September 20, 2023

SVG Fashions Private Limited: Ratings reaffirmed; rated amount enhanced

Summary of rating action

Previous Rated Amount Current Rated Amount

Instrument* Rating Action
(Rs. crore) (Rs. crore)
Long-term fund-based – Cash
16.00 16.00 [ICRA]A (Stable); reaffirmed
Credit
Long-term fund-based – Term [ICRA]A (Stable); reaffirmed/assigned for
10.80 25.80
Loans enhanced amount
Long-term/short-term non fund-
3.20 3.20 [ICRA]A (Stable)/[ICRA]A2+; reaffirmed
based facilities
Total 30.00 45.00
*Instrument details are provided in Annexure-I

Rationale

ICRA has taken a consolidated view of SVG Fashions Private Limited (SVGFPL), which includes its subsidiaries and associate
companies, while assigning the credit ratings, given the significant operational, financial and managerial linkages among them.
SVGFPL has extended corporate guarantees towards the bank facilities of Sunflag Filaments Limited, Laxmi Technical Textiles
Private Limited [rated [ICRA]BB+/Stable/A4+ Issuer Not Cooperating] and Raj Rayon Industries Limited.

The reaffirmation of the ratings reflects the healthy operating performance of SVG Fashions Private Limited (SVGFPL) in FY2023
and the phased operationalisation of the manufacturing facilities of Raj Rayon Industries Limited (RRIL) in H2 FY2023. ICRA
expects RRIL’s operations to further ramp up in FY2024 with planned operationalisation of continuous polymerisation and
spinning capacities in Q2 FY2024 and Q4 FY2024, aided by the extensive experience of the promoters in the man-made fibre
industry. SVGFPL recorded a revenue of ~Rs. 300 crore in FY2023, up 9% YoY, with a ~500 basis points (bps) improvement in
the operating profit margin to ~25%, supported by the high value-added nature of its products (specialised finished fabrics and
clothing solutions) coupled with established relationships with global brands. ICRA expects SVGFPL’s financial risk profile to
remain comfortable over the medium term on the back of limited dependence on debt, sizeable free cash and liquid
investments and stable operational profile. RRIL commenced its operations in Q2 FY2023 and recorded revenues of ~Rs. 136
crore in FY2023 with an operating margin of 1.2%. With the planned operationalisation of the on-going capex, the company’s
revenue is estimated to grow to more than Rs. 800 crore in FY2024 with a margin of ~5%. Overall, the Group is expected to
record a substantial growth in its revenue to more than Rs. 1,000 crore in FY2024 from Rs. 468 crore in FY2023 (with the major
portion of the growth coming from RRIL) while maintaining an operating margin of ~10%. The Group’s total debt/OPBIDTA is
likely to peak at ~2.0 times in FY2024 but debt coverage metrics are estimated to remain adequate with an interest cover of
~5.0 times and DSCR of more than 2.0 times in FY2024. ICRA also considers the sizeable free cash and liquid investments worth
Rs. 90 crore as on March 31, 2023, which support the Group’s financial risk profile.

The ratings continue to favourably factor in the extensive experience of the promoters of SVGFPL in the textile industry and
operational synergies among its Group companies in the textile business as well as its well-integrated operations across the
textile value chain. The acquisition of RRIL is a step towards enhancing the backward integration of the Group, which is likely
to yield synergy benefits for the Group over the coming years.

The ratings, however, continue to remain constrained by the Group’s high working capital intensity of operations emanating
from the high inventory holding, tight terms with suppliers and limited pricing power due to intense competition from various
organised and unorganised players in the textile industry. SVGFPL’s revenues and margins remain vulnerable to fluctuation in
prices of raw materials and finished products, which are derivatives of crude oil. The ratings also consider the contingent
liabilities in the form of corporate guarantees extended in favour of Group companies and significant investments/advances

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 to non-core businesses. Any invocation of corporate guarantees and/or delay in realisation of investments/advances could
have a material impact on the company’s financial flexibility.
The Stable outlook on the long-term rating reflects ICRA’s opinion that the Group’s operations will benefit from the expected
scale-up of RRIL, while maintaining a comfortable financial risk profile.

