Press Release

Sunlex Fabrics Private Limited (Revised)

March 24, 2022

Ratings
Rating
Facilities/Instruments Amount (Rs. crore) Rating1
Action
2.50 CARE BBB-; Stable
Long Term Bank Facilities Reaffirmed
(Reduced from 4.80) (Triple B Minus; Outlook: Stable)
CARE BBB-; Stable / CARE A3
Long Term / Short Term Bank
22.65 (Triple B Minus; Outlook: Stable/ A Reaffirmed
Facilities
Three)
25.15
Total Bank Facilities (Rs. Twenty-Five Crore and
Fifteen Lakhs Only)
Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers

The ratings assigned to the bank facilities of Sunlex Fabrics Private Limited (SFPL) continue to derive strength from long
industrial experience of SFPL’s promoters and its established distributor network and supplier base.
The ratings also continue to take into account its moderate albeit growing Total Operating Income (TOI), moderate capital
structure and debt coverage indicators and adequate liquidity.
The ratings, however, continue to remain constrained on account of SFPL’s limited track record of operations in the flex banner
manufacturing industry, susceptibility to volatile raw material prices and foreign exchange fluctuation risk, and competitive
industry along with susceptibility to regulatory risks.
Ratings also take into cognizance corporate guarantee extended by SFPL to a project phase group entity which is setting up a
duplex board manufacturing unit and has associated project implementation and stabilization risks.

Rating Sensitivities
Positive Factors - Factors that could lead to positive rating action/upgrade:
 Sustained volume backed increase in total operating income to around Rs.250.00 crore with PBILDT margin above 10% on
sustained basis and continued healthy return on capital employed (ROCE)
 Maintenance of standalone overall gearing below unity and improvement in adjusted overall gearing (considering
guaranteed debt) to below unity on a sustained basis, alongwith timely implementation and stabilization of the project of
the group entity, whose debt is guaranteed
 Maintenance of total debt/ PBILDT to 2x and below on a sustained basis alongwith maintenance of adequate liquidity
profile with limited reliance on external working capital borrowings

Negative Factors- Factors that could lead to negative rating action/downgrade:

 Any significant reduction in TOI from the present levels, on a sustained basis
 Decline in PBILDT margin below 9% and total debt / PBILDT to more than 3x, on a sustained basis
 Elongation in gross working capital cycle beyond 150 days on a sustained basis resulting to increased working capital
utilization and impacting the liquidity of company
 Any major debt funded capex or increase in funding requirement to group entity, adversely affecting the capital structure
and debt coverage indicators, with overall gearing exceeding 1.50x

Detailed description of the key rating drivers

Key Rating Strengths
Experienced promoters with established presence in Industry
SFPL is promoted by Mr. Vinod Detroja and his son Mr. Prayag Detroja. The directors of company possess experience of more
than ten years in this industry, alongwith a good overall industry experience owing to their association with other business
ventures including in ceramic industry. The promoters of the company are actively involved in day to day management of the
company. They are well assisted by effectively qualified second-tier management in day to day operations. Further, long
experience of the promoters in the said industry has helped them develop a marketing network which benefits the company in
terms of raw material procurement and ease in managing day-to-day operations.

1
Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications

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Moderate albeit growing Total Operating Income (TOI) and moderate profitability
The scale of operations of SFPL have been growing at a CAGR of ~6% for last three years ended FY21 and stood moderate at
Rs.172.42 crore during FY21 (P.Y.: Rs.159.78 crore). During 9MFY22, SFPL has reported TOI of Rs.193.49 and healthy PBILDT
margin of 13.77% (12.59% in FY21). Growth in TOI is supported both by increase in sales volume, alongwith higher sales
realisation.
Capacity utilisation of the plant remains moderate at around 51% in FY21, with capacity enhancement undertaken in FY20.
Profitability of SFPL continues to remain moderate, albeit some improvement marked by PBILDT margin of 12.59% during FY21
(P.Y.: 10.43%). The improvement in PBILDT margin was on account of reduction in raw material costs
PAT margin of the company also improved during FY21 to 11.06% (P.Y: 8.88%), supported by receipt of VAT/GST Textile
Subsidy of Rs.6.96 crore alongwith improvement in operating margin. Thus, Gross cash accruals (GCA) of the company
increased to Rs.22.02 crore in FY21 as against Rs.17.57 crore in FY20, though remained moderate.
Return on capital employed continued to remain healthy at 41.45% during FY21.

