March 13, 2020

Sree Akkamamba Textiles Limited: Ratings reaffirmed

Summary of rating action

Instrument* - Bank Previous Rated Amount Current Rated Amount
Rating Action
facilities (Rs. crore) (Rs. crore)
Fund-based facility 27.00 27.00
Term Loans 12.00 5.00 [ICRA]BB+(Stable); Reaffirmed
Unallocated facility 9.10 0.00
Non-fund based facility 3.00 3.00 [ICRA]A4+; Reaffirmed
Total 51.10 35.00
^Instrument details are provided in Annexure-1

Rationale
The ratings consider the financial support received by Sree Akkamamba Textiles Limited (SATL) from its Group
entity Andhra Sugars Limited (ASL) rated at [ICRA]A+ (Positive) / [ICRA]A1+ MAA-(Positive), and SATL’s established
relationship with leading fabric manufacturers/traders driving regular order flow. The ratings consider SATLs
moderate scale of operations limiting its scale economies and bargaining power. The ratings also consider decline
in operating margins over the past three years, eventually resulting in net losses in FY2019 and 9M FY2020 due to
operational inefficiencies because of unavailability of skilled labour. Moreover, decline in yarn prices and high cost
cotton inventory also impacted its margins in 9M FY2020. While the company’s profitability is expected to improve
going forward, it remains susceptible to any adverse fluctuation in cotton and cotton yarn prices. The ratings
consider SATL’s weak financial profile characterised by high gearing and stretched coverage indicators during
FY2019 and in 9M FY2020 on account of a decline in profitability. The ratings factor in its stretched liquidity
position characterised by high average working capital utilisation and high dependence on refinancing of fixed
deposits. Nonetheless, the track record of refinancing and support provided by its Group entities provide comfort
to an extent.

The Stable outlook reflects ICRA’s belief that ASTL will continue to benefit from the extensive experience of the
promoters in the spinning industry and the strong parentage of the company, being a part of the Andhra Sugars
Group.

Key rating drivers and their description

Credit strengths
Support from its group company, The Andhra Sugars Limited (ASL) – SATL is a part of the Andhra Sugars Group,
with common directors for SATL, ASL and JOCIL Ltd. It received financial support from its Group concerns in the
past, wherein ASL extended a loan of Rs. 6.0 crore in FY2018, which carries an interest rate of 11.0% p.a. and has a
repayment obligation of Rs. 0.5 crore per quarter. The same would be repaid by March 2021. Given SATL’s
stretched liquidity position and coverage indicators, timely support from its group company in the near term
remains critical to meet its financial obligations.

Established relationship with diversified customer base supports regular flow of orders – SATL has an established
domestic customer base with its clientele comprising reputed apparel manufacturers, leading merchant traders in

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the Bhiwandi, Ichalkaranji regions in Maharashtra and weavers in Andhra Pradesh, which supports regular order
flow. The company’s promoters enjoy an established track record in the cotton spinning industry

Credit challenges
Moderate scale of operations – With about 80,208 spindles and with a revenue of Rs.108.5 crore in FY2019 and
Rs.82.0 crore in 9M FY2020, SATL is a moderate player in the spinning segment which limits scale economies and
bargaining power.

Net losses due to operational inefficiencies caused by shortage of skilled labour– SATL incurred net losses in
FY2019 due to operational inefficiencies, wherein capacity utilisation reduced and production costs increased
(yield was lower) because of unavailability of skilled labour. However, the situation is expected to improve from
FY2021 as the company started deploying skilled workforce in the current year.

Weak financial profile with high gearing and stretched coverage indicators – SATL’s gearing increased to 1.4
times as on December 31, 2019 from 1.3 times as on March 31, 2019 owing to reduced net worth resulting from
net losses. The coverage indicators remained stretched with an interest coverage ratio of 0.6 times and NCA/Total
Debt ratio of -3% and Total Debt/OPBDITA ratio of 12.1 times for 9M FY2020 due to reduced margins.

Earnings vulnerable to cotton and yarn price fluctuations – Operating margin of the companies in the spinning
business are dependent on the cotton purchase price and yarn price. Any steep fluctuation in the same, will have a
direct impact on its margins.