Key rating drivers and their description

Credit strengths

Diversified product portfolio with integrated manufacturing operations provide stability to revenues and margins – The
Group has a diversified presence in manufacturing texturised yarn, circular knitted fabrics, embroidered fabrics, furnishing
fabrics, warp knit fabrics and readymade garments. The integration of RRIL into the Group is further expected to result in
significant backward integration and operating synergies for the Group. This is likely to improve the stability of revenues and
margins of the Group, going forward. Moreover, the Group continues to have a diversified customer base with the top-10
customers accounting for ~40% of its revenues in FY2022 and FY2023. Its operational profile is further supported by established
relationships with reputed brands including Adidas, Puma, Fila, etc.

Comfortable capital structure and debt protection metrics – The Group continues to maintain a healthy capital structure,
characterised by a gearing of 0.2 times as on March 31, 2023 (provisional) and Total Debt/OPBDITA of 1.5 times in FY2023
(provisional) on the back of healthy accruals and limited dependence on bank debt. The Group’s debt coverage metrics remain
healthy with an interest cover of 22.5 times and DSCR of 11 times in FY2023. While the financial risk profile is expected to
moderate over the next 1-2 years owing to planned addition of debt to fund the ongoing capex and phased scale-up of RRIL’s
operations, its gearing is likely to remain below 0.5 times with the interest cover above 5.0 times and DSCR above 2.0 times
over the medium term.

Extensive experience of promoters in the textile industry – SVGFPL is a part of the larger Shree Venkateshwara Group of
Companies (SVG), which has diversified interests in the textile industry. The company is managed by the Agarwal family, which
has experience of over five decades in the Indian textile industry from trading to manufacturing. The company’s Chairman, Mr.
Satyanarayan Agarwal, is also the President of the All India Texturisers’ Association.

Credit challenges

Large debt-funded capex towards operationalisation of the acquired entity likely to impact capital structure – The Group
has planned a sizeable investment of more than Rs. 250 crore in RRIL towards operationalisation of its plant, partly funded by
term debt of Rs. 185 crore (Rs. 86 crore drawn down till March 31, 2023). With the likely completion of the capex in FY2024,
ICRA expects moderation in the Group’s capital structure and debt protection metrics. Any delay in the profitable scale-up of
operations of RRIL may have an adverse impact on the Group’s financial risk profile.

Irrevocable and unconditional corporate guarantees to Group companies may impact liquidity – SVGFPL has extended
corporate guarantees to its Group companies, Sunflag Filaments Limited, Laxmi Technical Textile Private Limited and Raj Rayon
Industries Limited. ICRA notes the possibility of limitations on the Group’s financial flexibility owing to the substantial corporate
guarantees issued by the company. In addition to this, the Group has extended sizeable loans and advances to entities involved
in non-core activities, especially real estate. Any invocation of the guarantees or delay in recovery of such advances could have
a material impact on the liquidity profile.

Revenues and margins vulnerable to volatility in commodity prices – The Group’s major raw materials, partially-oriented yarn
(POY), are derived from PTA and MEG, which are crude oil derivatives. Given the volatility in crude oil prices, the company’s
revenues and margins remain exposed to adverse price fluctuations.

Limited pricing flexibility and intense competition in the industry – The textile industry in India is characterised by high level
of fragmentation and low entry barriers across the value chain. As a result, the company faces intense competition from other

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 established players in the industry. This, coupled with the largely commoditised nature of the product with low avenues of
product differentiation, limits the Group’s pricing flexibility.