Established distributor network and supplier base

Within a span of eight-nine years in the industry, SFPL has developed long standing business relations with its suppliers and
customers (mainly dealers and distributors). SFPL operates its business through a network of ~60 dealers and distributors
spread across India who in turn sells the products to various reputed players across diverse industries. Dealer concentration
remained moderate for the last two years ending FY21 with sales to top five dealers constituting ~50% of the company’s total
sales. However, SFPL’s supplier concentration remained low with top five suppliers constituting ~33% of the total raw material
procurement of the company.

Moderate capital structure and debt coverage indicators with corporate guarantee extended to group entity
The capital structure of SFPL remained moderate, marked by a comfortable overall gearing of 0.12x (P.Y.: 0.35x) on standalone
basis, which however calculates to around unity when adjusted for debt guaranteed to a project phase group.
The improvement in the standalone overall gearing of SFPL as on March 2021 was mainly due to lower utilization of working
capital limits and gradual repayment of term loan instalments, with good cash flows.
However, SFPL has extended corporate guarantee to bank facilities of Rs.90 crore of a project phase group entity during FY22.
Thus, overall gearing adjusted for guaranteed debt of group calculates to around unity.
The entity is presently in project phase and is expected to commence operations in June 2022 for manufacturing of duplex
board. Timely implementation and subsequent stabilisation of the same shall remain a key rating monitorable.
Debt coverage indicators of SFPL remained moderate marked by PBILDT Interest Coverage of 42.01x (P.Y.: 8.29x) and Total
Debt/GCA of 0.32x (P.Y.: 0.84x) for the year ended FY21.

Key Rating Weaknesses

Susceptibility of profitability to volatile raw material prices and foreign exchange fluctuation risk
The primary raw material required for manufacturing of flex banners is PVC Resin and polyester fabric (accounting for ~70% of
the total operating cost) whose prices are dependent on prevailing international crude oil prices. Any changes in the
international crude oil prices will have a direct impact on the prices in turn could affect the profitability of flex banner
manufacturers. Hence, SFPL’s profitability is susceptible to the movement in the prices of its raw material for production of flex
banners. However, as a general practice SFPL sources its raw material on the backing of the confirmed sales order which helps
it to mitigate the raw material price fluctuation risk to some extent. Further, SFPL imports 40% of its raw material requirement
while it generates only 10-15% revenue from exports thus exposing it to volatility in forex rates on its net foreign exchange
payable.

Highly fragmented & competitive nature of industry with susceptibility to regulatory risks
SFPL operates in a highly fragmented industry marked by presence of a large number of players in the unorganised sector,
apart from competition from the organised sector which has few major players. The industry is characterised by low entry
barriers due to technological inputs and easy availability of standardized machinery for the production. Furthermore, apart from
the domestic players, PVC flex banner industry also faces stiff competition from other countries such as China and Korea. In
order to reduce this competition, the Government of India, In July 2010, imposed an antidumping duty in the range of 1-13%
on different types of flex. Furthermore, in August 2016, it extended the duty to PVC flex films imported from China for five
years up to FY21 which was further extended to Jan 31, 2022.
Decrease in competition from import has led to growth in the domestic flex banner industry. Any change in policy or removal of
the antidumping duty will significantly impact domestic players such as SFPL, as Chinese imports are cheaper; thus making the
industry susceptible to regulatory changes.

