Surat Textile Mill buy @ Re. 1 Target Rs. 5

About the Company 

Incorporated in 1945, Surat Textile Mills Limited (STML) is part of the Garden Group (rated CARE D) is engaged in manufacturing of polyester chips (with an installed capacity of 24,500 Metric Tonnes Per Annum- [MTPA]), partially oriented yarn (POY) and polyester filament yarn (PFY) (with an installed capacity of 5000 MTPA). STML’s manufacturing facilities are located in Jolwa village in Palsana Taluka of Surat. STML procures raw material [mainly purified terephthalic acid (PTA), mono-ethylene glycol (MEG)] largely from the domestic suppliers sells its products mainly in the domestic market. 

Key Rating Strengths

Experienced promoters in the textile business: 

STML belongs to the Garden Group that has vast experience in the polyester intermediates and textiles industry. At the helm of its management are the Managing Director, Mr. M. R. Momaya, and CFO Mr. Yogesh Papaiya, who have an established track record of over 3 decades in the textile industry and have helped STML to develop strong business relations with its stakeholders

Modest scale of operations: 

STML is engaged in manufacturing of PET Chips and Partially Oriented Yarn (POY) having a manufacturing capacity of 24,500 MTPA and 5,000 MTPA respectively. STML derives majority of its revenue through supply of PET chips to larger textiles manufacturers who utilise PET chips as a raw material for further processing to manufacture manmade fibres. STML’s 5,000 MTPA yarn manufacturing unit has resumed production in FY18. Resumption of production along with improved sales volume led to 44.58% increase in Total Operating Income to Rs. 203.16 Crore in FY18 from Rs. 140.52 Crore in FY17. However, given weak demand, yarn manufacturing operations were suspended in March 2018. Going forward, ability of STML to maintain its scale of operations in the intensely competitive market is a key rating sensitivity. 

Comfortable gearing lead to comfortable debt coverage indicators: 

Gearing continues to remain comfortable due to minimal leverage and moderate net worth. Overall gearing stood at 0.14 times in FY18 (0.02 times in FY17). The slight increase in gearing level was on account of relatively higher utilisation of cash credit utilisation as on March 31, 2018 which stood at Rs.1.5 Crore as compared to nil in the previous period. Given comfortable gearing levels, debt coverage indicators continue to remain healthy with interest coverage ratio at 16.31 times in FY18 (38.11 times in FY17). However, significant increase in leverage which may impact gearing levels and ultimately debt service capability is a key rating sensitivity 

Liquidity: 

The liquidity position of the company continues to be comfortable on account of significant liquid investments in the form of mutual funds which stood at Rs.55 Crore as on February 2019. Further utilisation of cash credit limit is minimal which provides additional liquidity comfort.