Liquidity position: Stretched

The company’s liquidity position is stretched with expected retained cash flows of Rs. 5.0 -6.0 crore, limited
cushion in working capital limits and restricted free cash balances as on December 31, 2019, as against repayment
obligations of Rs. 9.0 crore. SATL would be dependent on financial support from ASL and other shareholders, as
witnessed in the past, to meet its financial obligations.

Rating sensitivities
Positive triggers – ICRA may upgrade the company’s rating if it demonstrates a significant improvement in its
revenues and margins on a sustainable basis

Negative triggers – Pressure on the company’s rating could arise if any further decline in revenues or margins or
stretch in working capital intensity impacts its financial profile. Deterioration in the credit profile of ASL, or
absence of timely financial assistance from ASL could also impact the credit rating.

Analytical approach
Analytical Approach
Applicable Rating Methodologies
Parent/Group Support
Consolidation / Standalone
Comments
Corporate Credit Rating Methodology
Rating Methodology for the Indian Textiles Industry - Spinning
Rating derives comfort from SATL being a part of Andhra Sugars Group
comprising other entities such as The Andhra Sugars Limited ([ICRA]A+
(Positive)/A1+ MAA- (Positive), JOCIL Limited.
The ratings are based on the standalone financial statements of the
company.

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About the company
SATL manufactures medium to finer counts of cotton yarn predominantly in the count range of 30’s to 140’s. The
company, a part of Andhra Sugars Group, was set up as a public limited company in 1954, with an initial capacity of
17,200 spindles, by the Late Dr. Mullapudi Harischandra Prasad. Over the years, its capacities have been
augmented to the current levels of 80,208 spindles. It mainly caters to the weaving markets in Gujarat,
Maharashtra, Andhra Pradesh, and Tamil Nadu.

SATL reported a net loss of Rs. 1.8 crore on an operating income (OI) of Rs. 108.5 crore in FY2019 compared to a
net profit of Rs. 0.4 crore on an OI of Rs. 106.7 crore in FY2018.

Key financial indicators

FY 2018 FY2019 9M FY2020*
Operating Income (Rs. crore) 106.7 108.5 82.0
PAT (Rs. crore) 0.4 -1.8 -4.3
OPBDIT/ OI (%) 5.4% 4.0% 3.4%
RoCE (%) 2.6% 3.4% 0.2%

Total Outside Liabilities/Tangible Net Worth

2.0 2.2 2.5
(times)
Total Debt/ OPBDIT (times) 7.9 11.1 12.1
Interest coverage (times) 1.0 0.8 0.6
DSCR 0.5 0.4 0.3
Source: SATL,*provisional

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years
Current Rating (FY2020) Chronology of Rating History for the past 3 years

Date &Rating Date & Rating Date & Rating in

FY2019 in FY2018 FY2017
Amount Amount
Rated Outstanding March 13, July 31, April 30, January 25, March 23,
Instrument Type (Rs. crore) (Rs. crore) 2020 2019 2019 2018 2017 March 21, 2016
1 Fund based limits Long Term 27.00 - [ICRA]BB+ [ICRA]BB+ [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- [ICRA]BB+ (Stable)
-C.C (Stable) (Stable) (Stable) (Stable) (Stable)
2 Fund based limits Long Term 5.00 5.00 [ICRA]BB+ [ICRA]BB+ [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- [ICRA]BB+ (Stable)
– T.L (Stable) (Stable) (Stable) (Stable) (Stable)
3 Unallocated limits Long Term 0.00 - [ICRA]BB+ [ICRA]BB+ [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- [ICRA]BB+ (Stable)
(Stable) (Stable) (Stable) (Stable) (Stable)
4 Non – fund based Short 3.00 - [ICRA]A4+ [ICRA]A4+ [ICRA]A3 [ICRA]A3 [ICRA]A3 [ICRA]A4+
limits Term
5 Fixed Deposit Medium - - - - MA- (Stable); MA- (Stable) MA- (Stable) MB+ (Stable)
Programme Term Withdrawn

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

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Annexure-1: Instrument details
Date of
Issuance / Coupon Maturity Amount Rated Current Rating and
ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook
NA Cash Credit - - - 27.00 [ICRA]BB+(Stable)
NA Term Loans FY2017 - FY2022 5.00 [ICRA]BB+(Stable)
Non- fund based
NA NA NA NA 3.00 [ICRA]A4+
facility
Source: SATL

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