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Liquidity: Adequate
SFPL operates in a highly competitive and fragmented nature of industry. SPPL’s prime raw material is PVC resin and polyester
fabric which is subject to price fluctuation (based on crude oil prices in international market); hence it is required to be stored in
adequate quantity in order to ensure uninterrupted production. However, since production of SFPL is order-backed in nature, it
results into very low finished goods inventory and its corresponding risk, and the company keeps inventory of around 40 days
of hand, which largely comprises raw material. SFPL receives a credit period of around 35-40 days from its suppliers and
whereas it receives payments from its customers in around 80 days. With this, SFPL had a moderate operating cycle of around
93 days during FY21. Further, as on December 31, 2021, SFPL had o/s debtors amounting to Rs.39.53 crore (Rs.52.80 crore as
on March 31, 2021).
Furthermore, the utilization of its working capital limits has been largely nil since February, 2021 till December 2021. Before
that, the average utilisation remained at around 15%. Further, the company had free cash and bank balances of Rs.2.59 crore
as on March 31, 2021. The liquidity is also supported by expected cash accruals of Rs.32.29 crore during FY22 vis-à-vis debt
repayment obligations of ~Rs.2.56 crore during FY22-FY24.

Analytical approach: Standalone

Applicable Criteria
Policy on default recognition
Financial Ratios – Non financial Sector
Liquidity Analysis of Non-financial sector entities
Rating Outlook and Credit Watch
Short Term Instruments
Manufacturing Companies

About the Company

Morbi, Gujarat, based SFPL was incorporated in 2011 by Detroja family to undertake the manufacturing of flex banner and its
allied products. SFPL commenced commercial production from September 2013 with an installed capacity of 13,480 Metric
Tonne Per Annum (MTPA), and its existing installed capacity as on March 31, 2021 is 28,000 MTPA for flex banner, tarpaulin,
vinyl film and other allied products. Products manufactured by SFPL are used as a medium of advertisement in the form of
billboards, banners, and exhibition booth decoration etc. The promoter family is also engaged in manufacturing of ceramic tiles
manufacturing business through other entities.

Brief Financials (Rs. crore) 31-03-2020 (A) 31-03-2021 (A) 9MFY22 (Prov.)
Total operating income 159.78 172.42 193.49
PBILDT 16.67 21.71 26.65
PAT 14.18 19.07 22.69
Overall gearing (times) 0.35 0.12 0.06
Interest coverage (times) 8.29 42.01 98.70
A: Audited; Prov.:Provisional, NA: Not available

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years: Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in
Annexure-3

Complexity level of various instruments rated for this company: Annexure 4

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Annexure-1: Details of Instruments / Facilities

Size of the
Name of the Date of Coupon Maturity Rating assigned along
ISIN Issue
Instrument Issuance Rate Date with Rating Outlook
(Rs. crore)
May
Fund-based - LT-Term Loan - - 2.50 CARE BBB-; Stable
2023
Fund-based - LT/ ST-
- - - 16.68 CARE BBB-; Stable / CARE A3
Working Capital Limits
Non-fund-based-LT/ST - - - 1.40 CARE BBB-; Stable / CARE A3
Fund-based - LT/ ST-
- - - 1.57 CARE BBB-; Stable / CARE A3
Working Capital Limits
Fund-based - LT/ ST-
- - - 3.00 CARE BBB-; Stable / CARE A3
Working Capital Limits

Annexure-2: Rating History of last three years

Current Ratings Rating history
Date(s) & Date(s) & Date(s) &
Name of the Date(s) &
Sr. Amount Rating(s) Rating(s) Rating(s)
Instrument/Bank Rating(s)
No. Type Outstanding Rating assigned assigned assigned
Facilities assigned in
(Rs. crore) in 2021- in 2019- in 2018-
2020-2021
2022 2020 2019
1)CARE 1)CARE
1)CARE BBB-; BB+; BB+;
Stable Stable Stable
(17-Feb-21) (19-Sep- (13-Aug-
CARE 19) 18)
Fund-based - LT-
1 LT 2.50 BBB-; - 2)CARE BB;
Term Loan
Stable Stable; ISSUER 2)CARE 2)CARE
NOT BB+; BB+;
COOPERATING* Stable Stable
(10-Dec-20) (03-Apr- (04-Apr-
19) 18)
1)CARE 1)CARE
BB+; BB+;
1)CARE BBB-; Stable / Stable /
Stable / CARE A3 CARE A4+ CARE A4+
CARE (17-Feb-21) (19-Sep- (13-Aug-
Fund-based - LT/ BBB-; 19) 18)
2 ST-Working Capital LT/ST* 16.68 Stable / - 2)CARE BB;
Limits CARE Stable / CARE 2)CARE 2)CARE
A3 A4; ISSUER NOT BB+; BB+;
COOPERATING* Stable / Stable /
(10-Dec-20) CARE A4+ CARE A4+
(03-Apr- (04-Apr-
19) 18)
1)CARE 1)CARE
1)CARE BBB-;
BB+; BB+;
Stable / CARE A3
Stable / Stable /
CARE (17-Feb-21)
CARE A4+ CARE A4+
BBB-;
Non-fund-based- (19-Sep- (13-Aug-
3 LT/ST* 1.40 Stable / - 2)CARE BB;
LT/ST 19) 18)
CARE Stable / CARE
A3 A4; ISSUER NOT
2)CARE 2)CARE
COOPERATING*
BB+; BB+;
(10-Dec-20)
Stable / Stable

