Rationale

 The rating reaffirmation on the bank lines of Adisankara Spinning Mills Private Limited (ASMPL/ the company) considers an expected modest recovery in operational and financial performances over the medium term, supported by its established presence in the knitted yarn market of Tamil Nadu, extensive experience of its promoters in the spinning industry and its comfortable capital structure. ASMPL’s operating income declined by ~12% on a YoY basis to Rs. 283.1 crore in FY2024 amid a weak demand environment, leading to a moderation in realisation despite an increase in volumes. Nevertheless, the decline in cotton fibre prices supported an improvement in contribution levels in FY2024, with operating margins improving by 641 bps to 5.7%. In 9M FY2025, revenues grew by ~8% (on an annualised basis) to Rs. 228.6 crore, with a modest recovery in fabric and garment volumes processed. The ratings continue to remain supported by its healthy capital structure with TOL/TNW of 0.4 times as on March 31, 2024. Besides, with the recovery in profitability, the entity's coverage indicators have improved, with an interest coverage ratio and a debt service coverage ratio of 3.0 times and 1.7 times, as on March 31, 2024, compared to -ve 0.7 times and -ve 0.3 times as on March 31, 2023, respectively. The ratings are, however, constrained by the commoditised nature of the company’s products, which coupled with the fragmented industry structure, result in limited pricing power, keeping profitability under check. Further, the ratings factor in the high working capital intensity of ASMPL’s operations due to the seasonal nature of cotton availability that requires stocking during the harvest season, making the profitability vulnerable to volatility in cotton prices. The Stable outlook on the long-term rating reflects ICRA’s expectation that the revenues and earnings of the company are likely to improve over the medium term. Further, the outlook underlines ICRA’s expectation that the entity’s incremental capex, if any, will be funded in a manner that it is able to durably maintain its debt protection metrics commensurate with the existing ratings.