March 11, 2022

Paramount Textile Mills Private Limited: Ratings assigned

Summary of rating action

Current Rated Amount

Instrument* Rating Action
(Rs. crore)
Long term – Fund based – Term Loan 21.16 [ICRA]BBB (Stable); assigned
Long term – Fund based – Cash Credit 12.00 [ICRA]BBB (Stable); assigned
Short term – Non fund based 9.00 [ICRA]A3+; assigned
Total 42.16
*Instrument details are provided in Annexure-1

Rationale
The ratings derive comfort from the strength from Paramount Textile Mills Private Limited’s (PTMPL’s) healthy operational
and financial risk profile. PTMPL’s operational profile is characterised by its established position among the renowned global
brands and value retailers. ICRA derives comfort from comfortable operational profile along with the regular capex undertaken
for capacity expansion has facilitated an improvement in its operating margins. This, in turn, has helped the company maintain
strong return metrics (return on capital employed averaging at ~40.7% during FY2018-FY2021) as well as comfortable
capitalisation metrics (gearing of 0.9 times, and Debt/OPBDITA of 1.0 times in FY2021) over the years. Despite the pandemic
led disruptions in FY2021, PTMPL reported a healthy volumetric growth which, in turn, supported an improvement in its
operating margins.
The rating, however, remains constrained by the vulnerability of PTMPL’s profitability to volatility in cotton yarn prices,
competition from other domestic and international suppliers, along with high customer and geographical concentration risks.
Reliance on exports also makes it vulnerable to demand trends in the key export markets and to foreign exchange fluctuation
risk.
The company has an expansion project with focus on backward integration by setting up a spinning unit in another group entity
Shree Sarvaloka Textiles Private Limited. For the project PTMPL has extended corporate guarantee to the extent of term loan
availed by the group entity (Rs. 65.50 crore). PTMPL will also extend support to the spinning unit of Rs. 24.50 crore in the form
of ICD out of which Rs. 15.0 crore is already provided for in FY2022 and the rest will be provided in FY2023. The purpose of
setting up of this unit is to manage the processing charges and protecting the quality of the product. The new unit is expected
to commence its commercial operational from January 2023 and in its initial year of operation it will be supplying the finished
product to PTMPL. Any delays in the execution of the expansion plans or increase in the budgeted capex which could lead to
further funding support from PTMPL.
The Stable outlook reflects ICRA’s expectation that PTMPL will maintain healthy debt coverage metrics and an adequate
liquidity profile.

Key rating drivers and their description

Credit strengths

Established position in fabric export industry - PTMPL is an established manufacturer and exporter of made ups in the export
market. The promoters of PTMPL have extensive experience in the textile industry.

Long association with large format retailers and private labelers in the US - PTMPL has an established association with large
format retailers in the US as well as high-end private labels/brands (like Boll and Brance). Backed by its ability to secure sizeable
repeat orders from established clientele and add new customers, PTMPL’s sales grew at a healthy CAGR of 30.5% during the

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 four-year period ended FY2021. Further, the favourable demand and an expected shift in sourcing by large retailers from the
competing supplier nations to India are likely to support the long-term growth potential of the company.

Healthy return metrics - PTMPL’s demonstrated operational efficiencies, its emphasis on value addition, and benefits from the
Government in the form of export incentives have supported its stable and healthy profitability over the years. Despite
industry-wide headwinds witnessed over the past few years (because of adverse movements in forex rates, transitory
challenges posed by changes in export incentives, increase in raw material (cotton) prices, etc), PTMPL’s profit margins have
remained resilient. In addition, it has been undertaking calibrated capex over the years, for capacity expansion as well as for
improving operational efficiencies. These, in turn, have facilitated an improvement in its operating margins and consistently
healthy ROCE for the company, which averaged at 22.2% during FY2018-FY2021.

Comfortable capital structure and coverage indicators - PTMPL’s calibrated capex over the years together with low reliance
on debt owing to healthy surplus cash accrual generation capacity of the business, has also helped it maintain comfortable
leverage (Total Debt/ Tangible Net Worth of 0.7 time as on March 31, 2021 and Debt/OPBDITA at 1.6 times for FY2021). Healthy
profits and cash accruals, continue to support debt coverage indicators (interest coverage of 5.3 times and DSCR of 2.4 times
in FY2021).

Credit challenges

Geographical and customer concentration risks - Despite the significant increase in scale of operations during the last five
years, it continues to derive most of its revenues from exports to the US (more than 30% of total exports), resulting in
vulnerability to demand trends in the key market. Besides, the company’s customer concentration risk is high, with its top five
customers accounting for more than 74% of its sales in FY2021.

Vulnerability of profitability to volatilities in cotton yarn prices and fluctuations in forex rates - PTMPL’s profitability is
vulnerable to volatility in cotton yarn prices. Further, as PTMPL derives 93% of its revenues from exports with limited
dependence upon imported raw materials, its profitability is exposed to fluctuations in forex rates. However, the company’s
demonstrated track record of maintaining stable profitability during the last few years, despite volatilities in cotton and cotton
yarn prices, provides comfort.

