund based BWR A3
Short
(Pronounced as BWR Single
Term
Letter of Credit - Capex 2.00 A Three)

Financial Bank 2.50

Guarantee

Rs. Forty Seven Crores

Total 47.79 and Seventy Nine Lakhs
Only
*Please refer to BWR website ​www.brickworkratings.com/​ ​for definition of the ratings

Ratings: Assigned

BWR has assigned Long Term Rating of BWR BBB- ( Outlook: Stable) and Short Term Rating
of BWR A3.

Rationale/Description of Key Rating Drivers/Rating sensitivities:

BWR has essentially relied upon audited financial results of Mercury Fabrics Pvt. Ltd. (‘MFPL’ or

www.brickworkratings.com 20 Mar 2019

 ‘the Company’) upto FY18, projections for FY19 and FY20, publicly available information and
information provided by the management of the Company.
The ratings draw comfort comfort from the promoters’ experience of more than a decade in their
line of business activity, healthy profit margins, improved overall financial position in FY18,
diversified revenue portfolio and current capex to improve the capacity.

The ratings, however, are constrained on account of low current ratio and intense market
competition in the textile industry.

Description of Key Rating

Drivers Credit Strengths:

● Established track record of operations and experienced management: ​MFPL,

incorporated in July 2006, is promoted by father-son duo of Mr. Tajinder Sachdeva &
Mr.Rahul Sachdeva having a combined experience of more than four decades in the field
of manufacturing knitted fabric. .This has helped them to establish their relationships with
renowned star export houses like Shahi Exports (P) Ltd, Pratibha Syntex (P) Ltd, and
Paragon Apparels (P) Ltd..

● Moderate Profitability Margins : ​The PAT of the company has improved to Rs.4.48Crs
in FY18 from Rs.1.88Crs in FY17. Further, OPM and NPM stood at 9.69% and 2.63%
respectively in FY18 vis-a-vis OPM and NPM of 7.05% and 1.05% respectively in FY17.
This was due to the company's strategic change in product mix with emphasis on higher
margin products.

● Capex Under process : ​The company augmented capacity of its print division from 1800
TPA to 3000 TPA by installing one more set of flat bed printing machine along with allied
machinery & equipment in the existing plant.The total cost of the capex is of Rs. 18.10Crs
which is funded by Rs. 13 Crs of Term loan and remaining to be funded by internal cash
accruals. The expected COD is 01 April 2019. Currently, the erection work of the
industrial shed is completed and the trial of installed machinery is underway. Further, with
increase in capacity of the printing division the company is expected to increase its revenue
and profitability derived from higher margin products.

● Improved Financial Position : ​The overall financial position of the company has
improved with analysed overall gearing (TOL/TNW ratio) standing at 1.61x in FY 18
vis-a-vis 2.05x in FY17, coupled with e Tangible Net Worth of Rs.25.74Crs ( Analysed
tangible net worth- Rs.39.90 Crs, after accounting for unsecured loans from promoters) in
FY 18. Debt protection metrics, viz. ISCR and DSCR at 6.09x and 1.91x respectively in
FY18 improved as compared to ISCR and DSCR of 4.71x and 1.70x respectively in FY 17
due increased profitability of the company.

Credit Risks:

● Exposure to intense competition in the cotton textile industry: ​The cotton textile

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 industry is largely unorganised with various players having small capacities. In addition,
the entry barriers are low on account of low capital and technology intensity and low
differentiation in end product. This has led to a highly-fragmented industry structure with
intense competition amongst the players.The fragmented nature of the industry will
continue to restrict the company's pricing power over medium term.

● Low Current Ratio : ​Due to continued capex and capital intensive nature of the textile
sector the current ratio has been hovering around 1x in the past years and in FY8 it stood at
0.96x.

Liquidity : ​The company has sufficient cash accruals of Rs.12.38 Crs, to meet its long term debt
obligations, Moderate TNW of Rs.25.74Crs, and cash and cash equivalent of Rs.3.10 Crs in FY 18
against a repayment obligation of Rs.5.20Crs.

Analytical Approach

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria
detailed below (hyperlinks provided at the end of this rationale).

Rating Outlook: Stable

BWR believes the ​Mercury Fabrics Pvt. Ltd.’s ​business risk profile will be maintained over the
medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium
term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained
improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit
margins show lower than expected figures.

About the Company

Mercury Fabrics Pvt. Ltd. (MFPL), incorporated in July, 2006, was promoted by Mr. Tajinder
Sachdeva & Mr.Rahul Sachdeva to manufacture knitted fabric from yarn. The Company set up its
facilities at HSIIDC developed Industrial Growth Centre at Bawal in Distt. Rewari (Haryana) on
Delhi Jaipur national highway.
The company has in-house facility of Knitting,Textile Processing, Finishing & Dying House for
knitted Fabric and printing.

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Rating History for the last three years

Current Rating (In 2019) Rating History

Instrument
/Facility
Type Amount
2018 2017 2016
(​₹ ​Crs) Rating

BWR BBB-
Long
(Pronounced
Term Loan Term 29.04 NA NA NA
as BWR
Triple B
Cash Credit 9.25 Minus)
Outlook:
Stable

Bill Discounting 5.00 BWR A3

(Pronounced
Letter of Credit - Short NA NA NA
as BWR
Capex Term 2.00 Single A
Three)
Financial
Bank 2.50
Guarantee

47.79 Rs. Forty Seven Crores and Seventy Nine Lakhs

Total
Only

Status of non-cooperation with previous CRA (if

applicable)-NIL Any other information - Nil

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 Key Financial Indicators

Key Parameters 2017 2018

Units
Result Type Audited Audited

Operating Revenue ₹ ​Cr 178.78 170.38

EBITDA ₹ ​Cr 12.61 16.51

PAT ₹ ​Cr 1.88 4.48

Tangible Net worth ₹ ​Cr 19.31 25.74

TOL/Tangible Net worth Times 3.46 2.49

Current Ratio Times 1.03 0.99

Hyperlink/Reference to applicable Criteria

1.​General Criteria 2.​Approach to Financial

Ratios

3.​Manufacturing Unit 4 .​ ​Short Term Debt

For any other criteria obtain hyperlinks from website

Analytical Contacts Media

Ashwini Mital media@brickworkratings.com

Director-Ratings
Relationship Contact
analyst@brickworkratings.com
bd@brickworkratings.com

Phone:
1-860-425-2742
www.brickworkratings.com 20 Mar 2019
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BWR complexity levels are ​meant for educating investors. ​The BWR complexity levels are available ​at
www.brickworkratings.com/download/ComplexityLevels.pdf​ ​Investors queries can be sent ​to ​info@brickworkratings.com​.

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DISCLAIMER

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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
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