Sportking India Limited - Rated amount enhanced for Bank Debt

CRISIL Ratings has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of Sportking India Limited (Sportking).

The ratings continue to reflect the strong position of Sportking in the compact cotton yarn industry, its large scale of operations and healthy financial risk profile. These strengths are partially offset by the large working capital requirement and susceptibility to volatility in raw material prices and foreign exchange (forex) rates.

Revenue is expected to grow by 5-6% in fiscal 2024, driven by nearly 20% rise in volume with company having clocked revenue of Rs. 539 crore in the first quarter of this fiscal. The company has expanded its current capacity by almost 35% in fiscal 2023. The first phase of the capital expenditure (capex) that entailed addition of 40,800 spindles became operational in the second half of fiscal 2023. The second phase of 63,072 spindles commenced production towards end of fiscal 2023. With total of 234 MT/day capacity, the company should reach an average utilisation of 90-95% and derive nearly 20% growth in volume. High utilisation levels will be driven by healthy downstream demand, reducing inventory with retailers and increased demand from fabric makers, with easing of raw material prices. Other conducive factors include increased demand from China with reopening of the economy, and enhanced competitiveness of domestic cotton yarn, with Pakistan experiencing a lower cotton crop yield. Prices may decline by 15% in this cotton season, owing to a higher yield in fiscal 2024 over the previous fiscal.

Operating margin may normalize from to nearly 12% in this fiscal from 12.6% in fiscal 2023 as the company reported high profit in first quarter of the previous fiscal on account of elevated cotton yarn spreads. As the differential between prices of cotton yarn and cotton (cotton yarn spreads) normalise this fiscal, the margin will reduce, but will remain healthy, at levels similar to the pre-Covid era. Operating margin is likely to improve in the medium term with cost savings from solar power projects undertaken by the company.

The financial risk profile remains healthy, backed by a comfortable gearing and satisfactory debt protection metrics. Small capex being incurred this fiscal to set up a solar plant, and higher procurement of inventory in the next cotton season may increase long and short-term debt in fiscal 2024. Resultantly, gearing may go up to 0.68 time as on March 31, 2024 from 0.57 time as on March 31, 2023, due to the buyback of shares, yet it will remain below 0.6 time in the medium term. Interest coverage ratio, though likely to normalise from 12.1 times in fiscal 2023 to 8.5-9 times in fiscal 2024, will be higher than that seen pre-Covid. Working capital requirement will remain high given the nature of business. However, higher cash accrual will reduce dependence on external working capital debt in the medium term.

Shares of Sportking India Ltd was last trading in BSE at Rs. 846.05 as compared to the previous close of Rs. 848.25. The total number of shares traded during the day was 1742 in over 295 trades.

The stock hit an intraday high of Rs. 848.30 and intraday low of 834.95. The net turnover during the day was Rs. 1467764.00.

Source : Equity Bulls

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