November 23, 2017

Dharmesh Textiles Limited

Summary of rated instruments
Instrument* Rated Amount Rating Action
(in Rs. crore)
Long-term Fund-based Cash Credit 7.00 Upgraded to [ICRA]BBB (Stable) from
[ICRA]BBB- (Stable)
Long-term fund-based Term Loan 13.00 Upgraded to [ICRA]BBB (Stable) from
[ICRA]BBB- (Stable)
Total 20.00
*Instrument details are provided in Annexure-1

Rating action
ICRA has upgraded the long-term rating to [ICRA]BBB (pronounced ICRA triple B) from [ICRA]BBB-
(pronounced ICRA triple B minus)1 on the Rs. 20.00-crore of bank facilities of Dharmesh Textiles
Limited (DTL). The outlook on the long-term rating is Stable.

Rationale
ICRA’s rating upgrade takes into account the healthy top-line growth of the company and sustained
profitability that translated to comfortable debt-protection indicators in FY2017. The top-line growth is
expected to remain in double digit in FY2018 supported by expansion of the company’s product portfolio
with the launch of products such as ‘carpet tile’ and ‘noodle carpet cushion mat’. As the distribution
network of the new products will remain the same as the existing one, the sales offtake risk on the new
product segment will be low. The company is also planning to commence its ‘digital printing’ line by the
end of December 2017, which will help in increasing the value addition on its existing non-woven
carpet’s portfolio and support profitability. The company has widened the scope of the capex envisaged
earlier with the expansion of existing capacity of non-woven carpet and recycled polyester staple fibre
along with commissioning of the ‘noodle carpet cushion mat’ line. Despite an increase in capex, DTL has
been able to maintain its capital structure.

The rating continues to favourably factor in the extensive experience of the promoters in the non-woven
carpet manufacturing business and the steady revenue growth registered by the company. DTL’s adequate
financial profile also supports the rating. Long and established relationships with customers as well as
suppliers have resulted in favourable credit terms and easy access to raw material.

However, the rating is constrained by the low return on capital employed (ROCE) of the company owing
to limited profit margins and low utilisation of plant capacity in FY2017 and before. DTL is susceptible
to fluctuations in raw material prices, which may exert pressure on its profitability and debt-protection
metrics. The intense competition from organised as well as unorganised players is likely to keep the
realisations range bound.

The company’s ability to optimally utilise its capacity to generate adequate accruals for debt servicing
and maintain satisfactory liquidity position through efficient management of working capital cycle will be
the key rating sensitivities. Any sizable debt-funded capital expenditure beyond the planned one will be
closely monitored.

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

Credit Strengths
 Extensive experience of promoters: The promoters of the company have been involved in the
business of manufacturing non-woven carpet and jute carpets for the past two decades. They have
established relations with the customers and suppliers, which help in managing the business
efficiently.
 Backward integration helps in maintaining profit margins: Benefits of backward integration
in terms of easy availability of rawmaterial, absence of transportation costs and other operational
efficiencies, resulting in adequate operating profitability (OPM was 10%-11% over the last three
years)
 Healthy financial profile: The company’s cash accruals remains healthy in the past couple of
years which along with capital infusion by the promoters (about Rs. 22.2 crore in the period from
FY2012 to FY2017) kept the capital structure at comfortable level. The installed plant capacity of
the company grew two fold while the topline has seen compounded annual growth of ~26% in the
same period i.e. FY2013 to FY2017. All these factors help in maintaining strong debt protection
metrics along with healthy liquidity profile.
 Satisfactory liquidity position as on March 31, 2017: The Company’s liquidity position stood
at a comfortable level with current ratio of 1.69 times as on March 31, 2017. The decent liquidity
is also reflected by low utilisation of working capital limits, owing to healthy net cash accruals
and calibrated approach towards debt funded capex.

Credit Weakness
 Low plant capacity utilisation: The company has been adding capacity on a continuous basis
based on the demand of the distribution network. However, low capacity utilisation owing to the
recent expansion in the installed capacity, has kept the return indicators low. The launch of new
products would accelerate the topline in the near-medium term.
 Susceptibility to fluctuation in the raw material prices: The company’s principal raw material
required for manufacturing non-woven carpet are PET bottle waste and hessian. The prices of
PET bottle waste have been fluctuating in the past one year owing to volatile crude oil prices.
Therefore, the company is susceptible to the fluctuation in the raw material prices because
intensely competitive nature of the business restricts the ability to pass on the raw material prices
effectively.
 Modest scale of operations: Modest scale of operations in a fragmented industry, with
commoditised nature of product, restricts benefits of economies of scale and pricing power.