Liquidity position: Adequate

The Group’s liquidity profile remains adequate, characterised by liquid investments and undrawn working capital facilities
worth more than Rs. 100 crore as on March 31, 2023 (provisional). The Group is likely to incur capital expenditure worth Rs.
130-135 crore in FY2024, largely towards completion of the ongoing capacity enhancement at RRIL and plant modernisation
of SVGFPL, partly financed by fresh term debt of ~Rs. 110 crore. The Group also has debt repayment obligation worth Rs. 19
crore in FY2024 and Rs. 25 crore in FY2025. Against this, the Group is estimated to generate cash flow from operations worth
Rs. 40-50 crore in FY2024 and Rs. 70-80 crore in FY2025. The average utilisation of sanctioned working capital limits of SVGFPL
stood at 10% in FY2023, which provides comfort.

Rating sensitivities

Positive factors – The ratings may be upgraded in case of a sustained growth in revenue and profitability of the Group and
profitable scale-up of the operations of the acquired entity in a timely manner, while maintaining a comfortable capital
structure, debt coverage metrics and liquidity profile.

Negative factors – Pressure on the ratings could arise if the Group’s capital structure and coverage metrics deteriorate due to
a delay in the scale-up of operations of the acquired entity or in case of sustained deterioration in the Group’s liquidity profile.
Specific credit metrics that could result in ratings downgrade include an interest cover below 5.0 times on a sustained basis.

Analytical approach

Analytical Approach Comments

Corporate Credit Rating Methodology
Applicable rating methodologies Rating Methodology – Textiles (Spinning)
Rating Methodology – Textiles (Fabric Making)

Parent/Group support Not Applicable

For arriving at the ratings, ICRA has considered the consolidated financials of SVG Fashions
Consolidation/Standalone Private Limited, Laxmi Technical Textile Private Limited, Sunflag Filaments Limited and Raj
Rayon Industries Limited

About the company

Established in 1994, SVG Fashions Private Limited (SVGFPL; erstwhile Deepak Suitings Limited) is a part of the diversified Shree
Venkateshwara Group and began its operations as a fabric trading company. Over the years, it has diversified into
manufacturing knitted fabric, embroidered fabric, finished fabric and garments in its facilities in Daman and Ankleshwar,
focusing on the high value-added product segment.

Raj Rayon Industries Limited (RRIL) is a backward integrated manufacturer of polyester yarn with in-house polymerisation and
texturising capacities in its plant in Silvassa. The company was acquired by SVGFPL and its promoters, which together hold a
94.13% of RRIL’s equity as on June 30, 2023), vide a resolution plan approved by the Ahmedabad bench of the National
Companies Law Tribunal on October 5, 2021.

Laxmi Technical Textile Private Limited (LTTPL) manufactures specialised knitted fabric which finds application in home
furnishing, footwear, lamination, etc. The company was acquired by the SVG Group in 1999. SVGFPL holds a 23.2% equity stake
in the company as on March 31, 2023.
Sunflag Filaments Limited (SFL) manufactures textursied yarn and knitted fabric in its plants in Daman and Silvassa. The
company is a part of the SVG Group with SVGFPL directly owning a 6.9% equity stake in the company as on March 31, 2023.

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 Key financial indicators

FY2021 FY2022 FY2023

SVGFPL Consolidated
(audited) (audited) (provisional)
Operating income 267 391 506
PAT 24 44 39
OPBDIT/OI 13.7% 15.6% 15.5%
PAT/OI 9.0% 11.1% 7.7%
Total outside liabilities/Tangible net worth (times) 0.2 0.2 0.6
Total debt/OPBDIT (times) 0.4 0.4 1.5
Interest coverage (times) 21.8 31.5 22.5
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amount in Rs. Crore
Note: ICRA has combined the financial statements of SVG Fashions Private Limited, Raj Rayon Industries Limited, Laxmi Technical Textile Private Limited and
Sunflag Filaments Limited based on best available information. All ratios as per ICRA’s calculations

