Classic Cotton Private Limited

April 04, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument (Rs. crore) Rating Action
(Rs. crore)
Long-term Fund-based – Cash
22.00 22.00 [ICRA]B+ (Stable); Reaffirmed
Credit
Short-term Fund-based – SLC 1.00 - -
Long-term/Short-term – [ICRA]B+ (Stable)/A4;
2.40 3.40
Unallocated Limits Reaffirmed
Total 25.40 25.40

Rating action
1
ICRA has reaffirmed the long-term rating of [ICRA]B+ (pronounced ICRA B plus) to the Rs. 22.00-crore cash credit facility
2
of Classic Cotton Private Limited (CCPL or the company) . ICRA has also reaffirmed the long-term rating of [ICRA]B+
(pronounced ICRA B plus) and the short-term rating of [ICRA]A4 (pronounced ICRA A four) to the Rs. 3.40 unallocated
limits of CCPL. The outlook on the long-term rating is Stable.

Rationale
The ratings reaffirmation continues to factor in the weak financial risk profile of Classic Cotton Private Limited,
characterised by low profitability, leveraged capital structure and modest coverage indicators. ICRA also takes into
account the commoditised nature of the company’s products and vulnerability of its profitability to adverse movements
in cotton prices, which are subject to seasonality and crop harvest. The company’s operations are also exposed to
regulations governing the industry such as restrictions on cotton exports and Minimum Support Price (MSP).
Furthermore, the ratings are also constrained by the highly fragmented nature of the industry, due to a large number of
ginners, which, coupled with low-entry barriers, lead to stiff competition, pressurising pricing and margins.

The ratings, however, continue to derive comfort from the long experience of the promoters in the cotton ginning
industry and the proximity of its manufacturing unit to raw material sources, easing procurement. Furthermore, the
rating also considers the company’s diversification in white coal and agri-waste powder manufacturing and bleaching of
grey fabric on job-work basis; although, the contribution from the same remained low in FY2017.

Outlook: Stable
ICRA believes CCPL will continue to benefit from the extensive experience of its promoters and the stable outlook on
cotton output. The outlook may be revised to Positive if substantial growth in revenue and profitability, reduction in debt
levels, infusion of equity, strengthens the financial risk profile. The outlook may be revised to a Negative if cash accrual is
lower than expected, or if any major debt-funded capital expenditure, or stretch in the working capital cycle, weakening
liquidity.

1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

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Key rating drivers

Credit strengths
Extensive experience of the promoters in cotton ginning industry - The key promoters, Mr. Kishorbhai S. Khacharia
(Director) and Mr. Mansukhbhai S. Khachariya (Partner) have extensive experience in the cotton ginning business.

Favourable location of the plant - The unit of the firm has a location advantage by virtue of its presence in the cotton
producing belt of India i.e., Gujarat, which helps in lower transportation cost and easy access to quality raw material.

Credit challenges
Weak financial risk profile - The profit margins for the firm remained thin with an operating margin of 2.64% and net
margin of 0.24% in FY2017 due to limited value addition to the products sold. The capital structure stood leveraged with
gearing of 3.94 times as on March 31, 2017, owing to high debt levels and a relatively lower net worth base. The debt
coverage indicators also stood modest with interest coverage of 1.37 times and Total Debt/OPBDITA of 8.81 times in
FY2017.

Vulnerability of profitability to any fluctuation in raw cotton prices - The profit margins are exposed to fluctuations in
raw material (raw cotton) prices, which depend upon various factors like seasonality, climatic conditions, international
demand and supply situation, export policy, etc. Further, it is also exposed to regulatory risks with regard to the MSP set
up by the Government.

Intense competition and fragmented industry - The firm faces stiff competition from other small and unorganised
players in the industry, which limits its bargaining power with customers and suppliers, and hence, exerts pressure on its
margins.

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

Links to applicable criteria:

Corporate Credit Rating Methodology

About the company:

Incorporated in 2008 as a private limited company, Classic Cotton Private Limited (CCPL) is in the business of ginning and
pressing of raw cotton and crushing of cottonseeds. The company mainly produces cotton bales, cottonseeds,
cottonseed oil, cottonseed oil cake and agro waste powder. The company is also involved in bleaching of grey fabric on
job work basis and manufacturing of white coal (bio coal) by pressing ground nut shells over fire since April 2016. The
manufacturing facility of the company is equipped with 36 ginning machines and one pressing machine with an installed
capacity to produce 400 bales per day. CCPL has also installed nine expellers, having capacity of crushing 10 metric tonne
(MT) of cottonseeds per day. Further, the company has also installed three bio coal machines since April 2016. The
company also trades in cotton bales and cottonseeds.

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Key financial indicators (audited)
FY2016 FY2017
Operating Income (Rs. crore) 116.52 117.40
PAT (Rs. crore) 0.21 0.28
OPBDIT/ OI (%) 2.94% 2.64%
RoCE (%) 8.85% 7.84%

Total Debt/ TNW (times) 4.14 3.94

Total Debt/ OPBDITA (times) 8.03 8.81
Interest Coverage (times) 1.31 1.37
NWC/ OI (%) 27% 27%

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years:

Chronology of Rating History for the
Current Rating (FY2019) past 3 years
Date & Date & Date &
Date & Rating in Rating in Rating in
Amount Amount
Rating FY2018 FY2017 FY2016
Rated Outstanding
Instrument Type (Rs. crore) (Rs. crore) Apr 2018 Jul 2017 Apr 2016 Apr 2015
1 Cash Credit Long 22.00 - [ICRA]B+ [ICRA]B+ [ICRA]B+ [ICRA]B+
Term (Stable) (Stable)
2 SLC Short - - - [ICRA]A4 [ICRA]A4 [ICRA]A4
Term
3 Unallocated Long 3.40 - [ICRA]B+ [ICRA]B+ - -
Limits Term/ (Stable)/A4 (Stable)/A4
Short
Term

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 Amount
Issuance / Coupon Maturity Rated Current Rating and
ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook
NA Cash Credit NA NA NA 22.00 [ICRA]B+ (Stable)
NA Unallocated Limits NA NA NA 3.40 [ICRA]B+ (Stable)/A4
Source: Classic Cotton Private Limited

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ANALYST CONTACTS
K. Ravichandran Suprio Banerjee
+91 44 4596 4301 +91 22 6114 3443
ravichandran@icraindia.com supriob@icraindia.com

Sanket Thakkar Rishi Tekchandani

+91 79 4027 1528 +91 79 4027 1519
Sanket.thakkar@icraindia.com rishi.tekchandani@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
naznin.prodhani@icraindia.com

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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