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

Links to applicable Criteria

Corporate Credit Rating –A Note on Methodology
Approach for Financial Ratio Analysis
Framework for Liquidity Analysis in Corporate Ratings
About the Company:
DTL manufactures non-woven carpets and RPSF at its manufacturing facility in Bhiwani (Haryana). It
has an installed manufacturing capacity of 20 lakh square metres of non-woven carpets per month and
1000 metric tonnes of RPSF per month as of March 31, 2017. The company sells its non-woven carpets
under the ‘Sundaram’ brand in number of varieties including plain, ribs, jacquard, velour, coated and non-
coated; among others. The carpets manufactured by the company find their end-use in exhibitions, hotels,
tent house, automotives, geo textiles, sound systems, etc. Recently, the company has set up a carpet tiles
manufacturing plant along with a noodle carpet cushion mat in FY2018 in its existing factory. It is also
planning to commence the digital printing by the end of December’2017.

DTL registered an operating income (OI) of Rs. 68.64 crore and a profit after tax (PAT) of Rs. 1.16 crore
in FY2016 compared to an OI of Rs. 60.49 crore and a PAT of Rs. 0.88 crore in the previous year.

On a provisional basis, DTL registered an OI of Rs. 88.84 crore and PAT of Rs. 2.29 crore in FY2017.

Key Financial Indicators-

Dharmesh Textiles Limited
FY2015 FY2016 FY2017*
Operating Income (Rs. crore) 60.5 68.6 88.8
PAT (Rs. crore) 0.9 1.2 2.3
OPBDIT/ OI (%) 10.7% 10.3% 10.2%
RoCE (%) 8.5% 7.2% 9.7%

Total Debt/ TNW (times) 0.6 0.4 0.3

Total Debt/ OPBDIT (times) 2.4 1.8 1.4
Interest coverage (times) 3.8 4.7 7.1
NWC/ OI (%) 22% 23% 11%
*DTL’s FY2017 financials are provisional
OI: Operating Income; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest,
Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net-Worth + Deferred Tax Liability -
Capital Work - in Progress);
NWC: Net Working Capital
(Source: Dharmesh Textiles Limited)

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years:
Table: Rating History
S.No Name of Current Rating Chronology of Rating History for the
Instrument past 3 years

Type Rated Month- Month- Month- Month-

amount year & year & year & year &
(Rs. Rating in Rating in Rating in Rating in
Crores) FY2018 FY2017 FY2016 FY2015
November December January July
2017 2016 2016 2014

1 Cash Credit Long 7.00 [ICRA] [ICRA] [ICRA] [ICRA]

Term BBB BBB- BB+ BB+
(Stable) (Stable) (Stable) (Stable)

2 Term Loans Long 13.00 [ICRA] [ICRA] [ICRA] [ICRA]

Term BBB BBB- BB+ BB+
(Stable) (Stable) (Stable) (Stable)

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
Annexure-1
Details of Instrument
Name of the Date of Coupon Maturity Size of the issue Current Rating and
instrument issuance rate Date (Rs. Cr) Outlook
Cash Credit - - - 7.00 [ICRA]BBB (Stable)

Term Loans I May 2013 MCLR+0. March 0.74 [ICRA]BBB (Stable)

50% 2018
Term Loans II July 2013 MCLR+0. September 5.64 [ICRA]BBB (Stable)
50% 2020
Term Loans III January MCLR+0. September 2.12 [ICRA]BBB (Stable)
2016 50% 2020
Term Loans IV April 2017 MCLR+0. September 4.50 [ICRA]BBB (Stable)
50% 2024
Source: Dharmesh Textiles Limited
 Contact Details
Analyst Contacts
Mr. Sabyasachi Majumdar Mr. Amit Arora
+91 124 4545 304 +91 124 4545 318
sabyasachi@icraindia.com amita@icraindia.com

Mr. Manish Ballabh Mr. Arun Kumar

+91 124 4545 812 +91 124 4545 873
manish.ballabh@icraindia.com arun.kumar@icraindia.com

Relationship Contact
Mr. Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

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