CRISIL has downgraded its ratings on the bank facilities of DCM Limited
(DCM) to 'CRISIL D/CRISIL D' from 'CRISIL BB+/CRISIL A4+/Watch Negative'. The downgrade reflects delays by DCM in repaying the interest and principal obligation on the term loan, DCM Ltd said in the press note on Friday after market hours.
The ratings continue to reflect the moderate debt protection metrics, stretched working capital cycle, and susceptibility to volatile cotton yarn prices and continue off-take from the automobile sector. These weaknesses are partially offset by extensive experience of the promoters and DCM's moderate financial risk profile, the company said.
This is to clarify that a term loan instalment payment aggregating to Rs7.49cr has been deferred due to temporary cash-flow mismatch on account of the ongoing auto downturn which has resulted in a substantial reduction in the order flow. It is not a material amount in the context of the company and Company is working with banks to address the fallout of the auto meltdown which Company hope is temporary, the company added.
Key Rating Drivers & Detailed Description
* Delays in debt repayment Stretch in receivables have constrained cash flow, resulting in delays by DCM in servicing the interest and principal payment on the term loan.
Weaknesses * Moderate debt protection metrics: Debt protection metrics are moderate, with interest coverage and net cash accrual to total debt ratios at 2.4 and 0.17 times, respectively, for fiscal 2019.
* Working capital-intensive operations: Gross current assets stood at 123 days as on March 31, 2019, due to a large inventory of 74 days and receivables of 33 days. Working capital management was, however, aided by payables of 48 days extended by suppliers.
* Vulnerability to fluctuations in cotton yarn prices, and continuity in sales to the automobile sector: Susceptibility to fluctuations in raw material prices and continuity in sales to the automobile sector continue to constrain operations margin. The margin has fluctuated between 2.3 and 7.2% in the five fiscals through March 2019 (combining the business and financial risk profiles of DCM and DCM Engineering Ltd [DCME] for fiscals before 2016).
Strengths * Extensive experience of the promoters: The present management comprises the fourth generation of the promoter family. Over the years, the group has diversified into real estate, engineering, and information technology segments, and forged healthy relationships with customers and suppliers.
* Moderate financial risk profile: The financial risk profile is marked by a healthy adjusted net worth of Rs194.2cr and total outside liabilities to adjusted net worth ratio of 2 times as on March 31, 2019. Financial risk profile is expected to remain moderate in FY 20. Liquidity is stretched, marked by a delay in debt repayment.