CARE reaffirms rating of Welspun India Ltd

CARE has retained ‘PR1’ [PR One] rating assigned to the Commercial Paper (CP) / Short Term Debt (STD) programme of Rs.50 crore of Welspun India Limited (WIL). The CP/STD shall be carved out of the existing tied-up working capital limits of the company.

The rating factors in WIL’s leading position in the global Terry Towel business, integrated operations, well established relationship with leading international retailers, successful implementation of phase-I expansion, extension of product line by venturing into bed linen segment and healthy growth in the operations. The rating also derives strength from the synergistic benefits that the company is likely to draw from the recent acquisition of CHT Holdings Ltd , the holding company of UK's leading towel brand ‘Christy’, the sole supplier of the world famous Wimbledon Championship tennis towels. The rating is however, constrained by high existing leverage, further expansion plans which are to be largely debt funded (under TUFS), international competition and exchange rate risk.  Further, though, the company has already settled large part of its contingent liability outstanding as accumulated dividend payable on preference shares, a small portion aggregating to Rs.8crore is still outstanding.

WIL is the largest producer of Terry Towels in Asia and amongst the top five terry towel producers in the world. It has a state-of-the-art, fully integrated terry towel unit at Vapi, Gujarat with ISO 9002 and ISO 14001 accreditation and OKOTEX certification for having environment friendly manufacturing processes. WIL also ventured into sheeting products by setting up a state-of-the-art sheeting facility at Anjar, (Dist Kutch) Gujarat in FY ’05. WIL exports around 88% of its total produce. It supplies to 12 out of the top 20 retail chains in the world, including the likes of Wal Mart, J C Penny etc. Out of the total exports around 60% are to USA. WIL is, currently implementing Phase-II of its expansion at Anjar, Gujarat, which involves enhancement of the existing terry towel, bed sheeting and spinning capacities along with creation of capacities for new product lines viz. decorative beddings, mattress pads, pillows, bath rugs, etc. As originally envisaged, phase-II involved an outlay of Rs.653 crore. However, as per the latest development, buoyed by the response in the exports market and Christy acquisition, the scope has been further enhanced by Rs. 700 crore. The company is yet to finalize the fine prints of the enhanced scope.

In FY’06, the net sales of the company grew by 39% to Rs. 632 crore, on YoY basis mainly on account of augmented production (and hence sales) due to commissioning of phase I capacities at Anjar. However, higher power and fuel costs on account of rising crude prices during FY’06 resulted in lower growth in PBILDT from Rs.110 crore to Rs.139 crore (i.e. 26.36%) on YoY basis. Further, higher depreciation charges for the year FY’06 resulted in lower growth of 5.13% in PAT (i.e. from Rs. 39 crore to Rs. 41 crore) on YoY basis. Leverage ratios improved in FY’06 mainly on account of issuance of equity at premium. Interest coverage fell marginally in FY’06 to 2.35 from 2.90 in FY’05 on account of higher interest and depreciation charges.  

Sourced From: Careratings