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CARE A4+ (04-Apr-

(03-Apr- 18)
19)
1)CARE
BB+;
1)CARE BBB-; Stable /
Stable / CARE A3 CARE A4+
CARE (17-Feb-21) (19-Sep-
1)CARE
Fund-based - LT/ BBB-; 19)
A4+
4 ST-Working Capital LT/ST* 1.57 Stable / - 2)CARE BB;
(13-Aug-
Limits CARE Stable / CARE 2)CARE
18)
A3 A4; ISSUER NOT BB+;
COOPERATING* Stable /
(10-Dec-20) CARE A4+
(03-Apr-
19)
1)CARE
BB+;
1)CARE BBB-; Stable /
Stable / CARE A3 CARE A4+
1)CARE
CARE (17-Feb-21) (19-Sep-
BB+;
Fund-based - LT/ BBB-; 19)
Stable /
5 ST-Working Capital LT/ST* 3.00 Stable / - 2)CARE BB;
CARE A4+
Limits CARE Stable / CARE 2)CARE
(13-Aug-
A3 A4; ISSUER NOT BB+;
18)
COOPERATING* Stable /
(10-Dec-20) CARE A4+
(03-Apr-
19)
* Long Term / Short Term

Annexure-3: Detailed explanation of covenants of the rated instrument / facilities: Not Applicable

Annexure 4: Complexity level of various instruments rated for this company

Sr. No Name of instrument Complexity level
1 Fund-based - LT-Term Loan Simple
2 Fund-based - LT/ ST-Working Capital Limits Simple
3 Non-fund-based-LT/ST Simple

Annexure 5: Bank Lender Details for this Company

To view the lender wise details of bank facilities please click here

Note on complexity levels of the rated instrument: CARE Ratings Ltd. has classified instruments rated by it on the basis
of complexity. Investors/market intermediaries/regulators or others are welcome to write to care@careedge.in for any
clarifications.

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About CARE Ratings Limited:

Established in 1993, CARE Ratings Ltd. is one of the leading credit rating agencies in India. Registered under the Securities and
Exchange Board of India (SEBI), it has also been acknowledged as an External Credit Assessment Institution (ECAI) by the
Reserve Bank of India (RBI). With an equitable position in the Indian capital market, CARE Ratings Limited provides a wide
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CPs, corporate bonds and debentures, and structured credit.

Disclaimer
The ratings issued by CARE Ratings Limited are opinions on the likelihood of timely payment of the obligations under the rated
instrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or
hold any security. These ratings do not convey suitability or price for the investor. The agency does not constitute an audit on
the rated entity. CARE Ratings Limited has based its ratings/outlooks based on information obtained from reliable and credible
sources. CARE Ratings Limited does not, however, guarantee the accuracy, adequacy or completeness of any information and is
not responsible for any errors or omissions and the results obtained from the use of such information. Most entities whose bank
facilities/instruments are rated by CARE Ratings Limited have paid a credit rating fee, based on the amount and type of bank
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transactions with the entity. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE Ratings Limited
is, inter-alia, based on the capital deployed by the partners/proprietor and the current financial strength of the firm. The
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