FY2021 FY2022 FY2023

SVGFPL Standalone
(audited) (audited) (provisional)
Operating income 188 276 301
PAT 21 41 53
OPBDIT/OI 16.3% 20.4% 25.4%
PAT/OI 11.3% 14.9% 17.6%
Total outside liabilities/Tangible net worth (times) 0.2 0.2 0.2
Total debt/OPBDIT (times) 0.3 0.3 0.3
Interest coverage (times) 25.4 42.9 77.6
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amount in Rs. Crore

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Chronology of rating history

Current rating (FY2024)
for the past 3 years
Amount
Instrument outstanding as Date & rating Date & rating Date & rating
Amount rated Date & rating in FY2024
Type of Mar 31, in FY2023 in FY2022 in FY2021
(Rs. crore)
2023
(Rs. crore) Sep 20, 2023 Aug 07, 2023 May 06, 2022 - Mar 05, 2021
Long- [ICRA]A [ICRA]A [ICRA]A [ICRA]A
1 Cash Credit 16.00 - -
term (Stable) (Stable) (Negative) (Stable)
Long- [ICRA]A [ICRA]A [ICRA]A [ICRA]A
2 Term Loan 25.80 7.02 -
term (Stable) (Stable) (Negative) (Stable)
Long-
Non fund- [ICRA]A [ICRA]A [ICRA]A [ICRA]A
term/
3 based 3.20 - (Stable)/ (Stable)/ (Negative)/ - (Stable)/
short-
facilities [ICRA]A2+ [ICRA]A2+ [ICRA]A2+ [ICRA]A1
term
Long-
[ICRA]A [ICRA]A
Unallocated term/
4 - - - - (Negative)/ - (Stable)/
Limits short-
[ICRA]A2+ [ICRA]A1
term

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 Complexity level of the rated instruments

Instrument Complexity Indicator

Long-term fund-based – Cash Credit Simple
Long-term fund-based – Term Loans Simple
Long-term/short-term non fund-based facilities 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 analysing 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 are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Coupon Amount Rated

ISIN Instrument Name Date of Issuance Maturity Current Rating and Outlook
Rate (Rs. crore)
NA Cash Credit NA NA NA 16.00 [ICRA]A (Stable)
NA Term Loan-I FY2019 9-10% FY2025 0.16 [ICRA]A (Stable)
NA Term Loan-II FY2020 9-10% FY2025 0.08 [ICRA]A (Stable)
NA Term Loan-III FY2021 9-10% FY2026 0.24 [ICRA]A (Stable)
NA Term Loan-IV FY2021 9-10% FY2027 2.03 [ICRA]A (Stable)
NA Term Loan-V FY2022 9-10% FY2027 3.97 [ICRA]A (Stable)
NA Term Loan-VI FY2022 9-10% FY2028 1.01 [ICRA]A (Stable)
NA Term Loan-VII FY2024 9-10% FY2029 14.68 [ICRA]A (Stable)
NA Proposed Term Loan NA NA NA 3.63 [ICRA]A (Stable)
NA Non fund-based facilities NA NA NA 3.20 [ICRA]A (Stable)/[ICRA]A2+

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

Annexure II: List of entities considered for consolidated analysis

SVGFPL’s Consolidation
Company Name
Ownership Approach
SVG Fashions Private Limited - Full Consolidation
Raj Rayon Industries Limited 84.9% Full Consolidation
Laxmi Technical Textile Private Limited 23.2% Full Consolidation
Sunflag Filaments Limited 6.9% Full Consolidation
Source: Company data; As on June 30, 2023

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 ANALYST CONTACTS
Jayanta Roy Kaushik Das
+91 33 7150 1120 +91 33 7150 1104
[email protected] [email protected]

Vipin Jindal Raunak Modi

+91 124 4545355 +91 22 6169 3368
[email protected] [email protected]

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

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

[email protected]

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