Vulnerability of profitability to changes in export incentive structure - Like other textile exporters, PTMPL’s profitability is
supported by export incentives. Besides, these incentives support growth in sales by making domestic textile manufacturers
competitive in the global market. This exposes the exporters’ profitability to any adverse changes in the policies.

Liquidity position: Adequate

The liquidity position of PTMPL is adequate given the cash flows from operations remaining comfortable against margin
requirements for capex and working capital, as well as the scheduled debt repayment obligations. Apart from steady and
healthy cash flow generation, the liquidity profile is supported by adequate cushion in the form of undrawn working capital
limits, and cash and liquid investment, which stood at ~Rs. 24.09 crore at the end of March 2021.

Rating sensitivities

Positive factors – ICRA could upgrade PTMPL’s rating if there is substantial growth in revenues and improvement in
profitability and liquidity. Further timely completion of capex in group company and ramping up of operations would be key
for a rating upgrade. Specific credit metrics that could lead to an upgrade of PTMPL’s rating include 1) DSCR of more than 2.5
on a sustained basis

Negative factors – Negative pressure on PTMPL’s rating could arise if there is decline in revenues and profitability resulting in
lower cash flows on a sustained basis. Any delay in execution of the budgeted expansion plan and ramp up of operations.
Deterioration in working capital cycle impacting the company’s liquidity position could also be a trigger for rating downgrade.

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 Specific credit metrics that could lead to a downgrade of PTMPL’s rating include interest cover below 3.5 times on a sustained
basis.

Analytical approach

Analytical Approach Comments

Applicable Rating Methodologies
Parent/Group Support
Consolidation/Standalone
Corporate Credit Rating Methodology
Not Applicable
For arriving at the ratings, ICRA has considered the consolidated financials of
PTMPL and other related entity mentioned in Annexure 2.

About the company

Incorporated in 1979, Paramount Textile Mills Private Limited (PTPL) is a Madurai based company, which is engaged in
manufacturing and export of grey fabrics and made-ups. Currently, the company is headed by Mr. M. Ramu and are present
in fabrics, technical textiles and home textiles. The company has a capacity of 7.8 lacs meters per month for fabrics, 1.0 lacs
metres per annum of technical textiles and a capacity of 8.20 sets for made-ups division. PTPL exports its product to various
countries like USA, Israel, Germany, Portugal, to name a few. Company also contracts basic cotton fabrics from its trusted
vendors for the run of mill varieties that it finds value in sourcing. The company has won TEXPROCIL export awards for cotton
fabrics for 11 years now and has also been presented 5 special achievement awards for cotton fabrics.

Key financial indicators (audited)

PTMPL FY2020 FY2021
Operating Income (Rs. crore) 185.7 271.1
PAT (Rs. crore) 7.8 12.6
OPBDIT/OI (%) 8.9% 8.9%
PAT/OI (%) 4.2% 4.7%
Total Outside Liabilities/Tangible Net Worth (times) 1.8 1.6
Total Debt/OPBDIT (times) 2.1 1.6
Interest Coverage (times) 4.6 5.3
PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation

Status of non-cooperation with previous CRA: The company has an outstanding rating of ACUITE BB+ /ACUITE A4+
ISSUER NOT COOPERATING as on December 24, 2021 with ACUITE Ratings.

Any other information: None

Rating history for past three years

Chronology of Rating History
Current Rating (FY2022)
for the past 3 years
Amount
Instrument Amount Outstanding Date & Rating in Date & Rating Date & Rating in Date & Rating in
Type Rated as of March in FY2021 FY2020 FY2019
(Rs. crore) 31, 2021
(Rs. crore) Mar 11, 2022 - - -
1 Term Loans Long-term 21.16 21.16 [ICRA]BBB (Stable) - - -
2 Cash credit Long-term 12.00 - [ICRA]BBB (Stable) - - -
Non fund
3 Short term 9.00 - [ICRA]A3+ - - -
based

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 &= Under watch with developing implications

Complexity level of the rated instruments

Instrument Complexity Indicator

Long-term Fund-based – Term Loan Simple
Long-term– Fund Based – Cash Credit Simple
Short -term – Non fund based Very Simple

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analyzing an entity's financial, business, industry risks or
complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments, is
available on ICRA’s website: www.icra.in

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 Annexure-1: Instrument details
ISIN No. Instrument Name Date of Issuance Coupon Maturity Amount Rated Current Rating and Outlook
Rate (RS Crore)

NA Term loan FY2021 NA FY2026 21.16 [ICRA]BBB (Stable)

NA Cash credit NA NA NA 12.00 [ICRA]BBB (Stable)
NA Non fund based NA NA NA 9.00 [ICRA]A3+
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure-2: List of entities considered for consolidated analysis

PTMPLL Consolidation
Company Name
Ownership* Approach
Shree Sarvaloka Textiles Private Limited* - Full Consolidation
*The consolidation is done basis the corporate guarantee being extended by PTMPL to the term loan being undertaken by Shree Sarvaloka Textiles Private
Limited

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 ANALYST CONTACTS
Jayanta Roy Kaushik Das
+91 33 7150 1120 +919836198660
jayanta@icraindia.com Kaushik.das@icraindia.com

Vipin Jindal Shikha Bapna

+919911464647 +91+918790499284
Vipin.jindal@icraindia.com Shikha.bapna@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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