ICRA upgrades credit ratings on Acknit Industries banking facilities

4 Mar 2022 , 09:30 AM

ICRA Limited has upgraded the long-term rating in respect of Acknit Industries Limited banking facilities worth Rs75.05 crore to ICRA BBB from ICRA BBB- and short-term rating to ICRA A3+ from ICRA A3. The outlook on the long-term rating is stable.

“The upward revision in the ratings of Acknit Industries Limited (AIL) considers the likely sizeable increase in the scale of operations in the current fiscal, given the company has already posted a revenue growth of 27% in 9MFY22 on a yoy basis, which is likely to improve its overall profits and cash accruals from business compared to the previous fiscal.

The ratings also take into account the established market position of the company in the industrial safety product industry, and long relationship with its clients, generating repeat orders and reflecting its acceptable product quality. The ratings also derive comfort from AIL’s diverse and flexible product mix, which extend competitive advantage, and its diversified geographical presence,” company shared ICRA’s rating rationale in a filing on Thursday.

The ratings are, however, constrained by the intense competition in the industry, coupled with AIL’s low bargaining power with its established clients, which limits its pricing flexibility and exerts pressure on margins. The ratings are also impacted by the high working capital intensity of operations on the back of high receivables and inventory holding, which exerts pressure on its liquidity.

Further, the rating factor in the vulnerability of the company’s profitability to fluctuations in the foreign currency exchange rates, although the same is mitigated to a considerable extent by a partial natural hedge and other formal hedging mechanisms adopted by the company. ICRA notes the sensitivity of AIL’s profitability to any adverse changes in Government regulations, which could potentially impact the competitiveness of its products as well as business.

The Stable outlook on the ICRA BBB rating reflects ICRA’s opinion that the company will be able to maintain its revenue growth, while maintaining the profitability levels, given its established position as well as vast experience of the promoter in the industrial safety products industry and the favourable demand outlook for the products.

At around 9.30 am, Acknit Industries Limited was trading flat at Rs131.90 per share on the BSE.